Economics 4 - Growth and Aggregate Demand

The total value of goods and services demanded in an economy.

The total amount of goods and services produced in an economy.

The rate of growth in an economy's production potential.

The actual increase in an economy's output.

The difference between actual output and potential output.

A measure of the overall well-being and standard of living in an economy.

A sustained increase in the general price level of goods and services.

A target rate of inflation set by central banks, often around 2%.

The rate of inflation caused by increased demand for goods and services exceeding supply.

The rate of inflation caused by rising production costs being passed on to consumers.

A sustained decline in the general price level of goods and services.

A period of slowing inflation, but prices are still rising.

A curve showing the relationship between the rate of inflation and the rate of unemployment.

Unemployment caused by a lack of demand in the economy.

Unemployment caused by a mismatch between available jobs and workers' skills.

Unemployment caused by people transitioning between jobs.

Unemployment caused by seasonal changes in industries.

Unemployment caused by wages being set above the equilibrium rate.

Unemployment caused by technology replacing workers.

Actions taken by a central bank to control money supply and interest rates.

The use of government spending and taxation to influence the economy.

A situation where all those who are willing and able to work at the going wage rate are employed.

The rate of unemployment that is considered normal and sustainable for an economy.

The difference between the number of people who would like to work and those willing to work at the current wage.

The rate of unemployment that is higher than the equilibrium rate.

An economic situation where there is high inflation and high unemployment.

An economic situation characterized by a sustained decline in the general price level.

A measure of the percentage of the population of working age that is economically active.

Policies intended to boost aggregate demand, such as government spending and tax cuts.

Policies intended to increase the productive capacity of the economy, such as education and training programs.

A situation where workers are unwilling or unable to accept a job offer at the current wage.

A situation where people are willing and able to work but cannot find a job.

Total value of goods and services demanded in an economy. AD = C + I + G + (X-M), where C is consumption, I is investment, G is government spending, X is exports, and M is imports.

The total value of goods and services produced in the economy. It is often measured by Gross Domestic Product (GDP).

Changes in interest rates, income and wealth, inflation expectations, and currency exchange rates.

Production costs (including wages), technological innovations, producer taxes and subsidies, and the quality of labor and capital.

In the short run, AS can increase as prices rise. In the long run, if all resources are fully employed, AS reaches full capacity and cannot increase further.

An increase in the production potential or real level of output of an economy. It is often measured as GDP (Gross Domestic Product) growth.

The actual rate of increase in national output at a specific point in time.

The rate at which the economy could increase its output if all resources were fully employed.

Refers to the overall well-being and standard of living in an economy, considering factors like income, employment, access to goods and services, and quality of life.

The difference between the economy's actual output and the potential output given the available resources. A positive gap means the economy is operating below its potential.

Investments in education and training, research and development incentives, tax incentives for business investment, infrastructure development, reducing business regulations, immigration of skilled workers.

A graph that shows the maximum possible output combinations of two goods an economy can produce with its given resources and technology.

Improvements in technology, better management techniques, better capital, natural disasters, depletion of non-renewable resources, wars.

Demand-side policies: government expenditure, tax cuts, depreciation of the currency, lower interest rates, higher real wages. Supply-side policies: increased investment, improved technology, higher labor productivity (including education and training), larger workforce, discovery of natural resources.

Benefits: Rise in standard of living, improved education and health, more goods and services, increased sales, increased tax revenue, increase in business and consumer confidence. Costs: Environmental damage, utilization of resources, opportunity cost, labor composition change, unequal benefits, lower quality of life.

The way in which economic growth fluctuates over a period of time.

Boom: high growth, low unemployment. Downturn (Recession): growth slows down. Recession: economic contraction (two consecutive quarters of negative growth). Recovery (Expansion): economy recovers from recession.

Interest rates, changes in house prices, consumer and business confidence, stock levels, multiplier effect, accelerator effect, credit cycle.

Leading indicators: changes in consumer confidence, new car registrations, recruitment advertising, mortgage applications, share prices. Lagging indicators: unemployment, inflation, productivity.

A rate of growth that can be maintained without creating significant costs for future generations. It considers the environment and social sustainability alongside economic growth.

Economic growth that is distributed fairly across society and creates opportunities for everyone. It aims to reduce inequality and ensure benefits reach all individuals.

Renewable energy sources, sustainable transport, promoting sustainable agriculture and forestry, and using natural barriers.

A sustained increase in the general price level of goods and services, often measured using the Consumer Price Index (CPI).

A target rate of inflation set by central banks, usually around 2%.

Demand-pull inflation: caused by excess demand. Cost-push inflation: caused by rising production costs. Monetary inflation: caused by excessive money supply.

Damages business confidence, menu costs, shoe-leather costs, international competitiveness, and unemployment.

Incomes policy: wage restraints or controls to control cost-push inflation. Monetary policy: actions taken by central banks, such as raising interest rates to reduce aggregate demand.

