Macroeconomics Flashcards
Macroeconomics
The study of the economy as a whole, including inflation, growth, unemployment and distribution of income in the whole economy.
Investment
An explanation that is the addition of capital stock to the economy or expenditure by firms on capital. It is a component of the GDP=C+I+G+(X-M). Be aware of the different definition for bank investments.
Inflation
An explanation that is a sustained or continuous increase in the general or average level of prices over a period of time.
Demand curve
Is a graphical representation of the law of demand. It is(usually) a downward-sloping curve (or line) illustrating the inverse relationship between price and quantity demanded.
Durable goods
Goods which are consumed over a long period of time, such as a television set or a car.
Absolute poverty
Absolute poverty exists when individuals do not have the resources to be able to consume sufficient necessities to survive
Aggregate demand
the total of all demands and expenditures on final goods in the economy at a given time and price level. It is composed of C for consumption, G for government expenditure, I for investments and NX for net exports (X-M)
Aggregate demand curve
Shows the relationship between the average price level and equilibrium national income. As the price level rises the equilibrium level of national income falls
Aggregate supply curve
Shows the relationship between the average level of prices in the economy and the level of total output.
Ad Valorem Tax
Tax levied as a percentage of the value of the good
Aggregate Supply
The total amount of goods and services that all the firms in all the industries in a country will produce at various price levels in a given period of time.
Barrier to exit
Barrier to exit - factors which make it difficult or impossible for firms to cease production and leave an industry.
Barriers to entry
Factors which make it difficult or impossible for firms to enter an industry and compete with existing producers.
Consumption
Total expenditure by households on goods and services over a period of time.
Business or economic or trade cycle
Regular fluctuations in the level of economic activity around the productive potential of the economy. In business cycles, the economy veers from recession, when it is operating well below its productive potential, to booms when it is likely to be at or even above its productive potential. The four phases are recession, depression, recover and boom.
Allocative or economic efficiency
Occurs when resources are distributed in such a way that no consumers could be made better off without other consumers becoming worse off.
Aggregate
The collective amount, sum or total.
Bank Base Rate
The interest rate which a bank sets to determine its borrowing and lending rates. It offers interest rates below its base rate to customers who deposit funds with it, whilst charging interest rates above base rate to borrowers.
National income
The value of the output, expenditure or income of an economy over a period of time.
Circular flow of income
A model of the economy which shows the flow of money, goods, services and factors of production as well as their payments around the economy.
Deflation
Deflation is a general decline of prices, often caused by a reduction of supply of money or credit. Can also be caused by a decrease in government, personal, or investment spending.
Closed economy
An economy where there is no foreign trade.
Bottleneck
A supply side constraint in a particular market in an economy which prevents higher growth for the whole economy. It is usually caused by a limitation of a section of the productive system. For example: If a country has a record production of tomatoes, but the number of trucks that would be available to transport this production is not enough to take all the tomatoes, this could be a bottleneck for the production and export of the tomatoes.
Active or discretionary fiscal policy
the deliberate manipulation of government expenditure and taxes to influence the economy.
Monetary policy
the attempt by government or a central bank to manipulate the money supply, the supply of credit, interest rates or any other monetary variables, to achieve the fulfilment of policy goals such as price stability.
Depression
a period when there is a particularly deep and long fall in output.
Workforce jobs
The number of workers in employment. It excludes the unemployed.
Base period
The period, such as a year or a month, with which all other values in a series are compared.
Laissez-faire
A doctrine opposing governmental interference in economic affairs beyond the minimum necessary for the maintenance of peace and property rights.
Expansionary fiscal policy
Fiscal policy used to increase aggregate demand.
Creeping inflation
small rises in the price level over a long period of time.
Factors of production
The inputs to the production process: land, which is all natural resources; labour, which is the workforce; capital, which is the stock of manufactured resources used in the production of goods and services; entrepreneurs, individuals who seek out profitable opportunities for production and take risks in attempting to exploit these.
Inflationary Gap
Its an output gap where the actual GDP exceeds potential full employment GDP
Capital-output ratio
the ratio between the amount of capital needed to produce a given quantity of goods and the level of output.
Command or planned economy
an economic system where government, through a planning process, allocates resources in society
Average propensity to consume
The proportion of total income spent. It is calculated by C ÷ Y.
Boom
Period of time when the economy is growing strongly and is operating around its productive potential.
Indirect tax
a tax levied on goods or services, such as value added tax or excise duties.
Progressive, regressive and proportional taxes
taxes where the proportion of income paid in tax rises, falls or remains the same respectively as income rises.
Real GDP
GDP evaluated at the market prices of a base year e.g. if 1990 was a base year then the real GDP for 1995 would be calculated by taking the quantities of goods and services of 1995 and multiplying them by their respective 1990 prices. It measures the value of a nation’s output in a period of time adjusted for any inflation or deflation the economy has experienced. Equals the nominal GDP divided by the GDP deflator price index
Nominal GDP
GDP evaluated at a current market price. it is GDP that includes all the changes in market price that occurred due to inflation/deflation. Can increase either as a result of an increase in real output or an increase in the price level.
Per capita GDP
the GDP of a country divided by the amount of people in the country to find the GDP per person.
Bank base rate
the interest rate which a bank sets to determine its borrowing and lending rates. It offers interest rates below its base rate to customers who deposit funds with it, whilst charging interest rates above base rate to borrowers.
