IB Economics SL/HL Unit 3 (Macroeconomics)

All macroeconomics terms, formulas, and diagrams for IB Economics. Includes both SL and HL (HL = Italics). 2022~2029 syllabus. Imported from econinja.net.

National Income

The value of all goods and services produced in a country within a certain time period.

The Output Method

Measures national income by calculating the value of all finished goods and services produced in the country's economy in a year.

The Income Method

Measures the national income by calculating the sum of wages, rent, interest, and profits in a year.

The Expenditure Method

Measures the national income by calculating the total amount of expenditure in the economy in a year.

Gross Domestic Product

The value of a country's output of finished goods and services in a year.

Gross National Income

The value of a country's output of finished goods and services in a year, plus incomes from abroad.

Real GDP/GNI

[GDP/GNI], adjusted for inflation by using constant prices.

Real GDP/GNI Per Capita at Purchasing Power Parity

[Real GDP/GNI], adjusted for the cost of living in countries.

OECD Better Life Index/Happiness Index/Happy Planet Index

An alternative to national income as a measure of wellbeing.

Aggregate Demand

The total value of all goods and services consumers are willing and able to purchase in an economy per year.

Aggregate Supply

The total value of all goods and services producers are willing and able to sell in an economy per year.

Inflationary Gap

Exists when an economy's real GDP exceeds its potential long-run full employment output.

Deflationary Gap

Exists when an economy's real GDP is below its potential long-run full employment output.

Full Employment

Exists when an economy is at its natural rate of unemployment, and the economy is operating at its full capacity.

Economic Growth

A sustained increase in a country's real GDP over time.

Actual Output

The current level of real GDP in an economy.

Potential Output

The possible level of real GDP to reach in an economy.

Unemployment

The issue when people willing and able to work are unable to find jobs.

Labor Force

All people of working age who are either employed or willing and able to work.

Hidden Unemployment

People who classify as unemployed but are not included in official unemployment records.

Underemployment

The issue when people in the labor force are unable to find enough work.

Cyclical Unemployment

Unemployment caused by a lack of demand for goods and services.

Structural Unemployment

Unemployment caused by technical mismatches between worker abilities and job requirements.

Seasonal Unemployment

Unemployment caused by periodical changes in the demand for labor during the year.

Frictional Unemployment

Unemployment caused by temporarily jobless people actively searching for new jobs.

Natural Rate of Unemployment

The level of employment at when the economy is operating at full employment, consisting of seasonal, frictional, and structural unemployment.

Inflation

A sustained rise in the general price level of an economy over time.

Deflation

A sustained decrease in the general price level of an economy over time.

Disinflation

A fall in the rate of inflation.

Consumer Price Index

A weighted average of prices of typical household goods and services.

Cost-Push Inflation

Inflation caused by higher costs of production, which decreases aggregate supply, increasing the general price level.

Demand-Pull Inflation

Inflation caused by higher aggregate demand for goods and services, increasing the general price level.

Government/National Debt

The sum of all debt accumulated and owed by the government.

Debt Servicing Costs

The expenses of the government repaying the accumulated debt.

Credit Rating

A measure of a borrower's ability to repay loans.

Stagflation

Occurs when there is rising inflation but falling real GDP.

Equity

Refers to economic fairness, where people working harder will earn higher salaries.

Income Inequality

The issue of income being unequally distributed in an economy.

Wealth Inequality

The issue of assets being unequally distributed in an economy.

Gini Coefficient

A measure of either wealth or income inequality in an economy, with values ranging from 0 to 1.

Absoulute Poverty

Deprivation of basic human needs such as food, shelter, and sanitation.

Relative Poverty

The issue of households being unable to afford the standard of living in an economy.

Human Capital

The valued accumulation of skill knowledge, and experience of the labor force.

Progressive Taxes

Taxes that charge an increasing percentage as incomes increase.

Proportional Taxes

Taxes that charge a constant percentage at every income level.

Regressive Taxes

Taxes that charge a decreasing percentage as incomes increase.

Marginal Tax Rate

The tax percentage paid on the last dollar of an income.

Direct Taxes

Taxes imposed on income, rather than expenditure.

Indirect Taxes

Taxes imposed on expenditure, rather than income.

Transfer Payments

A sum of money from the government to households or firms with no goods or services exchanged in the return.

Universal Basic Income

A guaranteed and unconditional minimum income guaranteed by the government.

Minimum Wages

The lowest salary firms are allowed to pay their workers in an economy, determined by the government.

Monetary Policy

The use of interest rates and the money supply to influence the level of economic activity and order to achieve macroeconomic objectives.

Interest Rates

The cost of borrowing money.

Real Interest Rate

The cost of borrowing money, adjusted for current inflation.

Money Supply

The total amount of money circulating in an economy.

Money Creation

The process in which commercial banks create credit from deposits and loans.

Open Market Operations

The buying and selling of government bonds by the central bank.

Minimum Reserve Requirements

The lowest amount of customer deposits commercial banks are obliged to keep in the bank.

Minimum Lending Rate

The interest rate charged by the central bank when commercial banks borrow from it.

Quantitative Easing

The buying and selling of corporate bonds by the central bank, thereby injecting money into the economy.

Money Demand

The demand of households and firms to hold money for current spending, rather than saving, in the economy.

Fiscal Policy

The use of taxation and government expenditure policies to influence the level of economic activity and achieve macroeconomic objectives.

Current Expenditure

Government expenditure on goods and services within the current fiscal year.

Capital Expenditure

Government expenditure on long-term projects.

Transfer Payments

A sum of money from the government to households or firms with no goods or services exchanged in the return.

Keynesian Multiplier

A calculation that shows an increase in injections in the economy results in a proportionately greater effect on aggregate demand.

Crowding Out

An effect where increased government borrowing (as a result of fiscal policy) causes commercial bank interest rates to rise, reducing household consumption and capital investment.

Automatic Stabilizers

Fiscal policy measures that reduce fluctuations in economic activity, stabilizing the growth.

Supply-Side Policies

Long-term government strategies used to increase the quality and quantity of factors of production to influence the productive capacity of the economy.

The circular flow of income model

Shows the interactions between decision makers, leakages, and injections

GDP =

= C+I+G+X_n

GNI =

= GDP + Net Income from abroad

Real GDP =

= GDP/Deflator

Real GNI =

= GNI/Deflator

Real GDP Per Capita =

= Real GDP/Population

Real GNI Per Capita =

= Real GNI/Population

The business cycle

Shows short-term fluctuations and the long-term growth trend.

SRAS

LRAS

Growth (%) =

Unemployment (%) =

= 100(Unemployed people/Labor Force)

Weighted Price Index =

Inflation Rate (%) =

Phillips Curve

Shows the short-run and long-run relationship between inflation and unemployment.

Lorenz Curve

Shows the distribution of income and possible changes in the distribution of income.

Pre Tax Item Cost =

Indirect Tax Paid =

Keynsian Multiplier =

Where:
MPS is the marginal propensity to save (for each $ you earn, how much will you save)
MPM is the marginal propensity to import (for each $ you earn, how much goes to imports)
MPT is the marginal propensity to tax (for each $ you earn, how much goes to tax)
MPC is the marginal propensity to consume (for each $ you earn, how much do you spend)

Actual Effect =

The effect on GDP of a change in an injection in investment, government spending or exports, using the Keynesian multiplier