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.