Lecture 7: Macroeconomics & Business Decisions

Opportunity Cost

The hidden price of a choice.

Macroeconomics

The study of the economy as a whole, focusing on big-picture factors like growth, inflation, and unemployment that shape the business environment.

Gross Domestic Product (GDP)

The total value of all goods and services produced within a country over a specific period, used as a primary measure of economic growth.

Recession

A period of economic decline characterized by at least two consecutive quarters of falling GDP.

Inflation

A general rise in prices that erodes consumer purchasing power and increases business input costs.

Demand-pull Inflation

Inflation caused by 'too much money chasing too few goods ' where high demand drives up prices.

Cost-push Inflation

Inflation driven by rising costs of raw materials or labor.

Consumer Price Index (CPI)

The primary tool used to measure inflation by tracking the price changes of a basket of goods and services.

Frictional Unemployment

Normal, short-term unemployment that occurs when people are between jobs.

Structural Unemployment

Longer-term unemployment caused by a mismatch between workers' skills and the needs of the labor market.

Cyclical Unemployment

Unemployment directly caused by downturns in the business cycle.

Monetary Policy

Actions taken by a Central Bank to control the money supply and interest rates to manage inflation and growth.

Fiscal Policy

The government's use of taxation and public spending to influence the economy's direction.

Expansionary Policy

Government or Central Bank actions, such as cutting taxes or lowering interest rates, intended to stimulate economic growth.

Contractionary Policy

Policy actions like raising taxes or interest rates designed to slow down inflation.

Business Cycle

The natural rhythm of the economy moving through phases of expansion, peak, contraction, and trough.

Comparative Advantage

The principle that nations should specialize in producing goods they are relatively best at and trade for others to lower overall costs.

Balance of Payments (BoP)

A record of all economic transactions between a country's residents and the rest of the world.

Exchange Rate

The price of one currency expressed in terms of another currency, which affects import/export costs and profit margins.