Macroeconomics Flashcards
absolute poverty
- the inability of an individual or a family to afford a basic standard goods and services, where the standard is absolute and unchanging over time
- determines the minimum income that can sustain a family in terms of its basic needs
actual output
- quantity of output actually produced by an economy
- occurs inside PPC because of unemployed resources and productive inefficiency
- can be higher or lower than potential output (if there’s inflationary or deflationary gap) or it may be equal to potential output (long-run equilibrium)
aggregate demand
the total quantity of goods and services that all buyers in an economy want to buy over a particular time period at different possible price levels, ceteris paribus.
aggregate supply
the total quantity of goods and services produced in an economy over a particular time period, at different price levels, ceteris paribus.
budget deficit
-the government’s budget, where government tax revenues are less than government expenditures over specific period of time (usually a year)
business confidence
a measure of the degree of optimism among firms in an economy about the future performance of firms and the economy
business cycle
fluctuations in the growth of real output, or real GDP, consisting of alternating periods of expansion (increasing real output) and contraction (decreasing real output)
capital expenditures
include public investments, or the production of physical capital, such as building roads and schools
capital liberalisation
free movement of financial capital in and out of a country, occurring through the elimination by the government of exchange controls
capital transfers
- part of the capital account
- include inflows minus outflows for debt forgiveness, non-life insurance claims, and invetment
carbon tax
a tax per unit of carbon emissions of fossil fuels, considered by many countries as a policy to deal with the climate change problems
central bank
a financial institution that is responsible for regulating the country’s financial system and commercial banks, and carrying out monetary policy
commercial bank
a financial institution (private or public) whose main functions are to hold deposits for their customers (consumers and firms), to make loans to their customers, to transfer funds by check from one bank to another, and to buy government bonds
consumer confidence
a measure of the degree of optimism of consumers about their future income and the future of the economy
consumer price index
a measure of the cost of living for the typical household
contractionary fiscal policy
fiscal policy that is usually pursued in an inflation, involving a decrease in government spending or an increase in taxes (or both)
contractionary monetary policy
monetary policy that is usually pursued in an inflation, involving an increase in interest rates, intended to lower investment and consumption spending
core rate of inflation
a rate of inflation based on a consumer price index that excludes goods with highly unstable prices, notably food and energy prices
cost-push inflation
a type of inflation cased by a fall in aggregate supply, in turn resulting from increases in costs of production
crowding-out
possible impacts on real GDP of increased government spending (expansionary fiscal policy) financed by borrowing; if increased government borrowing results in a higher rate of interest, this could reduce private investment spending, thus reversing the impacts of the government’s expansionary fiscal policy
cyclical unemployment
a type of unemployment that occurs during the downturns of the business cycle, when the economy is in a recessionary gap; the downturn is seen as arising from declining or low aggregate demand, and therefore is also known as ‘demand-deficient’ unemployment
deciles
division of a population into ten equal groups with respect to the distribution of a variable, such as income; for example, the lowest income decile refers to 10% of the population with the lowest income
deflation
a continuing decrease in the general price level
demand management
policies that focus on the demand side of the economy, attempting to influence aggregate demand to achieve the goals of price stability, full employment and economic growth
demand-pull inflation
a type of inflation caused by an increase in aggregate demand, shown in the AD-AS model as a rightward shift in the AD curve
demand-side policies
policies that attempt to change AD in order to achieve the goals of prices stability, full employment and economic growth, and minimize the severity of the business cycle
-in inflationary/recessionary gap, they try to bring AD to the full employment level of real GDP, or potential GDP.
