UGBS 204 – Macroeconomics for Business: Key Vocabulary

A comprehensive set of vocabulary flashcards covering foundational concepts, measurements, policies, and models presented in UGBS 204: Macroeconomics for Business. These flashcards help students review definitions of key macroeconomic terms, understand relationships among variables, and prepare for exams.

Macroeconomics

The branch of economics that studies the economy as a whole, focusing on aggregate variables such as GDP, inflation, and unemployment.

Microeconomics

The branch of economics that studies individual markets, households, and firms rather than the aggregate economy.

Gross Domestic Product (GDP)

The market value of all final goods and services produced within a country’s borders during a specific period.

Real GDP

GDP measured at constant prices; reflects actual physical output, excluding price changes.

Nominal GDP

GDP measured at current market prices; includes changes in both quantities and prices.

GDP Deflator

A price index that measures the overall level of prices for goods and services included in GDP.

Consumer Price Index (CPI)

A measure of the average change over time in the prices paid by consumers for a market basket of goods and services.

Inflation

The rate at which the general price level of goods and services rises over time.

Deflation

A sustained decrease in the general price level of goods and services.

Economic Growth

A sustained increase in real GDP or real GDP per capita over time.

Potential GDP

The level of output an economy can produce when operating at full employment.

Business Cycle

Short-run fluctuations in economic activity consisting of expansion, peak, contraction (recession), and trough phases.

Expansion

A period in the business cycle when real GDP, employment, and incomes are rising.

Contraction (Recession)

A period of declining real GDP, rising unemployment, and reduced economic activity lasting at least six months.

Depression

A severe and prolonged recession characterized by significant declines in output and employment.

Peak

The highest point in the business cycle before economic activity begins to contract.

Trough

The lowest point in the business cycle where economic activity bottoms out before recovery begins.

Circular Flow Model

A diagram showing the economic transactions between households and firms in goods and factor markets.

Factors of Production

Inputs used to produce goods and services: land, labor, and capital.

Consumption (C)

Household spending on durable goods, nondurables, and services.

Investment (I)

Expenditure on capital goods, residential construction, and inventory accumulation by firms.

Government Purchases (G)

Spending by government on goods and services, excluding transfer payments.

Net Exports (NX)

Exports minus imports; the external component of GDP.

National Income Accounting

A framework for measuring a nation’s economic activity, including GDP, income, and spending.

Product (Value-Added) Approach

Calculates GDP by summing value added at each stage of production.

Income Approach

Measures GDP by adding all incomes earned by factors of production: wages, rent, interest, and profit.

Expenditure Approach

Calculates GDP by summing spending on final goods: C + I + G + NX.

Value Added

A firm’s output minus its purchases of intermediate goods; avoids double counting in GDP.

Underground Economy

Economic activity that is not reported to authorities and therefore omitted from official GDP.

Gross National Product (GNP)

Market value of final goods and services produced by a country’s residents, regardless of location.

Net Factor Payments (NFP)

Income earned by domestic residents from abroad minus income earned by foreigners domestically.

Disposable Income

Income available to the private sector after taxes and transfers: Y + NFP + TR + INT − T.

Private Saving

Disposable income minus consumption: Yd − C.

Government Saving

Taxes minus government spending and transfers: T − G − TR − INT.

National Saving

Sum of private and government saving; finances investment and the current account.

Current Account (CA)

Balance of trade in goods/services plus net factor income and transfers.

Twin Deficits

The observed link between a government budget deficit and a current account deficit.

Price Index

A measure showing how an average price level changes over time relative to a base year.

Autonomous Consumption (α)

The level of consumption that occurs even when disposable income is zero.

Marginal Propensity to Consume (MPC)

The fraction of an additional unit of income that is spent on consumption.

Average Propensity to Consume (APC)

Total consumption divided by total disposable income.

Marginal Propensity to Save (MPS)

The fraction of an additional unit of income that is saved; 1 − MPC.

Autonomous Expenditure

Spending that does not depend on current income, such as autonomous C, I0, G0, or NX0.

Multiplier

The factor by which a change in autonomous spending alters equilibrium income: 1/(1 − MPC).

Autonomous Tax Multiplier

The change in equilibrium output resulting from a change in autonomous taxes: −MPC/(1 − MPC).

Balanced-Budget Multiplier

The effect of equal increases in G and T on income; equals 1.

Fiscal Policy

Government decisions on spending and taxation to influence economic activity.

Expansionary Fiscal Policy

Increases in government spending or reductions in taxes aimed at boosting aggregate demand.

