ECON112 FLASHCARDS
Gross National Income (GNI)
the total income earned by a nations residents.
Gross National Product (GDP)
the final value of all goods and services produced within an economy over a given period
Net Transfers
the total sum of payments that are not in exchange for any currently produced goods or services (e.g. benefits payments)
Consumption (C)
spending by households on goods and services
Investment (I)
the purchase of goods that will be used in the future to produce other goods and services (e.g. machinery, infrastructure, capital goods)
Government Purchases/Spending (G)
spending on goods and services by local and central governments (not including transfer payments (welfare) as these payments do not reflect an economies production).
Net Exports (NX)
= Exports (X) - Imports (M); the purchase of domestically produced goods by foreigners (exports) minus the domestic purchases of foreign goods (imports)
Nominal GDP
uses current prices to value the economy’s production of goods and services in that year. changes in nominal GDP reflect both changes in the quantities of goods and services and their prices.
Real GDP
uses constant (base-year) prices to place a value production of goods and services. Changes in real GDP reflect only changes in the quantity of goods and services.
Economic Wellbeing
having present and future financial security.
Inflation
the change in value of money over time.
Consumer Price Index (CPI)
measures the changing price of the goods and services New Zealand households buy.
GDP Deflator
a measure of the price level as the ratio of nominal GDP to real GDP x 100 (looks at inflation, opposed to CPI real output)
4 Factor Model
shows how an economy’s total income equals its total expenditure
Capital Deepening
the capital per worker is increasing in the economy. This is also referred to as increase in the capital intensity.
The Fisher Effect
describes the relationship between the nominal interest rate and the real interest rate
Compound Interest
increasing value of interest rates on investments over yearly periods.
Taylor Rule
the central bank will increase interest rates whenever expected inflation is higher than the target rate, vice versa
Market For Loanable Funds
The interaction between the supply of savings and the demand for loans determines the real interest rate and how much is loaned out.
Yield Curve
shows several yields or interest rates across different contract lengths
Expected Inflation
the rate of inflation that people expect
Money Supply
the total value of money available in an economy at a point of time
Money Demand
the demand for money, affected by banks interest rates, income and inflation
The Reserve Bank of New Zealand
NZ’s central bank that sets the OCR
Monetary Policy
the regulation of the supply and demand of money so that currencies remain stable.
Expansionary Monetary Policy
involves the RBA decreasing the OCR to meet target inflation
Contractionary Monetary Policy
involves the RBA increasing the OCR to meet target inflation
Official Cash Rate (OCR)
the interest rate set by the RBA in order to keep target inflation within 1-3%
Growth
an increase in the amount of goods and services produced per head of the population over a period of time.
Target Interest Rate
key interest rate that a central bank uses to guide monetary policy toward the desired economic outcomes.
Dovish Policy
favor loose monetary policy (Lower interest rates at every level of inflation)
Hawkish Policy
Favor tight monetary policy (higher IR at every level of inflation)
Full Employment
a situation in which there is no cyclical or deficient-demand unemployment.
MPK
marginal product of capital, the additional production that a firm experiences when is added an extra unit of capital.
Balance of Payments
the difference between all money coming into, and out of a country within a certain period
Current Account Balance (CAB)
the sum of net exports (NX) and net foreign income (NFI)
Net Capital Outflow (NCO)
the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners.
Capital Account (KAB)
difference between total receipts from the sale of domestic assets to foreigners and total payments abroad for purchasing foreign assets
Nominal Exchange Rate
the rate at which a person can trade the currency of one country for the currency of another
Appreciation
an increase in the value of an asset, over time.
Depreciation
a decrease in the value of an asset, over time.
Induced Consumption
the portion of consumption that varies with disposable income.
Real Exchange-Rate (RER)
the rate at which a person can trade the goods and services of one country for the goods and services of another country
Purchasing-Power Parity
a unit of any given currency should be able to buy the same quantity of goods and services in all countries.
Twin Deficit Theory
when a nation has both a current account deficit and a budget deficit. This means the country’s economy is importing more than it is exporting, and the country’s government is spending more money than it is generating.
