Every term, in one place

The same 53 definitions the lessons link to inline, wherever a sentence uses them — gathered here so a definition is never more than one page away.

A

actual growth: A rise in real GDP, however it happens — via a rightward shift of AD, a rightward shift of SRAS, or the economy simply moving closer to output it already had the capacity to produce (closing a negative output gap). Distinct from potential growth, which is a rise in that capacity itself.
aggregate supplyAS, AS curve: The total quantity of goods and services all producers in an economy are willing and able to supply at a given price level, over a given time period. Split into two genuinely different curves — SRAS (cost-driven) and LRAS (capacity-driven) — not two versions of the same one.

B

balance of paymentsBoP: A record of every transaction between a country's residents and the rest of the world over a period, split into the current account, capital account and financial account (plus a small balancing item). By construction the whole balance of payments sums to zero — a deficit on one account is mechanically matched by a surplus elsewhere.

C

circular flow of incomecircular flow: The continuous flow of income and spending between households (who supply factors of production and receive income) and firms (who supply output and receive spending) — the basic two-sector model extended by injections (spending entering the flow from outside it) and withdrawals (income leaving the flow rather than returning as spending on domestic output).
claimant count: The number of people actually receiving unemployment-related benefits — an administrative count, not a behavioural test. Diverges from ILO unemployment because the two measures use different criteria: someone can satisfy the ILO test without qualifying for or claiming benefits, and a government can move the claimant count by changing eligibility rules alone.
cost-push inflation: A rise in the price level caused by rising costs of production — wages, raw materials, energy, or a weaker exchange rate raising import prices — shifting short-run aggregate supply left so the same output now costs more to produce and supply.
CPIConsumer Price Index, consumer prices index: The standard measure of inflation: the percentage change in the cost of a weighted basket of goods and services, where each item's weight reflects the proportion of income a typical household spends on it — not a simple, equally-weighted average of every item's price change.
current account: The balance-of-payments component covering trade in goods, trade in services, primary income (investment income) and secondary income (transfers) — in surplus when the value of these exports exceeds the value of the corresponding imports. A genuinely separate account from the government's own budget balance, and larger than the trade balance alone.

D

deflation: A fall in the general price level — not merely a slowdown in the rate of price rises (that's disinflation), but prices actually falling. Can be demand-side (falling aggregate demand) or supply-side (rising aggregate supply); the mark scheme treats supply-side deflation as generally more positive for an economy than demand-side deflation.
demand-pull inflation: A rise in the price level caused by aggregate demand rising faster than aggregate supply can expand to meet it — most visible when the economy is already close to full employment, so extra spending bids up prices rather than pulling idle resources into use.
derived demandderived-demand: Demand for a factor of production (like labour) that exists only because of demand for the final good or service it helps produce — a rise or fall in demand for the product shifts demand for the labour that makes it in the same direction, and how elastic that product demand is feeds directly through into how elastic labour demand is too.
disinflation: A fall in the RATE of inflation — prices are still rising, just more slowly than before. Not the same as deflation, where the price level is actually falling.

E

equilibrium level of real outputequilibrium national income, equilibrium real output: The level of real output at which aggregate demand equals aggregate supply — equivalently, where total injections equal total withdrawals in the circular flow, since both are the same Y=AD condition rearranged. Changes only when AD or AS itself shifts, never from a change in how existing output is allocated.
export-led growth: Actual growth driven specifically by a rise in exports (X) raising AD via the X−M component — spec-named separately from AD-driven growth generally because a stronger export sector is also a competitiveness and current-account story, not only a growth one.

F

foreign direct investmentFDI: Investment by a firm or individual from one country in productive assets (factories, machinery, a controlling stake in a business) in another country — a spec-named cause of potential growth alongside domestic investment, because it adds directly to the host economy's capital stock regardless of where the funding originated.

G

GNIgross national income, GNI per capita, gross national income per capita: GDP plus net primary income from abroad — income earned by a country's own citizens and firms wherever in the world they earned it, rather than income earned within the country's borders regardless of who owns it (which is what GDP measures). Can run higher or lower than GDP depending on the sign of net primary income from abroad, not by convention.
gross investment: Total spending by firms on new capital goods — machinery, buildings, infrastructure — in a period, with no adjustment for the wearing-out of existing capital.

