Macroeconomics Definitions

Market

A place where buyers and sellers carry out an exchange

Competition

Buyers act independently; no one individual has market power (ability to control the price of production

Gross Domestic Product (GDP)

The market value of all final goods and services produced in a country over a time period

Gross National Income

The total income received by the residents of a country over a time period. The income of residents, regardless of their location, is considered

Nominal value

Money value or value measured in terms of prices that prevail at the time of measurement

Real value

Measure of value that takes into account changes in price over time

Real GDP/GNI

Nominal GDP/GNI adjusted to eliminate the influence of changes in prices.

GPD/GNI per capita

Dollar value of country’s GDP/GNI divided by the population

Price deflator

Shows how much change in GDP relies on change in price level

Purchasing Power Parities (PPPs)

Method of currency conversions that accounts for different price levels and therefore different purchasing powers across countries

National Income Statistics

Total market value of production in a country's economy during a year

Non-marketed output

transactions which occur without a payment being made in exchange for a good or service

Underground market

a market in which illegal goods and services are sold or legal goods and services are sold in an illegal way

parallel market

A market where buying and selling transactions are unrecorded, and are usually illegal.

poverty line

the estimated minimum level of income needed to secure the necessities of life

business cycle

Fluctuations in economic activity, such as employment and production

short-term fluctuations

Changes in business and economic activity that occur within the year.

Recession (depression)

Economic contraction of relatively short duration; where there is a falling real GDP and increasing unemployment of resources which last six months or more.

Long-term growth trend

In the business cycle diagram, refers to the line that runs through the business cycle curve representing average growth over long periods of time; shows how output grows over time when cyclical fluctuations are ironed out. The output represented by the long-term growth trend is known as potential output.

Potential output

The real output (GDP) an economy can produce when it fully employs its available resources

full employment

the level of employment reached when an economy produces at the max quantity of goods and services

Aggregate Demand

The total quantity of goods and services that all buyers in an economy want to buy over a particular time period, at different possible price levels

Interest rates

Interest expressed as a percentage; in the case of borrowed money, it is interest as a percentage of the amount borrowed. Change sin interest rates form the basis of monetary policy

consumer confidence

Measure of optimism of consumers about their future income and the future of the economy. Measured through surveys

wealth

The value of assets owned minus liabilities owed

Income taxes

Taxes paid by households on their incomes

Household indebtedness

How much households owe from borrowing in the past

Business confidence

Measure of optimism among firms in an economy about the future performance of firms and the economy. Measured through surveys

Business Taxes

Corporate income tax paid on firms' profits.

Corporate indebtedness

How much money firms owe from borrowing in the past

Exchange rates

The price of one’s country’s currency in terms of another country’s currency. As exchange rate ↑, value ↓

Aggregate Supply

Total amount of goods and services produced in economy over particular time period, at different price levels

Short-run aggregate supply

the total amount of goods and services produced in economy in the short run

Short-run

period of time when price of resources do not change together with changes in the price level

Long-run

period of time when price of resources do change together with changes in the price level

Long Run Aggregate Supply

Total amount of goods and services produced in economy in long run

Inflationary gap

When real GDP > potential GDP, and unemployment < natural rate of unemployment due to excess AD

Deflationary gap

When Real GDP < potential GDP, and unemployment > natural rate of unemployment due to insuffcient AD

natural rate of unemployment

Unemployment that occurs when economy is producing at its potential of full employment level of output

unemployment

People of working age who are actively looking for a job but are not employed

Unemployment rate

The number of unemployed people, expressed as a percentage of the labor force

Labour Market

the availability of employment and labour in terms of supply and demand

Labour Surplus

Labour performed in excess of the labour necessary to produce means of livelihood of worker

Labour shortage

Insufficient amount of people who can work

structural unemployment

Unemployment due to changes in demand for types of labour skills, geographical location of industries, or labour market rigidities

frictional unemployment

unemployment that occurs when people are in the process of moving jobs

seasonal unemployment

Demand for labour in certain industries changes on a seasonal basis because of variation in needs

cyclical unemployment

Unemployment over and above natural rate of unemployment and occurs during the downturn of the business cycle

Demand-deficient unemployment

Unemployment due to the lack of demand for goods and services in the economy

Inflation

A continuous increase in general price level

Deflation

A continuous decrease in general price level

Disinflation

A reduction in the rate of inflation

price index

Average of price for a given class of goods or services in a region at a time

Consumer price index

Measure of cost of living for typical household comparing basket of goods and services to base year

Demand pull inflation

Type of inflation caused by increase in AD

Cost Push inflation

Inflation caused by decrease in AS usually resulting from increases in cost of production

Hyperinflation

Price of goods and services increase uncontrollably over a period of time

Deferred Consumption

Occurs when consumers postpone spending such as if they expect the price level to fall

economic inequality

unequal distribution of income and opportunity between different groups in society

income inequality

The extent to which income is evenly distributed within a population

Wealth Inequality

the unequal distribution of assets within a population

Quintile

Dividing a group into fifths, a method often used to look at distribution of income

Lorenze Curve

A curve that graphs the cumulative percentage of income or wealth against the cumulative percentage of households used to show distribution within a population

Poverty

An inability to satisfy minimum consumption needs

absolute poverty

A situation where a person/family does not have enough income to meet basic human needs

relative poverty

A concept that compares the income of individuals or households in a society with median income

Minimum income standards

Identifies the amount of money different types of households require to achieve a socially acceptable standard of living.

Multidimensional poverty Index

A composite indicator that measures poverty in 3 dimensions: wealth, education, living standards

Opportunity

a set of circumstances that makes it possible to do something

inequality of opportunity

inequalities in potential outcomes in standards of living that arise from circumstances that are beyond one’s control

Globalization

economic integration on a global scale, involving increasing interconnectedness throughout the world

Pension

Regular payment made to person during retirement from investment fund that person or employer contributed during their working life

Poverty cycle

Arises when low income results in low savings, permitting only low investments in capital, and therefore low productivity of labour and income. The poverty is then passed on generationally. (example a person in poverty doesn’t have the money to go to college)

Direct taxes

Taxes paid directly to the governmentby the taxpayer, including personal income taxes, corporate income taxes, and wealth taxes.

Indirect taxes

Tax on spending on goods and services (tax collect from consumer by suppliers who remit to the government)

Proportional taxation

As income rises, tax rate remains the same

progressive taxation

As Income rises, tax rate rises

Regressive taxation

As income increases, tax rate also decreases

Universal Basic Income

financial support provided by a government in form of standard reoccurring payments to individuals without need for pre-qualification.