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Index Numbers (2 marks)
A figure showing the % change in a variable relative to a base year (always 100).
Price Level (2 marks)
The average of current prices across the entire economy (e.g., measured by CPI).
Spare Capacity:
When an economy is operating below its potential (YFE), meaning there are unemployed factors of production (negative output gap).
ILO Unemployment:
Those without a job, want a job, have actively sought work in the last 4 weeks and are available to start in 2 weeks.
Hot Money Flow Transmission (Interest Rate $\rightarrow$ Exchange Rate)

Real-Wage Unemployment (Classical)

Net vs. Gross Investment (LRAS Evaluation)
If Investment (I) only equals Capital Depreciation (replacing worn-out machines), it is "Gross" but not "Net." Result: No shift in LRAS; productive potential stays the same.
Income Tax vs. Ad Valorem Tax
Income Tax = Progressive/Direct tax on earnings (Reduces Inequality). Ad Valorem = Indirect tax as a % of price (VAT/Sugar tax). Never use them interchangeably.
Effectiveness of Demand-Side Policies (The Big 3)
1. Magnitude: Is 0.25% enough? 2. Confidence: If Animal Spirits are low, decreased Interest Rates won't stimulate borrowing. 3. Time Lags: 18–24 months for Monetary; "Recognition/Implementation" lags for Fiscal.