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IB Economics SL > Macroeconomics > Flashcards

Macroeconomics Flashcards

1
Q

absolute poverty

A
  • 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
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2
Q

actual output

A
  • 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)
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3
Q

aggregate demand

A

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.

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4
Q

aggregate supply

A

the total quantity of goods and services produced in an economy over a particular time period, at different price levels, ceteris paribus.

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5
Q

budget deficit

A

-the government’s budget, where government tax revenues are less than government expenditures over specific period of time (usually a year)

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6
Q

business confidence

A

a measure of the degree of optimism among firms in an economy about the future performance of firms and the economy

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7
Q

business cycle

A

fluctuations in the growth of real output, or real GDP, consisting of alternating periods of expansion (increasing real output) and contraction (decreasing real output)

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8
Q

capital expenditures

A

include public investments, or the production of physical capital, such as building roads and schools

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9
Q

capital liberalisation

A

free movement of financial capital in and out of a country, occurring through the elimination by the government of exchange controls

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10
Q

capital transfers

A
  • part of the capital account

- include inflows minus outflows for debt forgiveness, non-life insurance claims, and invetment

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11
Q

carbon tax

A

a tax per unit of carbon emissions of fossil fuels, considered by many countries as a policy to deal with the climate change problems

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12
Q

central bank

A

a financial institution that is responsible for regulating the country’s financial system and commercial banks, and carrying out monetary policy

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13
Q

commercial bank

A

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

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14
Q

consumer confidence

A

a measure of the degree of optimism of consumers about their future income and the future of the economy

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15
Q

consumer price index

A

a measure of the cost of living for the typical household

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16
Q

contractionary fiscal policy

A

fiscal policy that is usually pursued in an inflation, involving a decrease in government spending or an increase in taxes (or both)

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17
Q

contractionary monetary policy

A

monetary policy that is usually pursued in an inflation, involving an increase in interest rates, intended to lower investment and consumption spending

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18
Q

core rate of inflation

A

a rate of inflation based on a consumer price index that excludes goods with highly unstable prices, notably food and energy prices

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19
Q

cost-push inflation

A

a type of inflation cased by a fall in aggregate supply, in turn resulting from increases in costs of production

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20
Q

crowding-out

A

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

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21
Q

cyclical unemployment

A

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

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22
Q

deciles

A

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

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23
Q

deflation

A

a continuing decrease in the general price level

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24
Q

demand management

A

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

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25
Q

demand-pull inflation

A

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

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26
Q

demand-side policies

A

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.

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27
Q

deregulation

A

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

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28
Q

determinants of aggregate demand

A

factors that influence consumption spending (C), investment spending (I), gov’t spending (G), and net exports (Xn)

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29
Q

disinflation

A

refers to a fall in the rate of inflation; it involves a positive rate of inflation
NOTE: It is different from “deflation”

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30
Q

disposable income

A

the income of consumers that is left over after the payment of income taxes

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31
Q

economic growth

A

-increases in total real output produced by an economy (real GDP) over time
OR
-increases in real output (real GDP) per capita

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32
Q

expansionary fiscal policy

A

a fiscal policy usually pursued in a recession, involving an increase in government spending or decrease in taxes (or both)

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33
Q

expansionary monetary policy

A

monetary policy usually pursued in a recession, involving a decrease in interest rates, intended to increase investment and consumption spending

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34
Q

expenditure approach

A
  • 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
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35
Q

expenditure flow

A

it is the flow of spending from households to firms to buy the goods and services provided by the firms

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36
Q

fiscal policy

A

manipulations by the gov’t of its own expenditures and taxes in order to influence the level of AD

37
Q

fixed exchange rate

A

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

38
Q

fixed exchange rate system

A

an exchange rate system where exchange rates are fixed by the central bank

39
Q

frictional unemployment

A
  • 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
40
Q

full employment

A
  • 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
41
Q

full employment level of output (real GDP)

A

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

42
Q

GDP per capita

A

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

43
Q

Gini coefficient

A
  • 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.
44
Q

government budget

A

a type of plan of a country’s tax revenues and government expenditures over a period of time (usually a year)

45
Q

government intervention

A

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

46
Q

government spending

A

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)

47
Q

green GDP

A

gross domestic product which has been adjusted to take into account environmental destruction and/or health consequences of environmental problems

48
Q

GDP

A

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)

49
Q

GNI

A

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

50
Q

hidden unemployment

A

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

51
Q

household indebtedness

A

the degree to which households have debts

52
Q

human capital

A

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

53
Q

incentive-related policies

A
  • 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
54
Q

income approach

A

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

55
Q

income flow

A

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

56
Q

indebtedness

A

the level of debt, or the amount of money owed to creditors

57
Q

industrial policies

A
  • 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
58
Q

inflation

A

a continuing increase in the general price level

59
Q

inflation targeting

A
  • 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%
60
Q

inflationary gap

A

a situation where real GDP is greater than potential GDP, and unemployment is lower than the natural rate of unemployment

61
Q

injections

A

in the circular flow of income model, refer to the entry into income flow of funds corresponding to investment, government spending or exports

62
Q

interest

A
  1. a payment, per unit of time, for the use of borrowed money
  2. a payment, per unit of time, to owners of capital resources
63
Q

interest rate

A

interest expressed as a percentage

64
Q

Interventionist policy

A

any policy based on government intervention in the market

65
Q

interventionist supply-side policy

A

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

66
Q

investment

A

includes spending by firms or the government on capital goods

67
Q

Keynesian aggregate supply curve

A

an aggregate supply curve that has a flat (horizontal) section, and upward sloping section and a vertical section

68
Q

labor

A

a factor of production, which includes the physical and mental effort that people contribute to the production of goods and services

69
Q

labor market flexibility

A
  • 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)
70
Q

labor market reforms

A

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

71
Q

labor market rigidities

A

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

72
Q

land

A
  • 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”
73
Q

leakages

A

in the circular flow of income model, refer to the withdrawal from the income flow of funds corresponding to savings, taxes or imports

74
Q

long-run aggregate supply (LRAS) curve

A
  • 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
75
Q

long run

A
  • 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
76
Q

long-run equilibrium level output

A

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

77
Q

long term growth trend

A
  • 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
78
Q

Lorenz curve

A
  • 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
79
Q

macroeconomic objectives

A

include full employment, low rate of inflation, economic growth, an equitable distribution of income and external balance

80
Q

market-based supply-side policy

A
  • 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
81
Q

market-oriented policy

A

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

82
Q

monetarist/new classical model

A

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

83
Q

monetary policy

A

policy carried out by central bank, aiming to change interest rates in order to influence AD

84
Q

money

A
  • anything that is acceptable as payment for goods and services
  • consists of currency and checking accounts
85
Q

national income

A
  • the total income of an economy

- interchangeable with “the value of aggregate output” in the context of macroeconomic models

86
Q

national income statistics

A

statistical data used to measure an economy’s national income and output as well as other measures of economic performance

87
Q

net exports

A

value of exports minus the value of imports

88
Q

nominal GDP

A

GDP measured in terms of current (or nominal) prices, which are prices prevailing at the time of measurement

89
Q

nominal value

A

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

IB Economics SL (5 decks)

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