Macro D

Cost-push inflation

Inflation caused by an increase in the costs of production, shown by a shift of the SRAS curve to the left.

Demand-pull inflation

Inflation caused by an increase in aggregate demand, shown by a shift of the AD curve to the right. Also known as demand inflation.

Fisher equation

MV=PQ (the stock of money in the economy multiplied by the velocity of circulation of money equals the price level multiplied by the quantity of real output in the economy). If V and Q are assumed to be contant then an increase in M increases P.

Monetarist economists

An economist who argues that a prior increase in the money supply is the primary cause of inflation.

Inflation

A sustained increase in the general price level.

Long-run economic growth

Occurs when the productive capacity of the economy is increasing. It is illustrated on a diagram as a shift to the right of the LRAS curve or a rightward shift in the PPF.

Short-run economic growth

Occurs when existing spare capacity is used to increase economic output.

Negative output gap

Occurs when the economy is operating below productive potential. There is spare capacity in the economy.

Positive output gap

Occurs when the economy is operating above the productive potential.

Recession

When Real GDP falls for two or more consecutive quarters

Economic cycle

Fluctuations in economic activity

Demand-side shock

An event that causes a change in AD. A negative demand-side shock causes AD to fall and a positive demand-side shock causes AD to rise.

Supply-side shock

An event that causes a change in SRAS e.g. a change in costs of production. A negative supply-side shock causes SRAS to shift to the left and a positive supply-side shock causes SRAS to shift to the right.

Productive potential

The maximum output of an economy.

Economic growth

Occurs when Real GDP increases over time.

what are the benefits of economic growth

Higher disposable income

Higher employment

Higher profit for firms

Fiscal dividend for government

what is a fiscal dividend

the income the government receives from taxation

what are the costs/downsides of economic growth

Inflation (demand pull inflation)

Income inequality

Environmental costs

Current account deficit

what is current spending

the day-to-day, recurring expenses for running public services, like salaries, supplies, and grants

what are the macroeconomic objectives

Trade balance

Inflation (low)

Growth (sustainable)

Employment(high)

Redistribution of wealth

how could income inequality from economic growth be avoided

Balanced growth- not just from one dominant sector

how could income inequality be avoided

Inclusive growth- everybody benefits from growth