deregulation
policies involving the elimination or reduction of government regulation of private sector activities, based on the argument that government regulation stifles competition and increases inefficiency
determinants of aggregate demand
factors that influence consumption spending (C), investment spending (I), gov’t spending (G), and net exports (Xn)
disinflation
refers to a fall in the rate of inflation; it involves a positive rate of inflation
NOTE: It is different from “deflation”
disposable income
the income of consumers that is left over after the payment of income taxes
economic growth
-increases in total real output produced by an economy (real GDP) over time
OR
-increases in real output (real GDP) per capita
expansionary fiscal policy
a fiscal policy usually pursued in a recession, involving an increase in government spending or decrease in taxes (or both)
expansionary monetary policy
monetary policy usually pursued in a recession, involving a decrease in interest rates, intended to increase investment and consumption spending
expenditure approach
- a method used to measure the value of aggregate output of an economy, which adds up all spending on final goods and services produced within a given time period
- equivalent to measurement by the income approach and output approach
expenditure flow
it is the flow of spending from households to firms to buy the goods and services provided by the firms
fiscal policy
manipulations by the gov’t of its own expenditures and taxes in order to influence the level of AD
fixed exchange rate
an exchange rate that is fixed by the central bank of a country, and is not permitted to change in response to changes in currency supply and demand
fixed exchange rate system
an exchange rate system where exchange rates are fixed by the central bank
frictional unemployment
- a type of unemployment that occurs when workers are between jobs; workers may leave their job because they have been fired, or because their employer went out of business, or because they are in search of a better job
- tends to be short-term
full employment
- in the context of PPC model, it’s the maximum use of all resources in the economy to produce the maximum quantity of goods and services that the economy is capable of producing, implying ZERO unemployment.
- in the context of AD-AS model, it’s the natural rate of unemployment; it refers to the employment of labour resources
full employment level of output (real GDP)
the level of output at which unemployment is equal to the natural rate of unemployment; the level of output (real GDP) where there is no deflationary or recessionary gap
GDP per capita
gross domestic product divided by the number of people in the population; an indicator of the amount of domestic output per person in the population
Gini coefficient
- a summary measure of the information contained in the Lorenz curve of an economy
- the area between the diagonal and the Lorenz curve, divided by the entire area under the diagonal.
- value is between 0 and 1. The larger, the greater income inequality.
government budget
a type of plan of a country’s tax revenues and government expenditures over a period of time (usually a year)
government intervention
the practice of government to intervene in markets, preventing the free functioning of the market, usually for the purpose of achieving particular economic or social objectives
government spending
spending undertaken by the government, as part of its fiscal policy or as part of an effort to meet particular economic and social objectives (such as provision of subsidies, provision of public goods, etc)
green GDP
gross domestic product which has been adjusted to take into account environmental destruction and/or health consequences of environmental problems
GDP
a measure of the value of aggregate output of an economy, it is the market value of all final goods and services produced within a country during a given time period (usually a year)
GNI
a measure of the total income received by the residents of a country, equal to the value of all final goods and services produced by the factors of production supplied by the country’s residents regardless of where the factors are located; GDN=GDP plus income from abroad minus income sent abroad
hidden unemployment
unemployment that is not counted in official unemployment statistics because of such factors as the exclusion of ‘discouraged workers’, the practice of considering part-time workers as full-time workers, and others
household indebtedness
the degree to which households have debts
human capital
the skills, abilities and knowledge acquired by people, as well as good levels of health, all of which make them more productive; considered to be a kind of ‘capital’ because it provides a stream of future benefits by increasing the amount of output that can be produced in the future
incentive-related policies
- policies involving reduction of various types of taxes, in the expectation that the tax cuts will change the incentives faced by taxpayers
- type of supply side policy
income approach
a method used to measure the value of aggregate output of an economy, which adds up all income earned by the factors of production in the course of producing all goods and services within a country in a given time period
income flow
in the simple circular flow of income model, refers to the flow of income of households that they receive by selling their factors of production to firms
indebtedness
the level of debt, or the amount of money owed to creditors
industrial policies
- government policies designed to support the growth of the industrial sector of an economy
- can include support for small and medium0sized firms or support for infant industries through tax cuts, grants, low interest loans and other measures, as well as investment in human capital, research and development, or infrastructure development in support of industry
