Unit 3: Macroeconomics Flashcards
Absolute poverty
People living below the minimum income necessary to satisfy basic physical needs (food, clothing, and shelter); as of October 2015, the World Bank international poverty line is set at US$1.90 PPP per day.
Aggregate demand (AD)
Planned spending on domestic goods and services at different average price levels, per period of time. Consists of consumption, investment and government expenditures plus net exports.
Aggregate demand curve
A curve showing the planned level of spending on domestic output at different average price levels.
Aggregate supply (AS)
The planned level of output domestic firms are willing and able to offer at different average price levels.
Aggregate supply curve
A curve showing the planned level of output that domestic firms are willing and able to offer at different average price levels.
Business confidence
A measure of the degree of optimism that businesses have about the economic future.
Business cycle
The short-term fluctuations of real GDP around its long-term trend (or potential output).
Business tax
Tax levied on the income of a business or corporation.
Capital gains tax
A tax on the profits realized from the sale of financial assets such as stocks or bonds.
Central bank
An institution charged with conducting monetary and exchange rate policy, regulating behaviour of commercial banks, and providing banking services to the government and commercial banks.
Consumer confidence
A measure of the degree of optimism that households have about their income and economic prospects.
Consumer price index (CPI)
The average of the prices of the goods and services that the typical consumer buys expressed as an index number. The CPI is used as a measure of the cost of living in a country and to calculate inflation.
Consumption (C)
Spending by households on durable and non-durable goods and on services over a period of time.
Contractionary fiscal policy
Refers to a decrease in government expenditures and/or an increase in taxes that aim at decreasing aggregate demand and thus reducing inflationary pressures.
Contractionary monetary policy
A policy employed by the central bank involving an increase in interest rates and aimed at decreasing aggregate demand and thus inflationary pressures. Referred to also as tight monetary policy.
Corporate indebtedness
The sum of what a corporation owes to banks or other holders of its debt.
Cost-push inflation
Inflation that is a result of increased production costs (typically because of rising money wages or rising commodity prices) and illustrated by a leftward shift of the SRAS curve.
Cyclical (demand-deficient) unemployment
Unemployment that is a result of a decrease in aggregate demand and thus of economic activity; it occurs in a recession.
Deflation
A sustained decrease in the average price level of a country.
Deflationary/recessionary gap
Arises when the equilibrium level of real output is less than potential output as a result of a decrease in AD.
Demand management
Policies that aim at manipulating aggregate demand through changes in interest rates (monetary policy) or changes in government expenditures and taxation in order to influence growth, employment and inflation.
Demand-pull inflation
Inflation that is caused by increases in aggregate demand.
Demand side policies
Refers to economic policies that aim at affecting aggregate demand and thus macroeconomic variables such as growth, inflation and employment; demand side policies include fiscal policy and monetary policy.
Direct taxes
Taxes on income, profits or wealth paid directly to the government.
Discount rate
The interest rate that a central bank charges commercial banks for short-term loans (also referred to as the refinancing rate).
Disinflation
When the average price level continues to rise but at a slower rate so that the rate of inflation is positive but lower.
Economic growth
Refers to increases in real GDP over time.
Expansionary fiscal policy
Refers to an increase in government expenditures and/or a decrease in taxes that aim at increasing aggregate demand and thus real output and employment.
Expansionary monetary policy
Monetary policy aiming at increasing aggregate demand through a decrease in interest rates; also referred to as easy monetary policy.
Expenditure approach
One of three analytically equivalent approaches of measuring GDP that adds all the expenditures made on final domestic goods and services over a period of time by households, firms, the government and foreigners.
Fiscal policy
A demand-side policy using changes in government spending and/or direct taxation to influence aggregate demand and thus growth, employment and prices.
Frictional unemployment
Unemployment of individuals who are in-between jobs, as people quit to find a better job or to move to a different location.
Full employment
A goal of macroeconomic policy that aims at fully utilizing the scarce factor of production labour. Full employment exists when the economy is producing at its potential level of real output and thus there is only natural unemployment (the AD–AS model considers the AD and AS curves together). In the production possibilities curve (PPC model), full employment exists when the economy is producing on the PPC.
Full employment level of output
The level of output that is produced by the economy when there is only natural unemployment.
Gini coefficient
A measure of the degree of income inequality of a country that ranges from zero (perfect income equality) to one (perfect inequality). Diagrammatically it is the ratio of the area between the Lorenz curve and the diagonal over the area of the half-square.
Government spending (G)
Refers to all spending by the government that is distinguished into current expenditures, capital expenditures and transfer payments.
Gross domestic product
(GDP) The value of all final goods and services produced within an economy over a period of time, usually a year or a quarter.
Gross national income
(GNI) The income earned by all national factors of production independently of where they are located over a period of time; it is equal to GDP plus factor income earned abroad minus factor income paid abroad.
Happiness Index
An index that is used to measure economic well-being of a population using several quality of life dimensions.
Happy Planet Index
An index that combines four elements to show how efficiently residents of different countries are using environmental resources to lead long, happy lives. The elements are well-being, life expectancy, inequality of outcomes and ecological footprint.
Household indebtedness
The money that households owe.
Households
Groups of individuals in the economy who share the same living accommodation, who pool their income and jointly decide the set of goods and services to consume.
Incentive-related policies
Policies that aim at improving economic incentives of individuals and firms.