sl econ definitions

National Income

The value of all goods and services produced in a country within a certain time period.

The Output Method

Measures national income by calculating the value of all finished goods and services produced in the country's economy in a year.

The Income Method

Measures the national income by calculating the sum of wages, rent, interest, and profits in a year.

The Expenditure Method

Measures the national income by calculating the total amount of expenditure in the economy in a year.

Gross Domestic Product

The value of a country's output of finished goods and services in a year.

Gross National Income

The value of a country's output of finished goods and services in a year, plus incomes from abroad.

Real GDP/GNI

adjusted for inflation by using constant prices.

Real GDP/GNI Per Capita at Purchasing Power Parity

adjusted for the cost of living in countries.

Business Cycle

A model that describes both the short and long term trends in economic activity over time

OECD Better Life Index/Happiness Index/Happy Planet Index

An alternative to national income as a measure of wellbeing.

Aggregate Demand

The total value of all goods and services consumers are willing and able to purchase in an economy per year.

Aggregate Supply

The total value of all goods and services producers are willing and able to sell in an economy per year.

Inflationary Gap

Exists when an economy's real GDP exceeds its potential long-run full employment output.

Deflationary Gap

Exists when an economy's real GDP is below its potential long-run full employment output.

Full Employment

Exists when an economy is at its natural rate of unemployment, and the economy is operating at its full capacity.

Natural Rate of Unemployment

The level of employment at when the economy is operating at full employment, consisting of seasonal, frictional, and structural unemployment.

Economic Growth

A sustained increase in a country's real GDP over time.

Actual Output

The current level of real GDP in an economy.

Potential Output

The possible level of real GDP to reach in an economy.

Unemployment

The issue when people willing and able to work are unable to find jobs.

Labor Force

All people of working age who are either employed or willing and able to work.

Hidden Unemployment:

People who classify as unemployed but are not included in official unemployment records.

Underemployment

The issue when people in the labor force are unable to find enough work.

Cyclical Unemployment

Unemployment caused by a lack of demand for goods and services.

Structural Unemployment

Unemployment caused by technical mismatches between worker abilities and job requirements.

Seasonal Unemployment

Unemployment caused by periodical changes in the demand for labor during the year.

Frictional Unemployment

Unemployment caused by temporarily jobless people actively searching for new jobs.

Natural Rate of Unemployment:

The level of employment at when the economy is operating at full employment, consisting of seasonal, frictional, and structural unemployment.

Inflation

A sustained rise in the general price level of an economy over time.

Deflation

A sustained decrease in the general price level of an economy over time.

Disinflation

A fall in the rate of inflation.

Consumer Price Index

A weighted average of prices of typical household goods and services.

Cost-Push Inflation

Inflation caused by higher costs of production, which decreases aggregate supply, increasing the general price level.

Demand-Pull Inflation

Inflation caused by higher aggregate demand for goods and services, increasing the general price level.

Stagflation

Occurs when there is rising inflation but falling real GDP.

Equity

Refers to economic fairness, where people working harder will earn higher salaries.

Income Inequality

The issue of income being unequally distributed in an economy.

Wealth Inequality

The issue of assets being unequally distributed in an economy.

Gini Coefficient

A measure of either wealth or income inequality in an economy, with values ranging from 0 to 1.

Absoulute Poverty

Deprivation of basic human needs such as food, shelter, and sanitation.

Relative Poverty

The issue of households being unable to afford the standard of living in an economy.

Human Capital

The valued accumulation of skill knowledge, and experience of the labor force.

Progressive Taxes

Taxes that charge an increasing percentage as incomes increase.

Proportional Taxes

Taxes that charge a constant percentage at every income level.

Regressive Taxes

Taxes that charge a decreasing percentage as incomes increase

Direct Taxes

Taxes imposed on income, rather than expenditure.

Indirect Taxes

Taxes imposed on expenditure, rather than income.

Transfer Payments

A sum of money from the government to households or firms with no goods or services exchanged in the return.

Universal Basic Income

A guaranteed and unconditional minimum income guaranteed by the government.

