Macroeconomics Flashcards
A Lorenz Curve
A Lorenz curve is a curve illustrating the distribution of income in an economy. The further the curve is from the line of absolute equality (45-degree line), the more unequal is the distribution of income.
ex: draw diagram of the US
The Gini Coeffcient
The Gini coefficient is a coefficient (index) that measures the ratio of the area between a Lorenz curve and the line of
absolute equality to the total area under the line of equality.
The higher the figure, the more unequal is the distribution.
ex: In 2011 Chile had the greatest income inequality in the world and it was shown by their gini coefficient being 0.50
Aggregate Demand
Aggregate demand (AD) is the total spending in an economy consisting of consumption, investment, government expenditure and net exports ex: aggregate demand curve of the US
Consumption
Consumption is spending by households on consumer goods and services over a period of time
ex: In 2013, total consumption of the US was 13 trillion USD
Investment
Investment is the addition to the capital stock of the economy in the form of factories, offices, machinery and equipment which is used to produce goods and services.
ex: A fast food retailer builds a new outlet
Inflationary Gap
An inflationary gap is the situation where total spending (AD) is greater than the full employment level of output, thus causing inflation
ex: people are trying to buy more than is being produced thus causing prices to rise and the purchasing power of a currency to decrease.
Deflationary Gap
A deflationary gap is the situation where total spending (AD) is less than the full employment level of output, thus causing unemployment
ex: during a war people are afraid to consume goods or services and instead save their money, so producers cut back on their supply and fire workers creating unemployment
Business Cycle
The business cycle (trade cycle) shows fluctuations in the level of economic activity in an economy over time and suggests that the changes are cyclical. There are four stages: depression (slump), recovery, boom, and recession.
ex: diagram of the US