Base period
the period, such as a year or a month, with which all other values in a series are compared.
Budget
a statement of the spending and income plans of an individual, firm or government. The Budget is the yearly statement on government spending and taxation plans in the UK.
Budget deficit
a deficit which arises because government spending is greater than its receipts. Government therefore has to borrow money to finance the difference.
Laissez-Faire
a doctrine opposing governmental interference in economic affairs beyond the minimum necessary for the maintenance of peace and property rights.
Cost-benefit analysis
a procedure, particularly used by governments to evaluate investment projects, which takes into account social cost and benefits.
Current account
that part of the balance of payments account where payments for the purchase and sale of goods and services are recorded.
Demand management
government use of fiscal or other policies to manipulate the level of aggregate demand in the economy.
Elastic demand
where the price elasticity of demand is greater than 1. The responsiveness of demand is proportionally greater than the change in price. Demand is infinitely elastic if price elasticity of demand is infinity.
Cyclical or demand-deficient unemployment
when there is insufficient demand in the economy for all workers who wish to work at current wage rates to obtain a job, caused by changes in the business cycle and AD level.
Frictional Unemployment
when there is unemployment caused by the temporary unemployment for people who are transferring between jobs.
Unemployment rate
An explanation that is the number of unemployed expressed as a percentage of the workforce. (unemployment rate= number of people unemployed/number of people in the labor force)
Structural Unemployment
when the pattern of demand and production changes leaving workers unemployed in labour markets where demand has shrunk. Examples of structural unemployment are regional unemployment, sectoral unemployment or technological unemployment.
Full employment
the level of output in an economy where all factors of production are fully utilised at given factor prices.
Seasonal Unemployment
when there is unemployment caused by seasonal changes, so the job is dependent on time or only available in sometimes of the year.
Equilibrium Wage
is a wage rate that doesn’t cause an excess supply of workers and doesn’t cause an excess demand of workers.
Economic Goods
goods which are scarce because their use has an opportunity cost.
Anti-competitive practices or restrictive trade practices
Tactics used by producers to restrict competition in the market.
Diseconomies of Scale
a rise in the long run average costs of production as output rises.
Consumer Price Index (CPI)
A measure of the price level used across the European Union and used by the Bank of England to measure inflation against its target.
Cost-push inflation
Inflation caused by increases in the costs of production in the economy
Lorenz Curve
shows the extent of inequality of income in society
Credit Multiplier
The number of times a change in reserves assets will change the assets of the banking system and thus the money supply.
Current Balance
the difference between total exports (visible and invisible) and total imports. It can also be calculated by adding the balance of trade to the balance on invisible trade.
Developed and developing or less developed countries
developed countries are the rich industrialised nations of Europe, Japan and North America, whilst developing or less developed countries are the other, poorer, less economically developed nations of the world.
Human Development Index(HDI)
A measure of the standards of living, used to rank countries based on their level of human development. It takes into account three primary variables: the level of GDP per capita, (as an indication of income levels), literacy (as an indication of education levels), and life expectancy (as an indication of levels of health). Countries are placed into one of four categories based on their HDI ranking: “very high human development”, “high human development”, “medium human development” and “low human development”.
SHORT RUN AGGREGATE SUPPLY
the upward sloping aggregate supply curve which assumes that money wage rates are fixed.
Derived demand
when the demand for one good is the result of or derived from the demand for another good.
Customs union
A type of trade bloc which is composed of a free trade area with a common external tariff.
RECESSIONARY GAP
The difference between an economy’s equilibrium level of output and its full employment level of output when an economy is in recession
Fine-tuning
The attempt by government to move the economy to a very precise level of unemployment, inflation, etc. It is usually associated with fiscal policy and demand management.
Deregulation
the process of removing government controls from markets.
Demand
Is the willingness to consume a product of various prices.
Economic Growth
Steady growth in the productive capacity of the economy (and so a growth of national income) or the increase of the economic activity of a country within a period of time.
Frictional unemployment
when workers are unemployed for short lengths of time between jobs
Crowding out
when an extra pound of government spending leads to a reduction of one pound in private sector spending. Crowding out implies that changes in government spending or taxation will have no long term impact on the level of aggregate demand.
Fixed capital
Fixed capital refers to any kind of real or physical asset (such as land, buildings, vehicles and equipment) that is not used up in the production of a product. It is in contrast with capital such as raw materials, fuel and labor which are used up. Fixed capital is stays in the business almost permanently.
Activity or participation rates
the percentage or proportion of any given population in the labour force.
Automatic or built-in stabilisers
mechanisms which reduce the impact of changes in the economy on national income
Core Inflation
A measure of inflation that factors out the changes in the prices of products that tend to experience volatile price swings, (e.g. food and energy prices). This gives policy makers a better indication of long term changes in the price level.
Homogeneous Goods
Goods made by different firms but which are identical
Demand or effective demand
The quantity purchased of a good at any given price, given that other determinants of demand remain unchanged.
Disposable income
The amount of money that households have available for spending and saving after income taxes have been accounted for. (Macro) (Yousef.Hinnawi)
Central Bank
The financial institution in a country or group of countries typically responsible for the printing and issuing of notes and coins, setting short term interest rates, managing the country’s gold and currency reserves and issuing government debt.