Contractionary Fiscal Policy

Reductions in government spending or increases in taxes to dampen aggregate demand.

Automatic Stabilizers

Built-in fiscal mechanisms (e.g., progressive taxes, unemployment benefits) that reduce output fluctuations without new legislation.

Crowding Out

A reduction in private investment or consumption caused by higher interest rates stemming from expansionary fiscal policy.

Money

Anything widely accepted as a medium of exchange, unit of account, and store of value.

Commodity Money

Money with intrinsic value, such as gold or cowries.

Fiat Money

Currency without intrinsic value that is declared legal tender by government.

Medium of Exchange

A function of money facilitating transactions without barter.

Unit of Account

A function of money that provides a common measure of the value of goods and services.

Store of Value

A function of money that allows purchasing power to be saved and spent later.

Narrow Money (M1)

Currency in circulation plus demand deposits (checking accounts).

Broad Money (M2)

M1 plus savings and time deposits; in Ghana, M2+ adds foreign currency deposits.

Transactions Demand for Money

Money held to make everyday purchases; positively related to income.

Precautionary Demand for Money

Money held for unexpected expenses or emergencies.

Asset Demand for Money

Money held as part of a portfolio for liquidity and safety; inversely related to interest rates.

Required Reserve Ratio (CRR)

The fraction of deposits banks must hold as reserves by regulation.

Money Supply Multiplier

The ratio 1/CRR showing how initial reserves expand into a larger money supply.

Open Market Operations (OMO)

Central-bank purchases or sales of government securities to influence the money supply.

Policy (Monetary Policy) Rate

The benchmark interest rate set by a central bank to signal monetary stance.

Reserve Requirement Policy

A tool whereby the central bank alters the required reserve ratio to influence lending and money creation.

Monetary Policy

Central-bank actions that change the money supply or interest rates to influence economic activity.

Expansionary Monetary Policy

An increase in money supply (or cut in policy rate) intended to lower interest rates and stimulate demand.

Contractionary Monetary Policy

A decrease in money supply (or rise in policy rate) aimed at reducing inflationary pressure.

IS Curve

Shows combinations of interest rates and output where the goods market is in equilibrium (I = S).

LM Curve

Shows combinations of interest rates and output where the money market is in equilibrium (Md = Ms).

IS-LM Model

A framework combining goods and money markets to analyze simultaneous equilibrium and policy effects.

Unemployment

The condition in which people who are able and willing to work cannot find jobs.

Labour Force

The sum of employed and unemployed individuals actively seeking work.

Unemployment Rate

Unemployed persons as a percentage of the labour force.

Discouraged Workers

Individuals who have stopped searching for work and are therefore excluded from the labour force.

Frictional Unemployment

Short-term unemployment arising from job search and transitions between jobs.

Structural Unemployment

Unemployment resulting from mismatches between workers’ skills and job requirements.

Cyclical Unemployment

Unemployment caused by downturns in the business cycle.

Natural Rate of Unemployment

The unemployment rate when the economy is at full employment; includes frictional and structural unemployment.

Okun’s Law

Empirical relationship stating that a 1-percentage-point rise in cyclical unemployment is associated with about a 2% loss in GDP.

Real Interest Rate

Nominal interest rate adjusted for expected inflation: r = i − πe.

Nominal Interest Rate

The stated interest rate unadjusted for inflation.

Core Inflation

Inflation measure that excludes volatile items such as food and energy prices.

Headline Inflation

Inflation measure that includes all items in the CPI basket.

Anticipated Inflation

Inflation that economic agents expect and can plan for.

Unanticipated Inflation

Unexpected inflation that causes redistribution of income and wealth.

Cost-Push Inflation

Inflation caused by increases in production costs, shifting aggregate supply leftward.

Demand-Pull Inflation

Inflation driven by excess aggregate demand relative to productive capacity.

Balance of Payments (BOP)

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

Current Account

Part of the BOP recording trade in goods and services, investment income, and unilateral transfers.

Financial Account

BOP component recording cross-border transactions in financial assets and liabilities.

Official Settlements Balance

Changes in a country’s official reserve assets held by the central bank.

Nominal Exchange Rate

The rate at which one currency can be exchanged for another in current prices.

Real Exchange Rate

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

Purchasing Power Parity (PPP)

Theory that identical goods should cost the same across countries when prices are expressed in a common currency.

Currency Appreciation

A decrease in the domestic-currency price of foreign currency; domestic currency strengthens.

Currency Depreciation

An increase in the domestic-currency price of foreign currency; domestic currency weakens.