Key Economic Terms in Macro-Economics

Flashcards covering key economic vocabulary terms in macroeconomics.

Microeconomics

The branch of economics that deals with the behavior of individuals and firms in making decisions regarding the allocation of resources.

Macroeconomics

The branch of economics that studies the behavior and performance of an economy as a whole, focusing on aggregate changes.

Economic Growth

An increase in the production of goods and services in an economy.

Macroeconomic Stabilization

Policies aimed at reducing the severity of economic fluctuations.

Efficiency

The optimal use of resources to achieve the desired outcomes.

Equity

The fairness or justice in the distribution of economic resources.

Fiscal Policy

Government policy regarding taxation and spending to influence the economy.

Monetary Policy

The process by which a central bank controls the money supply to achieve specific goals.

Foreign Trade Policy

Regulations and policies governing international trade.

Potential Output

The highest level of economic activity that an economy can sustain over the long term without increasing inflation.

Natural Unemployment Rate

The rate of unemployment when the economy is at full employment.

Aggregate Supply

The total amount of goods and services that producers are willing and able to supply at a given overall price level in a given time period.

Aggregate Demand

The total demand for all goods and services in an economy at a given overall price level and in a given time period.

Total Income

The total monetary income received by households, businesses, and the government.

Total Spending

The sum of all expenditures made in an economy.

Gross Domestic Product (GDP)

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

Gross Output (GO)

The total value of all goods and services produced in the economy.

Gross National Income (GNI)

The total income earned by a nation's residents and businesses, regardless of where the income is generated.

Consumption (C)

The total spending by households on goods and services.

Investment (I)

Expenditures on capital goods used for future production.

Government Spending

Expenditures by the government on goods and services.

Transfer Payments

Payments made by the government to individuals without any exchange of goods or services.

Exports (X)

Goods and services produced in one country and sold to another.

Imports (M)

Goods and services brought into a country from abroad.

Net Exports (NX)

The value of a country's total exports minus the value of its total imports.

Net Investment

The total amount of investment in an economy minus depreciation.

Nominal GDP

The total economic output of a country valued at current market prices.

Real GDP

The total economic output of a country adjusted for inflation.

GDP Deflator

A measure of the level of prices of all new, domestically produced, final goods and services in an economy.

Inflation Rate

The rate at which the general level of prices for goods and services is rising.

Depreciation

The reduction in the value of an asset over time.

Saving

The portion of income that is not spent on consumption.

Net Tax

Total taxes paid by households minus government transfer payments.

Net Domestic Product (NDP)

Gross Domestic Product minus depreciation.

Net National Product (NNP)

Gross National Product minus depreciation.

National Income (NI)

The total income earned by a nation's residents and businesses.

Personal Income (PI)

The total income received by individuals, including wages, salaries, and dividends.

Disposable Income (DI)

Income available to individuals after taxes.

Economic Growth Rate (g)

The percentage increase in a country's output over a specified period.

National Saving

The sum of private and public saving.

Private Saving

Saving by individuals and businesses.

Public Saving

Saving by the government.

Budget Surplus

A situation where income exceeds spending.

Budget Deficit

A situation where spending exceeds income.

Budget Balance

The difference between revenue and spending.

Government Debt

The total amount of money that a government owes to creditors.

Marginal Propensity to Consume (MPC)

The increase in consumer spending caused by an increase in disposable income.

Marginal Propensity to Save (MPS)

The increase in savings that occurs when disposable income increases.

Multiplier

A factor that amplifies the effect of changes in spending.

Expansionary Fiscal Policy

Increased government spending and/or decreased taxation to stimulate the economy.

Contractionary Fiscal Policy

Decreased government spending and/or increased taxation to reduce inflation.

Money Multiplier

The maximum amount of money that can be created with each unit of reserve.

Medium of Exchange

An intermediary instrument used to facilitate the exchange of goods and services.

Unit of Account

A standard numerical unit of measure that provides a consistent measure of value.

Store of Value

An asset that maintains its value over time.

Liquidity

The ease with which an asset can be converted into cash.

Commodity

A basic good used in commerce that is interchangeable with other goods of the same type.

Fiat Money

Currency that a government has declared to be legal tender but is not backed by a physical commodity.

Demand Deposits

Funds held in bank accounts that can be withdrawn on demand.

Currency

The physical money, such as coins and banknotes.

Central Bank

The institution that manages a country's currency, money supply, and interest rates.

Money Supply

The total amount of monetary assets available in an economy.

Money Demand

The desired holding of financial assets in the form of money.

Interest Rate

The amount charged by lenders to borrowers for the use of money.

Nominal Interest Rate

The stated interest rate of a loan or financial product, not adjusted for inflation.

Real Interest Rate

The nominal interest rate adjusted for inflation.

Open-Market Operations (OMO)

Activities by a central bank to buy or sell government securities in the open market.

Reserve Ratio

The fraction of deposits that a bank must hold in reserve.

Reserves

Funds that banks hold in cash that are not lent out.

Reserve Requirements

The minimum amount of reserves a bank must hold against deposits.

Reserve Exceeds

The reserves held by banks that are above the required minimum.

Discount Rate

The interest rate charged to commercial banks for loans received from the central bank.

Investment Equals Saving

This principle in economics states that all investment must be financed by saving.

Liquidity Preferences and Money Supply

This refers to the relationship between consumers' preferences for liquidity and the total amount of money available in the economy.

IS-LM Model

A macroeconomic model that describes the interaction between the goods market (IS) and the money market (LM).

Crowding-out Effects

When government spending leads to a reduction in private sector spending.

Labor Force

The total number of people employed or actively seeking employment.

Unemployment Rate

The percentage of the total labor force that is unemployed but actively seeking employment.

Labor Force Participation Rate

The portion of the working-age population that engages actively in the labor market.

Cyclical Unemployment

Unemployment that results from economic downturns.

Frictional Unemployment

Short-term unemployment that arises from the process of matching workers with jobs.

Structural Unemployment

Long-term unemployment arising from shifts in the economy.

Moderate Inflation

Inflation that is relatively low and stable, generally acceptable in a growing economy.

Hyper Inflation

Extremely high and typically accelerating inflation.

Phillips Curve

A graph that illustrates the inverse relationship between the rate of unemployment and the rate of inflation.

Demand-Pull Inflation

Inflation caused by high demand for goods and services.

Cost-Push Inflation

Inflation caused by an increase in prices due to increases in the cost of wages and raw materials.

Foreign Trade Policy

Policies that govern international trade.

Exchange Rate Policy

Regulations that determine the value of one currency in relation to another.

Appreciation

An increase in the value of a currency in relation to other currencies.

Depreciation

A decrease in the value of a currency in relation to other currencies.

Nominal Exchange Rate

The rate at which one currency can be exchanged for another, without adjusting for inflation.

Real Exchange Rate

The nominal exchange rate adjusted for differences in price levels between two countries.

Balance of Payments

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

Current Account (CA)

A component of a country's balance of payments that includes the value of exports and imports of goods and services.

Capital Account (KA)

A component of the balance of payments that records all transactions made between entities in one country with the rest of the world related to ownership of assets.

Finance Account (FA)

A component of the balance of payments that records the flow of investments into and out of the country.

Foreign Exchange Reserves

Funds held by a central bank in foreign currencies, used to back liabilities and influence monetary policy.