Terms used in Economic Policies and Goals

Terms used in Economic Policies and Goals

The following are the definitions of terms used in regards to economic policies and goals.

National budget: This is the total amount of money forecasted to be spent by the government to cover all of its expenses over a particular period (usually a year).

National income: This is the sum of the incomes earned by all individuals in an economy before income tax deductions, in the form of wages, profit, interests, rent and pensions.

Disposable income: This is the amount of income available for an individual to spend after the deduction of all taxes.

National debt: This is the total outstanding borrowings of a government, whether from internal or external (foreign) creditors.

Fiscal policy: is a policy which determines appropriate levels of government spending and taxation in a bid to achieve lower unemployment and inflation, and to achieve sustained economic growth.

Fiscal deficit:  occurs when the government will/has spent more money than it has collected.

Monetary policy: asset of policies which manage the money supply and interest rates in maintaining stability and or growth of the economy.

Economic growth: is an increase in the level of production of goods and services in a particular country over a specified period of time.

Economic development: Refers to changes in the socio-economic structure of a country which leads to an increase in the standard of living of the population.

Balance of payments:  is an accounting record of all the transactions made by a country over a specified period of time, comparing the amount of domestic currency paid out, to foreign currency taken in.

Gross Domestic Product (GDP): This refers to the total money value of all final goods and services produced in a domestic economy in a given year. This is equal to total consumption, investment and government spending, plus the value net exports (value of exports minus the value of imports) GDP = C + I + G + (EX-IM).

Gross National Product (GNP):  This is the total value of all final goods and services produced in a given domestic economy in a given year, minus the income of non-residents located in that economy, plus income earned by citizens residing abroad.

Unemployment:  In economics, unemployment refers to a situation in which an individual is willing and able to work but cannot find a job.

Types of unemployment:

– Frictional Unemployment: occurs when people are moving between jobs, changing careers, relocating, made redundant or any circumstance that results in persons being unemployed for a period of time, while they are looking for new jobs.

– Structural Unemployment: occurs when workers are left without jobs due to changes in the economy/industry they work, due to reduction in demand or technological improvements (methods of production).

– Cyclical Unemployment: is the type of unemployment that is caused by a reduction in an economy’s production. Cyclical unemployment thus rises as GDP falls.

– Seasonal Unemployment: is the type of unemployment which occurs in industries where the demand for labour or lack thereof, is linked to certain times of the year.

– Real wage Unemployment: occurs when wages for services in a particular firm or industry are forced above normal market level.

Inflation: occurs where there is a general and sustained increase in prices in the economy over a period of time. This increase must be measured across a large number of consumer goods.

Deflation: This occurs when there is a continued decrease in general price levels.

Savings: This is the portion of disposable income that has not been spent on consumption.

Investment: is the level by which the stock of capital in an economy (factories- machinery etc), increases.


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