IB ECONOMICS

National Income Accounting

A measurement of an economy’s national income or the value of output

National (or Aggregate) Output

The output of an economy measured by national income accounting, reflecting total goods and services produced.

National Income

The total value of all income earned by individuals and businesses in a nation, including wages, profits, rents, and taxes, within a specific period.

Expenditure Approach to measuring National Output

Adds up all spending to buy final goods and services produced within a country over a time period

Income Approach to measuring National Output

Adds up all income earned by the factors of production that produce all goods and services within a country over a time period

Output Approach to measuring National Output

Calculates the value of all goods and services produced in a country over a time period

‘Final’ goods and services

Goods and services that are purchased for final consumption and not intended for resale or further processing

Consumption

All expenditures made by households on goods and services for personal use.

Investment

Spending on capital goods and services that will be used for production in the future.

Net Exports (X-M)

The value of all exports (X) minus the value of all imports (M).

GDP Formula

GDP = C + I + G + (X-M)

Gross Domestic Product (GDP)

The market value of all final goods and services produced in a country over a time period (usually a year)

Gross National Income (GNI)

The total income received by the residents of a country, equal to the value of all final goods and services produced by the factors of production supplied by the country’s residents regardless where the factors are located.

Nominal Value

The monetary value of goods and services measured at current market prices, without adjusting for inflation.

Real Value

The monetary value of goods and services adjusted for inflation

Purchasing Power Parities (PPPs)

The amount of a country’s currency that is needed to buy the same quantity of local goods and services that can be bought with US$1 in the United States.

Intermediate Goods

Goods used in the production of final products, which are not sold directly to consumers

Capital Goods

Goods used to make other goods and services, that are still considered ‘final goods’

Consumer Confidence

A measure of how optimistic consumers are about their future income and the future of the economy

Income taxes

Taxes imposed on individuals or businesses based on their income, which contribute to government revenue.

Household Indebtedness

The total amount of debt that households owe to financial institutions, often compared to their income and assets.

Corporate Indebtedness

The total amount of debt that corporations owe to financial institutions, used for financing operations, acquisitions, and investments.

Business Confidence

How optimistic firms are about their future sales and economic activity

Structural Unemployment

Unemployment caused by a decrease in demand for specific labor skills due to increased automation (replacement of workers by machinery) or outsourcing (moving jobs overseas due to cheaper labor costs).

Disinflation

Fall in the rate of inflation

Cyclical Unemployment

Unemployment caused by economic downturns or fluctuations in the business cycle, leading to reduced demand for labor.

Seasonal Unemployment

Unemployment that occurs at certain times of the year, often due to seasonal factors such as weather changes or holiday demand.

Quantitative Easy

A process where a central bank buys long-term government bonds (and other financial assets) from commercial banks (other financial institutions) and credits their accounts with electronic reserves as digital entries held by the commercial banks at the central bank

Price Elasticity of Demand

The responsiveness of quantity demanded of a good or service to changes in its price

Demand

Willingness and ability to consume a good or service at different price points

Concentration Ratio

the proportion of total market share controlled by the largest firms in an industry

Government Intervention

Actions taken by the government in order to influence market outcomes, often to correct market failures

Oligopoly

A market structure in which there is a small number of firms, of which none can keep the others from having a significant influence

Investment

the act of allocating resources, typically money, with a goal of generating future returns or benefits

Real GDP

The inflation adjusted measure of the value of the total final goods and services produced within an economy over a period of time (typically annually).

Economic Well-Being

A multidimensional concept that reflects the standard of living and quality of life of individuals and societies.

Comparative Advantage

When a country can produce a good or service at a lower opportunity cost than another country

Absolute Advantage

When a country can produce a good or service with fewer resources than another country

Specialisation

When individuals, firms, regions or countries concentrate on producing a narrow range of good and services

Trading Bloc

A group of countries that join together in some form of agreement to increase trade between themselves by reducing or eliminating trade barriers.