Definitions complied by CA Pushpendra Bansal – 9828727678
1. Local government - a government organisation with the authority to administer a
range of policies within an area of the country
2. Natural monopoly - an industry where a single firm can produce at a lower average
cost than two or more firms because of the existence of significant economies of scale
3. Strategic industries - industries are important for the economic development and
safety of the country. Such industries include – food industry, medicine industry,
defence industry etc
4. Trade blocs- a regional group of countries that remove trade restrictions between
them
5. Free international trade - the exchange of goods and services between countries
without restriction
6. Economic growth - an increase in the real GDP of the country over a period of time.
7. Actual economic growth - an increase in the real GDP of the country over a period of
time.
8. Potential economic growth - an increase in an economy's productive capacity.
9. Aggregate demand - the total demand for a country's product at a given price level.
It consists of consumer expenditure, investment, government spending and net exports
(exports-imports)
10.Aggregate supply - the total amount of goods and services that domestic firms are
able and willing to supply at a given price level
11.Full employment - the lowest level of unemployment possible or this is when the
number of employment vacancies in an economy is equal to the number of people
unemployed in that economy. All unemployment is voluntary here.
12.Labour Force - Total no. of people who are of working age and are working or actively
seeking work
13.Economically active - being a member of the labour force
14.Unemployment rate - the percentage of the labour force who are willing and able to
work but are without jobs
15.Level of Unemployment - the number of people unemployed
16.Unemployment - People without jobs who are willing and able to work
17.Price stability - the general price level in the economy is not changing significantly
over time
18.Balance of payments - the record of a country's economic transactions with other countries
19.Budget – it shows the relationship between government revenue and government spending
20.Budget deficit – its when the government spending is higher than government revenue
21.Budget surplus – its when the government revenue is higher than government spending
22.National debt - the total amount the government has borrowed over time
23.Multiplier effect – it describes how a change in one economic variable can have a larger impact on the
overall economy. It measures the ratio of the change in national income to the initial change in government
expenditure that caused it.
24.Direct taxes - taxes on income and wealth
25.Indirect taxes - taxes on expenditure
26.Progressive tax - one which takes a larger percentage of the income or wealth of the rich
27.Proportional tax - one which takes the same percentage of income or wealth of all taxpayers
28.Regressive tax - one which takes a larger percentage of the income or wealth of the poor
29.Flat taxes - taxes with a single rate (normally these are proportional taxes such as corporation tax)
30.Automatic stabilisers - forms of government expenditure and taxations that reduce fluctuations in economic
activity, without any change in government policy
31.Inflation - the gradual rise in the general price levels in an economy over a period of time
32.Inflation rate - the percentage rise in the general price level in an economy over a period of time
33.Informal economy - that part of the economy that is not regulated, protected or taxed by the government
34.Fiscal policy - decisions on government spending and taxation designed to influence aggregate demand
Definitions complied by CA Pushpendra Bansal – 9828727678
35.Expansionary fiscal policy - rises in government expenditure and/or cuts in taxation designed to increase
aggregate demand
36.Contractionary fiscal policy - cuts in government expenditure and/or rises in taxation designed to reduce
aggregate demand
37.Monetary policy - decisions on the money supply, the rate of interest and the exchange rate taken to
influence aggregate demand
38.Expansionary monetary policy - increases in the money supply and/or the reduction in the rate of interest
designed to increase aggregate demand
39.Contractionary monetary policy - cuts in the money supply /or rises in the rate of interest designed to
reduce aggregate demand
40.Foreign exchange rate - the price of one currency in terms of anther currency or currencies
41.Supply-side policy - measures designed to increase aggregate supply
42.Deregulation - the removal of rules and regulations
43.Gross domestic product (GDP) - the monetary value of all g/s produced in an economy over a period of time.
44.Circular flow of income – it is a concept that describes how the expenditure, income and output moves
around the economy.
45.Value added – it is gross value of the output produced by a sector minus any intermediate consumption by
that sector.
46.Transfer payments - transfers of income from one group to another not in return for providing a good or
service
47.Nominal GDP - GDP at current market prices and so, not adjusted for inflation
48.Real GDP - GDP at constant prices and so, adjusted for inflation
49.Subsistence agriculture - involves the production of agricultural goods primarily for the personal
consumption and sustenance of farmers
50.Recession - a reduction in real GDP over a period of six months or more
51.Sustainable economic growth - economic growth that does not endanger the country's ability to grow in the
future
52.Employment - being involved in a productive activity for which a payment is received
53.Claimant count - is a measure of unemployment that includes individuals receiving unemployment benefits
as part of the counted unemployed population.
54.Labour force survey (ILO) Measure - is a method of measuring unemployment that includes individuals
identifying themselves as unemployed in a survey.
55.Frictional unemployment - temporary unemployment arising from workers being in between jobs
56.Structural unemployment - unemployment caused by long-term changes in the pattern of demand and
methods of production
57.Cyclical unemployment - unemployment caused by a lack of aggregate demand
58.Search unemployment - unemployment arising from workers who have lost their jobs, looking for a job they
are willing to accept
59.Casual unemployment - unemployment arising from workers regularly being between periods of
employment
60.Seasonal unemployment - unemployment caused by a fall in demand at particular times of the year
61.Regional unemployment - unemployment caused by a decline in job opportunities in a particular area of the
country
62.Technological unemployment - unemployment caused by workers being replaced by capital equipment
63.Deflation- a sustained fall in the prices of goods and services in an economy over a period of time
64.Disinflation - a fall in the rate of inflation in an economy
65.Cost-push inflation - rises in the general price levels in an economy caused by higher costs of production
66.Demand-pull inflation - rises in the general price levels in an economy caused by excess demand
67.Wage-price spiral - is a phenomenon where increases in wages result in higher prices, subsequently
triggering additional demands for wage raises and further price increases in a continuous cycle
Definitions complied by CA Pushpendra Bansal – 9828727678
68.Monetary inflation - rises in the general price levels in an economy caused by an excessive growth of the
money supply
69.Hyperinflation - is an extreme and rapid increase in the general price level of goods and services within an
economy, typically reaching extraordinarily high levels. This phenomenon erodes the purchasing power of
the currency, leading to a loss of confidence in the monetary system.
70.Index-linking - changing payments in line with changes in the inflation rate
71.Menu costs - costs involved in having to change prices as a result of inflation
72.Shoe-leather costs - costs involved in moving money around to gain higher interest rates
