MACRO

Aggregate Demand (AD)

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

Aggregate Supply (AS)

The total supply of goods and services that firms in an economy plan to sell during a specific time period.

Business Confidence

A measure of the degree of optimism among firms in an economy about the future performance of firms and the economy; it is measured on the basis of surveys of business managers. Is an important determinant of the investment component of aggregate demand.

Business Cycle

The cycle of economic expansion and contraction that occurs over time, consisting of phases such as expansion, peak, contraction, and trough.

Consumer Confidence

the extent to which people are optimistic or pessimistic about the future health of the economy

Disposable Income

The amount of money that households have available for spending and saving after income taxes have been deducted.

deflationary/recessionary gap

The difference between the actual output of an economy and its potential output when the economy is in a recession.

Economic Growth

An increase in the production of goods and services in an economy over a period of time, typically measured by GDP.

exports

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

full employment level of output

The level of output at which all available labor resources are being used in the most efficient way possible.

Government (national/public) debt

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

Government spending (G)

Expenditures by government on goods and services.

Gross Domestic Product (GDP)

The total monetary value of all finished goods and services produced within a country's borders in a specific time period.

Gross National Income (GNI)

The total income earned by a nation's residents and businesses, including any income earned abroad.

Happiness index

A measure that evaluates the well-being and happiness of a population.

Happy Planet index

An index that combines four elements to show how efficiently residents of different countries are using environmental resources to lead long, happy lives. The elements are well-being, life expectancy, inequality of outcomes, and ecological footprint.

Imports

Goods and services brought into a country from abroad for sale.

Inflationary gap

The difference between actual output and potential output when the economy is operating above its full employment level.

Informal market

Economic activity that occurs outside of government regulation and taxation.

Infrastructure

The basic physical systems of a country, including transportation, communication, sewage, water, and electric systems.

Interest rates

The cost of borrowing money

Investment (I)

The addition of capital stock to an economy by firms

Macroeconomics

The branch of economics that studies the behavior and performance of an economy as a whole.

National income

The total income earned by a nation's residents in the production of goods and services.

Net exports (X-M)

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

Nominal GDP

The total value of all goods and services produced in a country at current market prices.

OECD Better Life index

An index that measures well-being across countries based on various factors such as income, jobs, education, and health.

Real GDP

The total value of all goods and services produced in a country, adjusted for inflation.

Recession

A significant decline in economic activity across the economy lasting more than a few months.

Recovery

The phase following a recession, where economic activity begins to increase again.

unemployment

People of working age who are without work, available for work, and actively seeking employment but unable to find it.

unemployment

The percentage of the labour force (not the whole population) who are out of work.

employment rate

The percentage of the labour force in work.

labour force

people of working age (15+) who are employed (including the self-employed) plus those who are actively seeking work (in the last 4 weeks) and who are available to work (within the next 2 weeks) but don't have a job.

underemployment

want full-time employment but can only find part-time employment. People have jobs that do not make full use of their skills and education.

economically inactive

Some people of working age choose not to actively look for work. They may be looking after ill family members or children or have chosen to take an early retirement. They are considered economically inactive, rather than unemployed. These people are NOT part of the labour force and are therefore not included in unemployment.

structural unemployment

Structural unemployment occurs due to permanent fall in demand for a particular type of labour. It results in a mismatch of skills of labour and the types of jobs available. Therefore, structural unemployment often has a longer lasting impact than seasonal or frictional unemployment and is therefore more concerning/difficult to tackle.

seasonal unemployment

changes in employment due to seasonal changes like weather

frictional unemployment

Changing jobs to advance your career or seek better opportunities leads to frictional unemployment.

cyclical unemployment

unemployment caused by a downturn in the

business cycle. It results from a lack of demand for the goods and services in an economy. associated with decreases in aggregate demand where

equilibrium is below the full employment level of output

actual growth

A sustained increase in a country's real GDP over time. This is usually expressed as the annual percentage change in real national output.

potential growth

long-term growth where there is an increase in the quality or quantity of the factors of production and therefore the full employment level of output of the economy has increased. (Potential output is

the possible level of real GDP of an economy if all resources are used efficiently).

inflation

the sustained (persistent) rise in the

general price level in an economy over a given period of time. It means that on average, prices in the economy are rising and purchasing power of the unit of currency

is declining.

inflation rate

percentage change in the general price level from the previous period.

price stability

exists when the general level of prices remain broadly constant; there is a low and stable rate of inflation (many central banks target an inflation rate between 1-3%.)

