Macroeconomics (IB)

Macroeconomics

The branch of economics that focuses on the behavior, performance, and structure of the entire economy, rather than individual markets.

GDP (Gross Domestic Product)

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

Inflation

The rate at which the general price level of goods and services rises, leading to a decrease in the purchasing power of money.

Unemployment

The condition in which individuals who are capable of working and actively seeking work are unable to find employment.

Economic Growth

The increase in a country’s output of goods and services, typically measured by GDP.

Measurement of Economic Growth

Measured by the percentage change in real GDP over time.

Full Employment

Occurs when all individuals who are willing and able to work are employed, acknowledging some natural unemployment.

Frictional Unemployment

Short-term unemployment as individuals transition between jobs.

Structural Unemployment

Unemployment due to changes in the structure of the economy.

Cyclical Unemployment

Unemployment caused by declines in economic activity during a recession.

Price Stability (Low Inflation)

Maintaining inflation at a low and stable rate to protect the purchasing power.

Consumer Price Index (CPI)

A measure that examines the weighted average of prices of consumer goods and services.

Producer Price Index (PPI)

A measure that examines the average changes in selling prices received by domestic producers.

Target Inflation Rate

The inflation target often aimed for by central banks, typically around 2%.

Balance of Payments

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

Current Account

Measures a country’s imports and exports of goods and services, as well as net income from abroad.

Capital Account

Tracks investment flows in and out of the country.

Aggregate Demand (AD)

The total quantity of goods and services demanded in an economy at different price levels.

Aggregate Supply (AS)

The total quantity of goods and services that producers are willing and able to supply at different price levels.

Short-Run Aggregate Supply (SRAS)

The supply of goods and services in an economy in the short run, influenced by prices.

Long-Run Aggregate Supply (LRAS)

The supply of goods and services at full capacity, determined by resources.

Economic Growth and the Business Cycle

Economic growth is the increase in production; the business cycle describes fluctuations in economic activity.

Expansion

Phase of the business cycle characterized by increasing economic activity and rising employment.

Peak

The highest output level in the business cycle.

Recession

A period of declining economic activity, usually accompanied by rising unemployment.

Trough

The lowest point in the business cycle, marking the end of a recession.

Demand-Pull Inflation

Occurs when aggregate demand exceeds aggregate supply, leading to price increases.

Cost-Push Inflation

Occurs when the cost of production increases, causing producers to raise prices.

Fiscal Policy

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

Expansionary Fiscal Policy

Involves increasing government spending or decreasing taxes to stimulate economic activity.

Contractionary Fiscal Policy

Involves reducing government spending or increasing taxes to cool down an overheating economy.

Monetary Policy

The actions of a central bank to control the money supply and interest rates in an economy.

Expansionary Monetary Policy

Lowering interest rates or increasing the money supply to stimulate economic growth.

Contractionary Monetary Policy

Raising interest rates or decreasing the money supply to reduce inflation.

Open Market Operations

Buying and selling government securities to influence the money supply.

Discount Rate

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

Reserve Requirements

The percentage of deposits that banks must hold in reserve rather than lend out.

Macroeconomic Equilibrium

Occurs when aggregate demand equals aggregate supply, with no tendency for output and prices to change.

Short-Run Equilibrium

When the quantity of goods demanded equals the quantity supplied at the current price level.

Long-Run Equilibrium

In the long run, the economy is at full employment, and the LRAS curve is vertical.

Policy Conflicts

Trade-offs faced by governments in achieving macroeconomic objectives.

Inflation vs. Unemployment

The trade-off where expansionary policies may lower unemployment but raise inflation.

Economic Growth vs. Income Inequality

Economic growth may lead to higher incomes but can exacerbate income inequality.

Macroeconomic Indicators

Measurements such as GDP, inflation, and unemployment that reflect the economy's performance.

Sustainable Growth

Economic growth that can be maintained without creating significant negative impacts.

Government Policies

Strategies employed by governments to achieve macroeconomic objectives.

International Trade

The exchange of goods and services between countries, affecting balance of payments.

Consumer Confidence

The degree of optimism that consumers feel about the overall state of the economy.

Interest Rates

The cost of borrowing money, which can influence levels of investment and consumption.

Government Spending

Expenditures by the government to influence the economy and public services.

Taxation

The process by which governments collect revenue, which can impact consumption and investment.