The Rule of 70
a variable grows at ‘x’ percent per year, then that variable will double approximately (70 / x) years
The Production Function
figures out how much output is created from a given mix of inputs
Economic Output
the quantity of goods or services produced in a given time period, by a firm, industry, or country
Technology
anything that helps us produce things faster, better or cheaper
Physical Capital
are tangible, man-made objects that a company buys or invests in and uses to produce goods.
Human Capital
an intangible asset or quality not listed on a company’s balance sheet that is used to help produce goods.
Natural Resources Diminishing
the idea of limited natural resources, to unlimited human wants… how to operate an economy within the ecological constraints of earth’s natural resources.
Marginal Returns
the rate of return for a marginal increase in investment; roughly, this is the additional output resulting from a one-unit increase in the use of a variable input, while other inputs are constant.
Catch-Up Theory
poorer economies tend to grow more rapidly than wealthier economies, and so all economies will eventually converge in terms of per capita income.
Keynesian Cross Diagram
determines the equilibrium level of real GDP by the point where the total or aggregate expenditures in the economy are equal to the amount of output produced.
Short-Run
a period of time in which at least one input is fixed while others are variable.
Long-Run
a period of time in which all factors of production and costs are variable.
Planned Investment
the sum of everything a firm intends to invest, including the additions it plans to add to its cache of capital goods and its stock
Sacrifice Ratio
reflects the relationship between inflation and output
Peak
the highest point between the end of an economic expansion and the start of a contraction in a business cycle.
Trough
the lowest point between the end of an economic expansion and the start of a contraction in a business cycle.
Recession
a period within the business cycle where there is a significant decline in economic activity spread across the economy that can last from a few months to more than a year.
Expansion
an increase in the level of economic activity, and of the goods and services available. It is a period of economic growth as measured by a rise in real GDP.
Fiscal Policy
refers to the governments ability to tax and spend within the economy.
The Asian Miracle
unprecedented levels of growth in Asian countries (China, Japan) since the mid-19th century.
Potential Output
refers to the highest level of real gross domestic product that can be sustained over the long term.
The Natural Rate of Unemployment
represents the lowest unemployment rate whereby inflation is stable or the unemployment rate that exists with non-accelerating inflation.
Output Gap
indicates the difference between the actual output of an economy and the maximum potential output of an economy expressed as a percentage of gross domestic product (GDP).
Cyclical Unemployment
the result of businesses not having enough demand for labor to employ all those who are looking for work at that point within the business cycle.
Okun’s Law
each extra percentage point of cyclical unemployment is associated with about a 2-percentage point increase in the output gap, measured in relation to potential output.
The Keynesian Model
the relationship between consumption, planned aggregate expenditure, and output/income
Marginal Propensity to Consume (MPC)
the proportion of an aggregate raise in pay that a consumer spends on the consumption of goods and services, as opposed to saving it.
Autonomous Consumption
the expenditures that consumers must make even when they have no disposable income.
Planned Aggregate Expenditure (PAE)
the total amount of spending that is expected to occur in the economy
Natural Rate of Output
occurs when all available resources are used efficiently within the PPF curve
Time Lag
the delay between an economic action and it’s consequence
The Multiplier Effect
the proportional amount of increase, or decrease, in final income that results from an injection, or withdrawal, of spending.
The Crowding Out Effect
increased interest rates lead to a reduction in private investment spending such that it dampens the initial increase of total investment spending
Aggregate Demand
the total amount of demand for all finished goods and services produced in an economy.
Aggregate Supply
the total supply of goods and services produced within an economy at a given overall price in a given period
Demand Shock
a sudden and surprise event that dramatically increases or decreases demand for particular goods or services, usually on a temporary basis.
Supply Shock
an unexpected event that suddenly changes the supply of a product or commodity, resulting in an unforeseen change in price.
Stagflation
characterized by slow economic growth and relatively high unemployment
The Phillips Curve
illustrates that inflation and unemployment have a stable and inverse relationship.