A sustained fall in the general price level of goods and services. It is generally considered a negative phenomenon as it can lead to a deflationary spiral.

A period of slowing inflation, but prices are still rising. It is a gradual reduction in the rate of inflation.

Shows the relationship between the rate of inflation and the rate of unemployment. In the short run, there is a trade-off, but in the long run, there is no trade-off.

Those who are of working age, actively seeking work at the current wage, but are not currently employed.

The number of unemployed people expressed as a percentage of the labor force.

Classical: real wages are too high. Cyclical: lack of demand in the economy. Frictional: transitioning between jobs. Seasonal: variation in demand due to the time of year. Structural: permanent fall in demand for certain industries. Technological: technology replacing labor.

Demand-side policies: increase aggregate demand (e.g., government spending, tax cuts, lower interest rates). Supply-side policies: improve the skills and employability of the workforce (e.g., education and training, benefits reforms).

Changes in interest rates affect both consumption and investment. Lower interest rates encourage borrowing and spending, increasing AD.

Changes in income and wealth affect consumer spending. Higher incomes or wealth lead to greater spending, increasing AD.

Changes in inflation expectations influence consumer decisions. If inflation is expected to rise, people may spend now to avoid higher prices later, increasing AD.

Changes in the value of a country's currency impact imports and exports, affecting AD. A stronger currency makes imports cheaper but exports more expensive, potentially lowering AD.

Production costs, including wages, impact AS. Higher wages lead to higher production costs, potentially decreasing AS.

Technological innovations can boost productivity, making it possible to produce more goods and services with the same resources, increasing AS.

Government policies such as taxes and subsidies impact AS. Taxes increase production costs, while subsidies reduce them, affecting AS.

The quality of labor and capital impacts AS. A highly skilled workforce and advanced capital equipment can boost productivity, increasing AS.

In the short run, AS can increase as prices rise. Businesses can respond to higher prices by producing more, but only up to a certain point (known as the short run). If prices continue to rise, AS might remain stagnant.

In the long run, AS reaches full capacity. This happens when all resources in the economy are fully employed. If all resource are fully employed, increasing demand leads to higher prices, but not more output.

Inflation caused by an increase in overall demand outrunning the available supply of goods and services. Think of everyone wanting to buy the same limited amount of goods.

Inflation driven by higher production costs being passed on to consumers. This happens when the cost of producing goods and services increases. Imagine businesses needing to pay more for supplies and labor.

Unemployment caused by a lack of overall demand in the economy. It happens when the economy is in a recession, resulting in less overall output. Business may lay off employees due to slow demand.

Unemployment caused by a mismatch between the skills of workers and the skills required for available jobs. It often happens when there is a shift in the economy or technological advancement. Think of skills getting outdated or not matching available jobs.

Unemployment that occurs when people transition between jobs. Think of the time it takes to search for a new job and transition. This is a normal part of the labor market.

Unemployment that occurs due to seasonal changes in demand for labor. This often happens in industries like tourism, agriculture, and construction. Think of industries with peak seasons and slow periods.

Unemployment that arises when the real wage rate is higher than the equilibrium wage rate, creating a surplus of labor. Think of wages being too high to create a balance between labor supply and demand.

Unemployment caused by technological advancements leading to job displacement. Think of machines taking over tasks formerly done by humans.

Actions taken by a country's central bank to control the money supply, interest rates, and inflation. Think of the central bank managing the economy using tools like interest rates.

The use of government spending and taxation to influence economic activity. Think of government spending and taxing to steer the economy.

A situation in which all those who are willing and able to work at the prevailing wage rate are employed. Think of everyone who wants a job having one.

The rate of unemployment that occurs when the labor market is considered to be in equilibrium. Think of the normal level of unemployment in a healthy economy.

The difference between the number of people who would like to work and those who are willing to work at the current wage rate. Think of the gap between those wanting a job and those willing to accept a job.

Unemployment that occurs when the wage rate is higher than the equilibrium wage rate. Think of wages being set too high, creating a surplus of labor.

An economic situation characterized by both high inflation and high unemployment. Imagine a situation where prices are rising rapidly while people are losing their jobs.

A sustained decline in the general price level of goods and services. It is generally considered a bad thing for the economy, as it can lead to a deflationary spiral. Think of prices falling consistently, leading to economic problems.

A measure of the percentage of the population of working age that is economically active. This means they are either employed or actively seeking work. Think of the proportion of people who are working or looking for work.

Policies aimed at stimulating aggregate demand, such as government spending (spending on infrastructure or social programs) or tax cuts. Think of the government spending more or reducing taxes to encourage spending.

Policies focused on increasing the productive capacity of the economy, such as investments in education and training, or reducing regulations. Think of the government making the economy stronger and more productive.

A situation in which workers are unwilling or unable to accept a job offer at the current wage rate. Think of people choosing not to work or not finding the jobs they want.

A situation in which people are willing and able to work but are unable to find a job. Think of people wanting to work but unable to find a job.