I

ILO unemploymentILO measure, ILO unemployment rate, ILO measurement: Unemployment measured via the Labour Force Survey (LFS): a person counts as unemployed if they are out of work, willing to work within the next two weeks, and have been actively seeking work over the last four weeks. Internationally standardised and unrelated to benefit eligibility, which is exactly what separates it from the claimant count.
injections: Spending that enters the circular flow of income from outside the household-firm loop: investment (I), government spending (G), and exports (X). A rise in injections, other things equal, raises aggregate demand and — via the multiplier — real output by more than the initial rise itself.
interest rate effect: A fall in the price level increases the real value of a fixed nominal money supply, pushing down the market interest rate and encouraging more interest-sensitive consumption and investment — one of three reasons the AD curve slopes downward. Distinct from a central bank's own policy interest-rate decision, which shifts AD rather than moving it along the curve.
international trade effectnet export effect: A fall in the domestic price level, with the exchange rate and foreign prices unchanged, makes domestic goods relatively cheaper than foreign ones — raising exports and lowering imports. The third of the three reasons the AD curve slopes downward.

L

long-run aggregate supplyLRAS: The economy's output once every cost, including wages, has had time to fully adjust. Vertical at potential output in the classical model (full wage/price flexibility means output always returns there regardless of the price level); flat, then upward-sloping, then vertical at the same potential output in the Keynesian model (sticky wages let the economy sit below potential with genuine spare capacity for a time).

M

marginal propensity to consumeMPC: The fraction of an extra pound of income a household spends on consumption rather than saving, paying in tax, or spending on imports — ΔC/ΔY. The larger the MPC, the larger the multiplier, since more of every round of new income keeps circulating rather than leaking away.
marginal propensity to importMPM: The fraction of an extra pound of income spent on imported rather than domestically-produced goods — ΔM/ΔY — one of the three components of the marginal propensity to withdraw, and typically the largest of the three in a small, trade-dependent economy.
marginal propensity to saveMPS: The fraction of an extra pound of income a household saves rather than spends — ΔS/ΔY — one of the three components of the marginal propensity to withdraw, alongside MPT and MPM.
marginal propensity to taxMPT: The fraction of an extra pound of income taken by government in tax — ΔT/ΔY — one of the three components of the marginal propensity to withdraw.
marginal propensity to withdrawMPW: The fraction of an extra pound of income that leaks out of the circular flow rather than being spent on domestic output: MPW = MPS+MPT+MPM. Because every extra pound is either consumed or withdrawn, MPW always equals 1−MPC — exactly why 1/(1−MPC) and 1/MPW are the same multiplier formula, not two competing ones.
marginal revenue productMRP, MRP_L, marginal revenue product of labour: The extra revenue a firm earns from employing one more unit of labour — marginal product multiplied by the extra revenue each unit of the resulting output earns. A profit-maximising firm hires labour until MRP_L falls to the wage rate, which is exactly why the MRP_L curve IS the firm's demand curve for labour.
movement along the AD curvemovement along aggregate demand: A change in the real output demanded caused only by a change in the price level itself, via the real balance, interest rate and international trade effects — a new point on the SAME AD curve, not a shift of it.
movement along the AS curvemovement along SRAS: A change in the quantity of output supplied caused only by a change in the general price level, tracing a new point on the same (short-run) AS curve — distinct from a shift, which needs a change in something other than the price level.
multiplierthe multiplier, multiplier effect, multiplier process: The factor by which a change in national income exceeds the initial change in injections or withdrawals that caused it, because the first round of new spending becomes someone else's income, part of which is re-spent in a further round, and so on. Multiplier = 1/(1−MPC) = 1/MPW — the same result derived two ways, not two competing formulas.

N

net investment: Gross investment minus depreciation — the genuine addition to (or reduction in) an economy's capital stock over a period. Only net investment, not gross, expands an economy's productive capacity.
net migration: Immigration minus emigration over a period — commonly stated backwards by candidates (emigration minus immigration) or dropped to just 'migration' without the 'net'. Positive net migration raises the labour force directly (a cause of potential growth) and affects employment/unemployment in both directions at once, since migrants are also consumers who add to aggregate demand and often fill specific skill gaps — which effect dominates depends on whether incoming workers substitute for or complement the existing workforce's skills.

O

opportunity cost: The value of the next-best alternative given up by a choice. Baked directly into how economic cost is defined here: total cost already includes the opportunity cost of the owner's capital and effort, which is exactly why breaking even on the accounting numbers (AR = AC) still counts as an acceptable outcome rather than a warning sign.
output gap: The difference between actual real GDP and potential (trend) real GDP, usually expressed as a percentage of potential output. A positive gap (actual above potential) signals inflation risk as scarce resources get bid up; a negative gap (actual below potential) signals spare capacity and unemployment/recession risk. Potential output is estimated, not directly observed, so published output-gap figures get revised as new data and methods arrive.

