Macroeconomics terms Flashcards
national output
total output of the economy
potential output
long-term growth trend of GDP, full employment GDP
recession
economic contraction that lasts for longer than six months
natural rate of unemployment
unemployment that occurs when the economy is producing at its full employment level of output, equal to sum of structural, frictional and seasonal uenmployment
aggregate demand
total amount of real output (real GDP) that consumers, firms, the government and foreigners want to buy at each possible price level, over a particular time period
consumer confidence
measure of how optimistic consumers are about their future income and future of the economy
wealth
value of all assets that people own minus debt to banks and other financial institutions
income taxes
taxes paid by households on their income
business confidence
measure of how optimistic firms are about their future sales and economic activity
corporate indebtness
the degree to which firms have debts
aggregate supply
the total quantity of goods and services produced in an economy over a particular time period at different price levels
SRAS curve
relationship between the price level and the quantity of the real output produced by firms when resource prices do not change, ceteris paribus
LRAS curve
relationship between real GDP and the price level when resource prices change to reflect changes in price level, ceteris paribus
deflationary gap
short-run equilibrium position where real GDP is less than potential GDP
inflationary gap
long-run equilibrium position where real GDP is greater than potential GDP
structural unemployment
unemployment that occurs as a result of technological changes, changing patterns of demand, market rigidities, and changes in geographical location of the jobs
frictional unemployment
unemployment that occurs when workers are in between jobs
seasonal unemployment
unemployment that occurs when the demand for labour in certain industries changes on a seasonal bases
cyclical unemployment
occurs when the economy is in a recessionary gap, demand-deficient unemployment
inflation
sustained increase in general price level
deflation
sustained decrease in general price level
disinflation
fall in the inflation rate
weighted price index
price index that weights the various goods and services according to their relative importance
demand-pull inflation
caused by an increase in aggregate demand
cost-push inflation
caused by a fall in aggregate supply due to increased production costs
deferred consumption
consumer postponing their spendings
Phillips curve
curve showing relationship between unemployment and inflation
government debt
national debt, amount of money government owes to lenders outside the government itself
sustainable debt
level of debt where the government has enough revenues to meet its debt obligations (repayment+interest)
debt servicing
necessary payments to repay the principal plus interest payment
demand-side policies
policies that attempt to change aggregate demand to achieve goals of price stability, full employment, and economic growth, and minimize the severity of the business life cycle
supply-side policies
policies that focus on aggregate supply, namely on factors aiming to increase long-run aggregate supply to achieve long-term economic growth
monetary policy
policy carried out by the central bank, aiming to change the interest rates in order to influence the aggregate demand
commercial banks
finantial institutions whose main functions are to hold deposits, make loans, transfer funds by check, buy government bonds, their customers are firms and individual consumers (banker to individual consumers and firms)
central bank
financial institution responsible for the country’s financial system and commercial banks, and carrying out monetary policy (banker to commercial banks and to the government
inflation targeting
monetary policy focused on achieving a particular inflation target instead of goals of low rate of inflation and unemployment
money creation
process in which commercial banks create new money by making loans
open market operations
tool of monetary policy whereby the central bank buys and sells bonds to commercial banks to influence the money supply and interest rate
minimum lending rate
interest rate charged by the central bank when it lends funds to commercial banks
quantitative easing
tool used by central banks which involves buying bonds and other types of financial assets on a large scale to increase the money supply in the economy as part of expansionary monetary policy
real rate of interest
nominal interset rate minus rate of inflation
expansionary monetary policy
policy pursued in economic contraction, involving a decrease in interest rates to increase investment and consumption spending
contractionary monetary policy
policy usually pursued when the economy is in an inflationary gap, involving an increase in interest rates to decrease investment and consumption spending
fiscal policy
manipulations by the government of its own expenditures and taxes in order to influence the level of aggregate demand
expansionary fiscal policy
policy usually pursued in economic contraction, involving an increase in government spending or decrease in taxes or both to increase aggregate demand
contractionary fiscal policy
policy usually pursued when the economy is in inflationary gap, involving a decrease in government spending and increase in taxes or both to decrease aggregate demand
crowding out
phenomenon in which government spending financed by borrowing might result in higher interest rates which could reduce private sector spending thus reversing the impact of the expansionary fiscal policy
automatic stabilisers
factors that automatically, without any action by the government, work towards stabilising the economy by reducing short term fluctuations of the business cycle
Keynesian multiplier
ratio of change in real GDP divided by the initial change in expenditure
MPC
marginal prosperity to consume, a fraction of income households spend on consumption
market-based supply-side policies
policies based on promoting well-functioning, competitive markets in order to increase potential output and achieve long-term economic grwoth
privatisation
transfer of ownership of firm from the public to the private sector
deregulation
elimination or reduction of government regulation of private sector activities
incentive-related policies
policies involving reduction of various types of taxes to change the incentives faced by the taxpayers
interventionist supply-side policies
policy based on government intervention in the market to increase the potential output and achieve long-term economic growth
industrial policies
policies designed to support the growth of the industrial sector of the economy
