Macro Economics Vocab Flashcards
Actual growth
Occurs when real output (real GDP) increases
through time and is a result of greater or better
use of existing resources. In the PPC model it
can be illustrated by a movement from a point
inside a PPC to another point in the northeast
direction
Aggregate demand (AD)
Planned spending on domestic goods and
services at different average price levels, per
period of time. Consists of consumption,
investment and government expenditures plus
net exports.
Aggregate demand curve
A curve showing the planned level of spending
on domestic output at different average price
levels
Aggregate supply (AS)
The planned level of output domestic firms are
willing and able to offer at different average
price levels.
Appreciation
When the price of a currency increases in a
floating exchange rate system.
Budget deficit
When government expenditures exceed
government (tax) revenues usually over a period
of a year.
Business confidence
A measure of the degree of optimism that
businesses have about the economic future.
Business cycle
The short-term fluctuations of real GDP around
its long-term trend (or potential output).
Capital
Physical capital refers to means of production
that include machines, tools, equipment
and factories; the term may also refer to the
infrastructure of a country. Human capital refers
to the education, training, skills and experience
embodied in the labour force of a country.
Central bank
An institution charged with conducting
monetary and exchange rate policy, regulating
behaviour of commercial banks, and providing banking services to the government and commercial banks.
Circular flow of income
A simplified illustration that shows the flows of
income and expenditures in an economy.
Consumer price index (CPI)
The average of the prices of the goods and
services that the typical consumer buys
expressed as an index number. The CPI is used
as a measure of the cost of living in a country
and to calculate inflation.
Contractionary fiscal policy
Refers to a decrease in government
expenditures and/or an increase in taxes that
aim at decreasing aggregate demand and thus
reducing inflationary pressures.
Contractionary monetary policy
A policy employed by the central bank involving
an increase in interest rates and aimed at
decreasing aggregate demand and thus
inflationary pressures. Referred to also as tight
monetary policy.
Deflation
A sustained decrease in the average price level
of a country.
Deflationary/recessionary gap
Arises when the equilibrium level of real output
is less than potential output as a result of a
decrease in AD
Demand side policies
Refers to economic policies that aim at affecting
aggregate demand and thus macroeconomic
variables such as growth, inflation and employment; demand side policies include fiscal
policy and monetary policy.
Depreciation
A decrease in the value of a currency in terms
of another currency in a floating or managed
exchange rate system.
Deregulation
Policies that reduce or eliminate regulations
related to the operation of firms so that
production costs decrease—resulting in
increased competition and higher levels of
output.
Expansionary fiscal policy
Refers to an increase in government
expenditures and/or a decrease in taxes that aim
at increasing aggregate demand and thus real
output and employment.
Expansionary monetary policy
Monetary policy aiming at increasing aggregate
demand through a decrease in interest rates;
also referred to as easy monetary policy.
Expenditure approach
One of three analytically equivalent approaches
of measuring GDP that adds all the expenditures
made on final domestic goods and services
over a period of time by households, firms, the
government and foreigners.
Expenditure reducing
Contractionary demand side policies aiming
at decreasing national income and thus
expenditures on imports so that a current
account deficit narrows
Expenditure switching
Policies aimed at switching expenditures away
from imports towards domestically produced goods and services by making imports more expensive in order to narrow a current account
deficit. It includes lowering the exchange rate as
well as adopting trade protection.
Fiscal policy
A demand-side policy using changes in
government spending and/or direct taxation to
influence aggregate demand and thus growth,
employment and prices.
Full employment
A goal of macroeconomic policy that aims at
fully utilizing the scarce factor of production
labour. Full employment exists when the
economy is producing at its potential level
of real output and thus there is only natural
unemployment (the AD–AS model considers the
AD and AS curves together). In the production
possibilities curve (PPC model), full employment
exists when the economy is producing on the
PPC.
Gini coefficient
A measure of the degree of income inequality
of a country that ranges from zero (perfect
income equality) to one (perfect inequality).
Diagrammatically it is the ratio of the area
between the Lorenz curve and the diagonal over
the area of the half-square.
Government spending (G)
Refers to all spending by the government that is
distinguished into current expenditures, capital
expenditures and transfer payments
Gross domestic product (GDP)
The value of all final goods and services
produced within an economy over a period of
time, usually a year or a quarter.
Gross national income (GNI)
The income earned by all national factors of
production independently of where they are
located over a period of time; it is equal to GDP
plus factor income earned abroad minus factor
income paid abroad.
Income approach
One of the three equivalent ways that GDP
can be measured, by adding all the incomes
generated in the production process (wages,
profits, interest and rent) for a given time period.
Anti-monopoly regulation
Laws and regulations that are intended to
restrict anti-competitive behaviour of firms that
are abusing their market power.
Automatic stabilizers
Institutionally built-in features (like
unemployment benefits and progressive
income taxation) that tend to decrease the
short-term fluctuations of the business cycle without the need for governments to intervene.
Average tax rate
The ratio of the tax paid by an individual over
their income expressed as a percentage.
Business tax
Tax levied on the income of a business or
corporation.
Circular economy
An economic system that looks beyond the
linear take-make-dispose model and aims to
redefine growth, focusing on society-wide
benefits. It is based on three principles: design
out waste, keep products and materials in use,
and regenerate natural systems.
Consumer confidence
A measure of the degree of optimism that
households have about their income and
economic prospects.
Cost-push inflation
Inflation that is a result of increased production
costs (typically because of rising money wages
or rising commodity prices) and illustrated by a
leftward shift of the SRAS curve.