P

potential growthtrend growth, trend growth rate: A rise in an economy's underlying productive capacity — an outward shift of LRAS (equivalently, the PPF) — caused by more or better capital (domestic or FDI investment), innovation, labour force growth (including net migration), stronger competition, or productivity growth. Distinct from actual growth, which is a rise in real GDP that may or may not be backed by a rise in capacity.
potential outputfull-employment output, Yfe: The maximum output an economy can sustainably produce with every resource — labour and capital — fully and efficiently employed. The output level the classical LRAS curve sits vertically above at every price level, and the output level the Keynesian LRAS curve also becomes vertical at, once spare capacity is fully used up.
producer price indexPPI, wholesale price index: A measure of the prices firms pay for raw materials and receive for their own output, tracked as a leading indicator of consumer price inflation — a rise in the PPI today tends to show up as a rise in the CPI in future periods as firms pass higher input costs on to consumers.
production possibility frontierPPF, production possibility curve, PPC: A diagram showing the maximum combinations of two goods (or categories of goods) an economy can produce using all its current resources at full technical efficiency. A point on the curve is efficient, a point inside it is attainable but inefficient, and a point outside it is unobtainable given the current resource base and technology.
profit: Total revenue minus total costs for a period — the mark scheme requires both terms stated as TOTAL revenue and TOTAL costs, since 'revenue minus costs' alone is marked too vague. A distinct concept from cash flow: profit is recorded when a sale is made, not when the cash for it is received.
Purchasing Power ParityPPP, purchasing power parities: An exchange rate calculated so that an identical basket of goods costs the same amount in two currencies, correcting for non-traded goods and services being systematically cheaper in lower-income countries than the market exchange rate implies. The 'parity' — equal purchasing power across currencies — is the entire content of the term; a definition describing only 'buying power' without the cross-currency comparison is incomplete.

R

real balance effectPigou effect, wealth effect of the price level: A fall in the price level raises the real value of households' fixed-nominal-value wealth (cash, deposits), making them wealthier in real terms and willing to spend more — one of three reasons the AD curve slopes downward.
recession: Negative economic growth — a fall in real GDP — for two consecutive quarters in a row. A single negative quarter, or two negative quarters that aren't consecutive, doesn't meet the definition.

S

savings ratiosaving ratio, household saving ratio: Household saving expressed as a percentage of household disposable income: (S ÷ Yd) × 100. A rise in the ratio, holding disposable income constant, mechanically means a fall in consumption — and, via consumption's place in AD, a short-run contractionary effect on aggregate demand.
shift of the AD curveAD shift, shift in aggregate demand: The whole AD curve moving to a new position because of a change in a determinant of C, I, G or (X−M) other than the domestic price level — e.g. a change in consumer confidence, a central bank interest-rate decision, or a currency depreciation.
shift of the AS curveAS shift, shift in aggregate supply: The entire AS curve moving to a new position because of a change in something other than the price level — a cost change (raw materials, exchange rate, tax rate) shifts SRAS; a change to the economy's productive capacity itself (technology, productivity, skills, regulation/tax policy, demography, competition) shifts LRAS.
short-run aggregate supplySRAS: The quantity of output firms are willing and able to supply at each price level while at least one cost — typically wages, fixed by an existing contract — is sticky. Upward-sloping: a higher price level raises revenue per unit while cost per unit lags behind, widening the firm's profit margin and pulling out more output, until wages catch up and the incentive disappears.
spare capacity: Unemployed labour and idle capital in an economy currently producing below its potential output. The reason a Keynesian LRAS curve can be flat at low output: firms expanding into idle capacity don't need to bid against each other for scarce workers or machines, so extra output doesn't require a higher price level to draw it out.

T

trade balancetrade in goods and services, net trade balance: The value of exports of goods and services minus the value of imports of goods and services — in surplus when exports exceed imports, in deficit when the reverse holds. Only one component of the current account, and a completely separate account from the government's own budget balance, despite being one of the most repeatedly confused pairs on this paper.

U

underemployment: Working, but in a role that doesn't fully use a worker's skills or that offers fewer hours than the worker wants — a genuinely different category from unemployment, since an underemployed worker counts as employed and never shows up in the unemployment rate at all.

W

wealth: A stock of accumulated assets held at a point in time (property, savings, shares, pension funds) minus what is owed — distinct from income, which is a flow measured over a period. A household can have high income and low wealth, or the reverse, because the two measure fundamentally different things.
withdrawalsleakages: Income earned within the circular flow that leaves it rather than being spent on domestically-produced output: savings (S), taxation (T), and imports (M). Equilibrium real output occurs exactly where total withdrawals equal total injections.

X

X-inefficiencyx inefficiency, x-inefficient: A firm allowing average costs to drift above the minimum it could actually achieve — not a form of efficiency itself but its absence, usually because weak competitive pressure or diluted ownership incentives let slack persist. The same principal-agent mechanism behind diseconomies of scale, seen as a single-firm cost problem rather than an organisation-size one.