CPI

a weighted index of average consumer prices of goods and services over time and is used to measure inflation for an average household in the economy.

deflation

persistent decrease in the level of prices. It means the average price level is falling

disinflation

If prices are still rising but at a slower rate

cost-push inflation

Cost-push inflation happens when the costs of production increase (independently

from AD).

types of budgets

Surplus budget: Estimated gov't revenue > Estimated gov't expenditure

Deficit budget: Estimated gov't revenue < Estimated gov't expenditure

Balanced budget: Estimated gov't revenue = Estimated gov't expenditure

debt servicing costs

These are the expenses of financing the national debt. That is, repaying the principal amount borrowed plus interest costs.

credit ratings

refers to the measure of a borrower's ability to repay a loan.

sustainable government debt

a level of debt where the government has adequate revenues to fulfill its debt obligations (which are equal to the payment of interest and repayment of the borrowed amount) without accumulating overdue debt payments while also allowing economic growth to continue to a reasonable level.

payment of interest and repayment of the borrowed amount) without accumulating overdue debt payments while also allowing economic growth to continue to a reasonable level.

demand management policies

policies that aim to influence aggregate demand

monetary policy

Monetary policy is defined as the set of official policies governing the supply of money and interest rates in an economy in order to influence aggregate demand.

expansionary monetary policy

The central bank increases the money supply

and/or lowers interest rates in order to increase aggregate demand (to close a negative output gap).

contractionary monetary policy

The central bank decreases the money supply and/or raises interest rates in order to decrease aggregate demand (to close an inflationary gap).

interest rate

the price of borrowing money or the return paid to savers, usually expressed as a percentage of the loan or amount saved.

fiscal policy

the use of spending and taxation

strategies aimed to influence the level of economic activity and achieve the macroeconomic goals of low unemployment, sustainable growth and price stability through influencing aggregate demand.

expansionary fiscal policy increases aggregate demand

contractionary, or deflationary fiscal policy decreases aggregate demand.

automatic stabilizers

Automatic tools in fiscal policy which tend to reduce the short-term fluctuations of the economy without government changing its present expenditure and taxation policies.

to reduce the short-term fluctuations

of the economy without government

changing its present expenditure and

taxation policies.

supply side policy

aim to increase long run aggregate supply in the economy by increasing the quantity and or quality of the factors of production.

There are two types of supply-side policies:

market oriented ("supply-side" economists)

and interventionist

Unlike demand side policies, they do not attempt to stabilize the economy

deregulation

elimination or reduction of government

regulation of the activities in the private sector

interventionist supply side policies

based on the premise that government can be a driver in actively encouraging economic

growth. They involve government

expenditure on activity aimed to enhance the productive capacity of the economy.

means testing

determination of whether an individual or family is eligible for government assistance or welfare based on their income

income

a flow value. It is how much is earned in a particular time period.

wealth

a stock value, it accumulates over time. it can also generate income

Lorenz curve

represents the cumulative percentage of income against the cumulative percentage of the population (by income decile).

Lorenz curves closer to the line of complete equality have more equal distributions of income than those further out.

Gini coefficient

a number between 0 and 1 that is used as an indicator of equality of income distribution. A value of 0 represents perfect equality and 1 indicates perfect inequality.

poverty

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

absolute poverty

Falling below a set income that allows a minimum standard of living to ensure basic needs are met.rate = $3 a day

relative poverty

Falling below a benchmark level. This is poverty by comparison.

(OECD definition is 1/2 the median income of the economy- countries can have different benchmarks)

minimum income standard

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

multidimensional poverty index

uses a number of weighted criteria to measure poverty in a country based on a survey of households. This data is aggregated to give a national measure of poverty. A person is said to be multidimensionally poor if they face hardship in at least one third of the 10 weighted indicators in the MPI. The lower the MPI, the greater the level of poverty.

inequality of opportunity

unequal access to a good quality of life in terms of income, education, employment, healthcare