Economic Fluctuations and the IS-LM Model

A collection of 200 vocabulary flashcards aimed at key economic concepts related to the IS-LM model, Keynesian theory, and economic fluctuations.

Postulates

Fundamental principles or assumptions that form the basis of a theory.

Classical theory

An economic theory that emphasizes the role of supply factors in determining national income.

Great Depression

A severe worldwide economic downturn that took place during the 1930s.

Aggregate Demand

The total demand for goods and services within a particular market.

IS-LM Model

A macroeconomic model that illustrates the relationship between interest rates and real output.

Real GDP

Gross Domestic Product adjusted for inflation.

Keynesian Economics

An economic theory advocating for government intervention to stabilize economic fluctuations.

Aggregate Supply

The total supply of goods and services available to a particular market at a given overall price level.

Fiscal Policy

Government spending policies that influence economic conditions.

Monetary Policy

The process by which a central bank manages the supply of money.

Sticky Prices

Prices that do not adjust immediately to changes in economic conditions.

Marginal Propensity to Consume (MPC)

The fraction of additional income that a household consumes rather than saves.

Equilibrium Income

The level of income where planned expenditure equals actual expenditure.

Government Purchases Multiplier

The ratio of change in income to the change in government spending.

Tax Multiplier

The ratio of change in income to the change in taxes.

Liquidity Preference

The desire to hold cash rather than invest it in assets.

Interest Rate

The amount charged for a loan, expressed as a percentage of the total loan amount.

Investment Curve

The relationship showing how investment changes with changes in the interest rate.

Income-expenditure model

A model showing how changes in income affect consumption and planned expenditure.

Short-Run Equilibrium

A situation where variables adjust to meet supply and demand in the short term.

Price Level

The average level of prices in the economy.

Aggregate Demand Curve

A curve that shows the total quantity of goods and services demanded across all levels of the economy at varying price levels.

Economic Society

The community of individuals involved in economic activities.

Exogenous Variables

Variables that are determined outside the model and are taken as given.

Investment Demand

The level of investment spending by businesses.

Unplanned Inventory Investment

Changes in inventory levels that occur when actual sales differ from planned sales.

Government Purchases

Total government spending on goods and services.

Equilibrium Condition

The state when all forces are balanced, as no economic agent has an incentive to change their behavior.

Inventory Accumulation

The buildup of unsold goods in a company's warehouses.

Exports

Goods and services sold by one country to another.

Import,

Goods and services brought into a country from abroad.

Equilibrium Point

Where demand and supply curves intersect, indicating market balance.

Economic Downturn

A decline in economic activity over the course of a business cycle.

Multiplier Effect

The proportional amount of increase in final income that results from an injection of spending.

Consumption Function

A formula used to derive consumption spending based on income and other factors.

Exchange Rate

The value of one currency for the purpose of conversion to another.

Policy Measures

Actions taken by a government to influence its economy.

GDP (Gross Domestic Product)

The total value of goods produced and services provided in a country during one year.

National Income

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

Disposable Income

Income available for spending and saving after taxes are paid.

Market for Goods and Services

Refers to the economic environment where goods and services are bought and sold.

Monetary Authority

Institution responsible for managing a country's currency, money supply and interest rates.

Government Transfers

Payments made by the government to individuals, often without a requirement for goods or services in return.

Output Level

The amount of goods and services produced by an economy.

Short-Term Effects

Economic impacts that occur quickly after a policy enactment.

Long-Run Effects

Economic impacts that develop over a longer period of time.

Natural Rate of Unemployment

The level of unemployment that an economy normally experiences.

Aggregate Supply Curve

A graphical representation of the total production of goods and services at various price levels.

Equilibrium Level of National Income

The income level where total spending equals total output.

Keynesian Cross Model

A model that depicts how total spending influences national income.

Policy Intervention

Actions taken by a government to influence economic conditions.

Consumer Confidence

An economic indicator that measures the overall sentiment of consumers regarding the economic conditions.

Deflationary Gap

The difference between the actual level of output and the potential output level during a recession.

Inflationary Gap

The difference between actual output and potential output when the economy is overheating.

Economic Recovery

A period of increasing economic activity and growth.

Investment Spending

Money spent on capital goods that can be used to produce other goods.

Saving Rate

The proportion of disposable income that is saved rather than spent.

Demand Curve

A graph showing the quantity demanded at various prices.

Monetary Expansion

A policy that increases the money supply to encourage economic activity.

Economic Models

Simplified versions of complex economic processes to analyze and predict economic behavior.

Fiscal Stimulus

Government policy aimed at stimulating economic activity through spending or tax reductions.

Price Stickiness

The resistance of prices to change, despite shifts in supply and demand.

PL (Price Level)

The average level of prices in an economy at a particular time.

Consumer Expenditure

Total amount spent by consumers on goods and services in a given period.

Investment Curve

Graph showing planned investment at various levels of interest rates.

Effective Demand

The quantity of goods that consumers are willing and able to purchase at a given price.

Exogenous Factors

Elements that influence an economy's performance but are not determined by the economy itself.

Coincidence of Wants

A situation in which two parties have goods or services that each other desires.

Open Market Operations

Activities undertaken by a central bank to control the money supply by buying or selling government securities.

Net Exports

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

Equilibrium Interest Rate

The interest rate at which the quantity of money demanded equals the quantity of money supplied.

Financial Markets

Marketplace where assets such as stocks and bonds are bought and sold.

Labor Market

Supply and demand for labor, where employees provide the labor and employers provide remuneration.

International Trade

The exchange of goods and services between countries.

Social Safety Net

A collection of services provided by the state to alleviate poverty and hardship.

Business Cycle

The fluctuations in economic activity that an economy experiences over time.

Crowding Out

A situation where increased government spending leads to reduced private sector spending.

Stabilization Policies

Government strategies aimed at minimizing fluctuations in output and employment.

Liquidity Trap

A situation in which interest rates are low and savings rates are high, rendering monetary policy ineffective.

Demand-Pull Inflation

Inflation that is caused by an increase in demand for goods and services.

Cost-Push Inflation

Inflation caused by an increase in the costs of production.

Inflation Targeting

A central banking policy that revolves around adjusting monetary policy to meet a specified inflation rate.

Negative Externalities

The negative impact on one party as a consequence of another party's economic activity.

Gini Coefficient

A measure of income inequality within a population.

Debt-to-GDP Ratio

A metric comparing a country's public debt to its Gross Domestic Product.

Public Good

A good that is non-excludable and non-rivalrous in consumption.

Private Sector

The part of the economy that is owned and operated by private individuals or organizations.

Public Sector

The part of the economy controlled by the government.

Economic Indicators

Statistical metrics used to gauge the state of the economy.

Potential Output

The highest level of economic activity that an economy can sustain over the long term.

Discretionary Fiscal Policy

The use of government spending and taxation to influence the economy.

Regulatory Policy

Government regulations that dictate the framework within which businesses operate.

Social Welfare Programs

Government programs designed to assist low-income individuals or families.

Automatic Stabilizers

Economic policies and programs that automatically help stabilize the economy.

Credit Crunch

A sudden reduction in the general availability of loans or credit.

Monetary Tightening

Action taken by a central bank to increase interest rates.

Financial Liquidity

The availability of liquid assets to a market or company.

Market Efficiency

The degree to which market prices reflect all available, relevant information.

Tariffs

Taxes imposed on imported goods.

Subsidies

Government payments to support or enhance services or products.