Minimum Wages

The lowest salary firms are allowed to pay their workers in an economy, determined by the government.

Monetary Policy

The use of interest rates and the money supply to influence the level of economic activity and order to achieve macroeconomic objectives.

Interest Rates

The cost of borrowing money.

Real Interest Rate

The cost of borrowing money, adjusted for current inflation.

Money Supply

The total amount of money circulating in an economy.

Fiscal Policy

The use of taxation and government expenditure policies to influence the level of economic activity and achieve macroeconomic objectives.

Current Expenditure

Government expenditure on goods and services within the current fiscal year.

Capital Expenditure

Government expenditure on long-term projects.

Transfer Payments

A sum of money from the government to households or firms with no goods or services exchanged in the return.

Quantity Demanded

The amount of goods and services consumers are willing and able to purchase.

Law of Demand

States that the quantity demanded for a good or service decreases as price increases and vice versa.

The Income Effect

States that as the price of a product falls, consumers' real income increases and more will be bought.

The Substitution Effect

States that as the price of a product falls, more consumers will choose it over rivals and more will be bought.

Diminishing Marginal Utility

As more of a product is consumed, each additional unit brings declining satisfaction, and consumers are only willing to buy more at lower prices.

Market Demand Curve

The sum of all individual demand for a good or service.

Complementary Goods

Goods or services that are jointly demanded.

Substitute Goods

Goods or services that compete against each other and are hence in competitive demand.

Movement

A change in price changes the quantity.

Shift

A change in a non-price determinant changes the quantity.

Quantity Supplied

The amount of goods and services producers are willing and able to provide.

Law of Supply

States that the quantity supplied is directly proportional to price.

Market Supply Curve

The sum of all individual supply for a good or service.

Competitive Supply

The output of one good or service prevents the output of another.

Joint Supply

The output of one good or service increases the output of another.

Shortage

When there is excess demand for a good or service.

Surplus

When there is excess supply for a good or service

Price Mechanism

The interactions between consumers and producers that allocate resources and determines prices of goods and services.

Signalling Function

Provides information to consumers and producers on where resources should be allocated.

Incentive Function

Provides motivation for consumers and producers to change their behavior to maximize profits.

Rationing Function

Ensures scarce goods and services deter consumers by raising prices.

Consumer Surplus

The gain of all consumers who can consume a product at a lower price than what they were willing and able to pay.

Producer Surplus

The gain of all producers who can produce a product at a higher price than what they were willing and able to earn.

Social Surplus

The sum of consumer and producer surplus.

Allocative Efficiency

The social optimum when resources are distributed in the most effective and beneficial way.

Market Failure

The inability of the free market to achieve allocative efficiency.

Price Elasticity of Demand

A measure of how quantity demanded for a product varies based on price.

Income Elasticity of Demand

A measure of how quantity demanded for a product varies based on income.

Inferior Goods

Goods with a negative income elasticity (as incomes increase, less will be demanded)

Necessities/Normal Goods

Goods with an income elasticity between 0 and 1 (as incomes increase, more will be demanded, but less than the proportionate change).

Luxury Goods

Goods with an income elasticity of more than 1 (as incomes increase, more will be demanded, and more than the proportionate change).

Price Elasticity of Supply

A measure of how quantity supplied for a product varies based on price.

Price Ceiling

Government regulations that set a maximum price for a good or service.

Price Floor

Government regulations that set a minimum price for a good or service.

Indirect Tax

A payment taken indirectly from consumers by charging for their expenditure on goods and services.

Specific Tax

A fixed amount of tax on a good or service.

Ad Valorem Tax

A percentage tax on a good or service.

Government Failure

Arises when government intervention causes more social costs than benefits.

Allocative Efficiency

The social optimum when resources are distributed in the most effective and beneficial way.

Market Failure

The inability of the free market to achieve allocative efficiency.

Marginal Private Benefits

The additional value gained by households or firms when consuming/producing an extra unit of a good or service.

Marginal Private Costs

The additional expense incurred by households or firms when consuming/producing an extra unit of a good or service.