inflation
a continuing increase in the general price level
inflation targeting
- a type of monetary policy carried out by some central banks that focuses on achieving a particular inflation target, rather than focusing on the goals of low and stable rate of inflation and low unemployment
- common inflation targets are between 1.5% and 2.5%
inflationary gap
a situation where real GDP is greater than potential GDP, and unemployment is lower than the natural rate of unemployment
injections
in the circular flow of income model, refer to the entry into income flow of funds corresponding to investment, government spending or exports
interest
- a payment, per unit of time, for the use of borrowed money
- a payment, per unit of time, to owners of capital resources
interest rate
interest expressed as a percentage
Interventionist policy
any policy based on government intervention in the market
interventionist supply-side policy
any policy based on government intervention in the market intended to affect the supply-side of the economy, usually to shift the LRAS curve to the right, increase potential output and achieve long term economic growth
investment
includes spending by firms or the government on capital goods
Keynesian aggregate supply curve
an aggregate supply curve that has a flat (horizontal) section, and upward sloping section and a vertical section
labor
a factor of production, which includes the physical and mental effort that people contribute to the production of goods and services
labor market flexibility
- refers to the operation of market forces (supply and demand) in the labor market
- can be achieved by reducing or eliminating interference with market forces (ex. reducing minimum wages and labor union activities)
labor market reforms
reforms intended to make labor markets more competitive and flexible, to make wages respond to the forces of supply and demand, to lower labor costs and increase employment by lowering the natural rate of unemployment
ex) abolishing or reducing minimum wages, reducing job security
labor market rigidities
factors preventing the forces of supply and demand from operating in the labor market, and therefore preventing labor market flexibility
ex) include minimum wage legislation
land
- a factor of production which includes all natural resources; land and agricultural land, minerals, oil reserves, underground water, forests, rivers, lakes
- also known as “natural capital”
leakages
in the circular flow of income model, refer to the withdrawal from the income flow of funds corresponding to savings, taxes or imports
long-run aggregate supply (LRAS) curve
- a curve showing the relationship between real GDP produced and the price level when wages change to reflect changes in the price level, ceteris paribus
- is vertical at the full employment level of GDP, indicating that in the long run the economy produces potential GDP, which is independent of the price level
long run
- in microeconomics, it’s a time period in which all inputs can be changed; there are no fixed inputs
- in macroeconomics, it’s the period of time when prices of resources (especially wages) change along with changes in the price level
long-run equilibrium level output
the level of output (real GDP) that results when the economy is in long run equilibrium, occurring when the aggregate demand and short-run aggregate supply curves intersect at a point on the long run aggregate supply curve
long term growth trend
- in the business cycle diagram, refers to the line that runs through business cycle curve, representing average growth over long periods of time
- shows how output grows over time when cyclical fluctuations are ironed out
Lorenz curve
- illustrates the degree of equality of income distribution in an economy
- plots the cumulative percentage of income received by cumulative shares of the population
- the closer the Lorenz curve is to the straight line, the greater the equality in income distribution
macroeconomic objectives
include full employment, low rate of inflation, economic growth, an equitable distribution of income and external balance
market-based supply-side policy
- any policy based on promoting well-functioning, competitive markets in order to influence the supply-side of the economy, usually to shift the LRAS curve to the right, increase potential output and achieve long term economic growth
ex) labor market reforms, competition policies and incentive-related policies
market-oriented policy
a policy in which government intervention is limited, economic decisions are made mainly by the private decision-makers and the market has significant freedom to determine resource allocation
monetarist/new classical model
both monetarist and the new classical are based on the importance of the price mechanism in coordinating economic activities, the concept of competitive market equilibrium, and thinking about the economy as a harmonious system that automatically tends toward full employment
monetary policy
policy carried out by central bank, aiming to change interest rates in order to influence AD
money
- anything that is acceptable as payment for goods and services
- consists of currency and checking accounts
national income
- the total income of an economy
- interchangeable with “the value of aggregate output” in the context of macroeconomic models
national income statistics
statistical data used to measure an economy’s national income and output as well as other measures of economic performance
net exports
value of exports minus the value of imports
nominal GDP
GDP measured in terms of current (or nominal) prices, which are prices prevailing at the time of measurement
nominal value
value that is in money terms, measured in terms of prices that prevail at the time of measurement, and doesn’t account for changes in the price level
