IB Economics SL General Terms

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General vocabulary and knowledge terms for IB Economics taught at a standard level

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39 Terms

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What is cost-push inflation?

Inflation caused by higher production costs.

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What is demand-pull inflation?

Inflation caused by an excess of demand over supply.

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Who controls monetary policy?

The central bank.

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Who controls fiscal policy?

The government.

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What is the goal of monetary policy?

To maintain healthy inflation, price level, liquidity, and economic growth.

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What is the goal of fiscal policy?

To maintain government spending and promote a strong economy.

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How can monetary policy be implemented?

Bank rates, reserve requirements, and open market operations.

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What is supply?

The total amount of a good or service that is available to consumers.

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What is demand?

A consumer’s willingness to purchase a good or service for any given price.

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What is the bank rate?

The interest rate that a central bank institutes on loans to commercial banks.

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What is the central bank?

The government institution that manages currency and monetary policy.

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What is a reserve requirement/ratio?

The percentage of a commercial bank’s deposits that must be kept in liquidity.

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What is a liquid asset or liquidity?

An asset that can easily be converted into cash.

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What is an interest rate?

The price that is paid to borrow money.

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What is currency?

An official form of money.

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What is a consumer?

A person who purchases goods and services.

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What is a producer?

A person who creates goods and services.

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What is inflation?

A gradual increase in prices over time.

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What is aggregate demand?

The total demand for all goods and services in an economy.

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What is aggregate supply?

The total supply of all goods and services in an economy at a given price level during a certain period.

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What is price level?

The average of current prices across purchased goods and services in an economy.

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What is unemployment?

The rate that individuals search for work but cannot find it.

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How is unemployment measured?

(unemployed / labor force) * 100.

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What does microeconomics refer to?

The study of individual actors in an economy.

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What does macroeconomics refer to?

The study of an economy as a whole.

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What is the Gross Domestic Product (GDP)?

The total market value of all goods and services produced in an economy in a certain period.

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How is GDP calculated?

Consumption + Investment + Government Spending + Net Exports.

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What is the Consumer Price Index (CPI)?

The periodical change in prices paid by consumers.

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How is CPI calculated?

By dividing the current market basket price by a previous base market basket price and multiplying the result by 100.

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What is a market basket?

A collection of goods and services that mimic the purchases of an average consumer.

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What is Price Elasticity of Demand (PED)?

The measurement of the change in demand for a good or service in relation to a change in price.

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What is an elastic good?

One where a change in price leads to a proportionally larger change in demand.

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What is an inelastic good?

One where a change in price leads to a proportionally smaller change in demand.

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What is a Veblen Good?

A luxury good where demand increases as price increases.

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What is a Giffen Good?

A non-luxury good where demand increases as price increases.

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How do you calculate Price Elasticity of Demand (PED)?

% change in quantity demanded / % change in price

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How do you calculate Income Elasticity of Demand (YED)?

% change in quantity demanded / % change in income

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What is Income Elasticity of Demand (YED)?

A measure of how quantity demanded changes in response to a change in income.

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