Unit 2 Macroeconomics Flashcards
aggregate demand
total spending in the economy, made up of consumption spending, Investment spending, government spending and net export spending
aggregate supply
total amount of domestic goods and services supplied by businesses and the government
business cycle
diagram showing the cyclical fluctuations in economic activity; the business cycle shows that economies typically move through a pattern of economic growth with the phases: recovery, boom, recession, trough
central bank
government’s bank; institution that is responsible for an economy’s monetary policy
circular flow of income model
simplified model of the economy that shows the flow of money through the economy
consumer price index
measure of the average rate of inflation which calculates the change in the price of a representative basket of goods and services purchased by the ‘average’ consumer
consumption
spending by households on consumer goods and services
cost-push inflation
persistent increase in the average price level as a result of increases in the costs of production and a decrease in aggregate supply
crowding out
situation where the government spends more than it receives in revenue and needs to borrow money, forcing up interest rates and ‘crowding out’ private investment and private consumption
cyclical unemployment
unemployment that exists when there is insufficient aggregate demand in the economy and wages do not fall to compensate for this; it is usually associated with a recession
deflation
persistent fall in the average price level
demand-pull inflation
persistent increase in the average price level as a result of increases in aggregate demand
demand-side policies
policies to change the level of aggregate demand in the economy in order to achieve macroeconomic goals
direct taxation
taxation imposed on people’s income or wealth, and on firm’s profits
distribution of income
concerned with how much of an economy’s total income different individuals receive
economic growth
growth of real output in an economy over time, usually measured as growth in GDP
fiscal policy
government policies concerning its taxation and expenditure; fiscal policy may be used to manage the level of aggregate demand and may be expansionary or contractionary
frictional unemployment
unemployment that occurs when people entering the workforce after leaving education, or people who have left one job and are searching for a new job
full employment
exists when the number of jobs available in an economy is equal to or greater than the number of people actively seeking work
full employment level of output
level of output that is produced by the economy when all factors of production are employed
gross domestic product GDP
total money value of all final goods and services produced in an economy in one year
GDP per capita
total money value of all final goods and services produced in an economy in one year per head of population
Gini coefficient
coefficient that measures the income inequality; it is the ratio of the area between the Lorenz curve and the line of absolute equality to the total area under the line of equality; the higher the figure, the more unequal the income distribution
gross national product GNP/ gross national income GNI
total money value of all final odds and services produced in an economy in one year, plus net property income from abroad
government spending
spending by governments on goods and services
green GDP
a measure of the total output of an economy having taken into account the environmental consequences (externalities) involved in the production of that output
indirect taxation
tax on expenditure; it is added to the selling price of a good or service
inflation
persistent increase in the average price level
inflationary gap
gap that occurs when macroeconomic equilibrium occurs at a level that is above the full employment level of output
infrastructure
capital typically provided by the government to make economic activity possible such as transportation and communications systems, water and power lines, and public institutions including schools
injections
investment, government spending and export revenues that add spending to the circular flow of income
interest rate
price of credit or borrowed money
investment
spending by firms in capital goods
Keynesian AS model
model showing the LRAS curve has three distinct phases; macroeconomic equilibrium may occur at a level of output that is less than full employment, and suggests that the economy remains at this level of output when there is no government intervention
labour union
organization of workers whose goals include the improvement of working conditions and payments to workers
leakages
savings, taxes and import spending that remove spending from the circular flow of income
long-run aggregate supply LRAS
AS that is dependent upon the resources in the economy and that can only be increased by improvements in the quantity or quality of factors of production
Lorenz curve
curve illustrating the distribution of income in an economy; the further the curve is from the line of absolute equality, the more unequal is the distribution of income
monetary policy
government policies concerning an economy’s official interest rate and money supply; monetary policy may be used to manage the level of aggregate demand and may be expansionary or contractionary
multiplier
amount by which an injection is multiplied in order to calculate the final addition to national income as a result of the injection
natural rate of unemployment
rate of unemployment that is exists when the economy is at full employment level of output
Neo classical AS model
model showing that the LRAS curve is vertical at the full employment level of output
net national income NNP
GNP minus depreciation (capital consumption)
nominal GDP
GDP, not adjusted for inflation
Phillips curve in the short run
curve that illustrates the view that there is a short-run inverse relationship between the inflation rate and the unemployment rate
Phillips curve in the long run
vertical line at the natural rate of unemployment that illustrates the view that there is no trade-off between the inflation rate and the unemployment rate
privatisation
type of supply-side policy where the government sells public assets to the private sector
progressive taxation
system of direct taxation where as income increases, the fraction of income paid as taxes
increases
proportional taxation
system of direct taxation where as income increases, the fraction of income paid as taxes
remains constant
real GDP
GDP, adjusted for inflation
real wage unemployment
unemployment that exists when real wages in the economy get pushed up above their equilibrium, either by the government or by trade unions
recessionary gap
gap that occurs when macroeconomic equilibrium occurs at a level that is less than the full employment level of output
regressive taxation
system of direct taxation where as income increases, the fraction of income paid as taxes
decreases
savings
portion of disposable income not spent on consumption of consumer goods
seasonal unemployment
unemployment that exists when people are out of work because their usual job is out of
season, e.g. ski instructor in summer
short-run aggregate supply SRAS
AS that varies with the level of demand for goods and services and that is shifted by changes in the costs of factors of production
stagflation
situation where an economy facing stagnant growth, with high rates of unemployment and high rates of inflation
structural unemployment
unemployment that exists when in the long term the pattern of demand and production methods change and there is a permanent fall in the demand for a particular type of labour
supply-side policies
policies to shift the long-run aggregate supply curve to the right, thus increasing potential output in the economy
transfer payments
payment from the government that is received when there is no good or service exchanged, e.g. unemployment benefits; transfer payments are a means of redistributing income in an economy
underemployment
exists when workers are carrying out jobs for which they are overqualified or hen workers are employed part-time, even though they are available for full-time employment
unemployment rate
number of unemployed workers expressed as a percentage of the total workforce
unemployment
state of being without work, but wiling and able to work, and actively looking for a job
