Macroecon terms

Output method

measures the economic activity by calculating the actual value of all final goods

Income method

measures the economic activity by calculating the value of all factor incomes earned in the economy - i.e. wages, profits, rents, and taxes

Expenditure method

measures the economic activity by calculating the value of total spending on newly produced goods and services during the year - i.e. C + I + G + (X-M)

GDP 

value of all final output of goods and services produced within a country in a year 

GNI

value of a country’s final output of all goods and services plus net factor income earned from abroad

Real GDP

value of all final output of goods and services produced within a country in a year, taking account of fluctuations in prices

Real GDP per capita

means expressing the real GDP of a country in terms of its population size, to represent the value of national income per person

Purchasing Power Parity(PPP)

exchange rates, which correct for differing price levels in different countries

Potential output

possible level of real GDP of an economy, if all resources are used efficiently

Green GDP

adjust the country’s GDP to take into account the value of environmental degradation, damage, & destruction associated with economic growth 

Better life index

Alternative to national income as a measure of well-being based on a set of 11 criteria identified by OECD

Happiness index

An alternative to national income as a measure of well-being, by considering how information technology, governance, and social norms influence communities and their level of well-being 

Happy planet index

measure of sustainable human well-being, that is, how individuals and countries can achieve long, happy, and sustainable lives

Aggregate demand(AD)

total quantity of aggregate output or real GDP that all buyers in an economy want to buy at different possible price levels, ceteris paribus. 

Consumption

total spending on goods and services from households in the domestic economy per time period 

Investment

expenditure of all firms in an economy in order to increase their capital stock and productive capacity 

Government spending 

total expenditure on goods & services by public sector

Net export

difference b/w the value of the county’s export earnings and its import expenditure in the year

Aggregate supply(AS)

total quantity of goods and services produced in an economy at a particular time period at different price levels 

SRAS

shows the relationship between the price levels and the quantity of real outputs produced by firms when resource prices do not change 

LRAS

full employment level of output the when all resource prices, including wages, change to match changes in the price level 

Keynesian AS

assumes that there is no long run, because wages (and other resource prices) as well as the price level do not fall easily

deflationary gap

situation where real GDP is less than potential GDP (unemployment > NRU)

inflationary gap

situation where real GDP is less than potential GDP (unemployment < NRU) 

Economic growth 

sustained increase in a country’s real GDP

labour force

people of working age who are in employment plus those who are seeking work

Actual Growth

refers to short-term growth, which occurs when an economy moves towards its potential level of GDP by using more of its resources in more efficient way 

Potential Growth

The possible level of real GDP of an economy, as shown on its production possibility curve, if all resources are used efficiently 

Unemployment 

when people are willing and able to work and actively seeking employment, but are unable to find work 

Claimant count 

A measure of the number of people who are out of work, actively seeking employment but claiming unemployment benefit 

Cyclical unemployment 

occurs during the downturns of the business cycle, when the economy is in a deflationary gap (demand-deficient unemployment)

Structural unemployment

when there is a mismatch b/w the jobs available in the market and the skills that workers can offer

frictional unemployment

when people are temporarily unemployed as they move b/w jobs 

Demand-pull inflation

caused by an excess increase in aggregate demand

Cost-push inflation

caused by a fall in aggregate supply

consumer price index(CPI)

weighted index of average consumer prices of goods & services over time, used to measure inflation

inflation 

sustained rise on general price level in an economy over time 

deflation

persistent fall in the average price level in an economy over time

equity

economic fairness, such as those with higher levels of qualifications, skill, and experience being paid more, that is the existence of justified inequality

equality

Everyone is paid/receives the same, so no inequalities exist  

Unequal distribution of income 

imbalances of income distributions, that is, very few members of the society account for a disproportionately high concentration of national income 

Poverty

condition of an individual, households, community, or country being extremely poor, that is, not being able to meet their basic human needs

absolute poverty

when people are deprived of basic human needs for survival

relative poverty

individuals and households who are earning income lower than the country’s median income

poverty line

an income level that is considered minimally sufficient to sustain a family in terms of food, housing, clothing, etc.

international poverty line 

min threshold level of income that a person must earn/have access to in order to meet the basic needs necessary for human survival 

minimum income standard 

measures the lowest amount of income needed for what members of the public the country think is acceptable to be able to live in a socially appropriate way

Multidimensional Poverty Index 

is a composite measure of poverty that identifies numerous deficiencies of individuals and households based on three dimensions/indicators of poverty - health, education, and standards of living 

Progressive tax

charges a higher percentage tax on an individual’s income rises

regressive tax

applies a uniform rate to all tax payers, making the percentage of tax paid per income to decrease as the income increase

Proportional tax

the percentage tax paid remains proportional to the rise in income 

Direct tax

levy imposed on income

Corporate income tax

direct tax imposed on the annual profits of private sector businesses

Wealth tax

direct tax based on the market value of assets by an individual, household, or firm 

Indirect Tax

government levy on consumption

universal basic income

granted a minimum level of income that a government guarantees to each individual in a country 

minimum wage 

The lowest rate of pay that firms must pay to their employees per time period, set by the government 

Demand side policy 

demand management, focus on changing AD, or shifting the AD curve 

monetary policy

used on interest rate and money supply to influence the level of aggregate demand

central bank

monetary authority responsible for regulating the country’s financial system and economic activity, including the regulation of commercial banks and the country’s money supply 

Interest rate

The cost of borrowing money or the return for savers 

Inflation target

The practice of central banks using monetary policy to achieve a specific rate of inflation

expansionary monetary policy

increase in the money supply and decrease in the IR by central bank to boost AD

contractionary monetary policy

decrease in the money supply and increase in the IR by the central bank to reduce AD

Fiscal policy

use of taxation and government expenditure polices to influence aggregate demand

tax

government levy on income directly or indirectly through expenditure

privatization

transfer of the ownership of government assets from the public sector to owners in the private sectors 

current expenditure

government spending on G&S consumed within the year 

capital expenditure

long-term items of government spending that boost the economy’s productive capacity

Transfer payment

sum of money from the government to another party for which no G&S are being paid, that is, there is no corresponding output/economic activity for such payment 

expansionary fiscal policy

increased government spending &/or reduced taxes to stimulate the level of economic activity.

supply side policy

long-term government strategies used to increase the potential productive capacity of the economy by influencing aggregate supply 

MBSSP

focus on freeing up markets and improving market incentives to increase investments and productivity 

Deregulation

reduction or removal of government rules & directives in an industry, with the intention of creating more competition and greater efficiency 

Privatisation

form of SSP that involves the sale / transfer of state-owned assets to the private sector, in order to improve competition, efficiency and productivity 

Trade liberalization

regulation or removal of trade barriers such as tariffs and quotas, there by increase competition, productivity and efficiency in international trade 

Incentive related policies

form of market-based supply side policies that create greater incentives to work, mainly by cutting income and business taxes 

Interventionist SSP

government intervention in an economy to increase LRAS and potential output