IB Macroeconomics SL by Mrs TH

Absolute poverty

A situation where a household's income is insufficient to afford a basic standard of goods and services where this standard is absolute and unchanging over time. It is often defined in relation to a nationally or internationally determined poverty line which determines the minimum income that can sustain a family in terms of its basic needs.

Actual growth

An increase in the amount of goods and services produced by an economy.

Aggregate demand(AD)

Total spending in an economy consisting of consumption, investment, government expenditure and net exports

AD

C+I+G+(X-M)

Aggregate supply(AS)

The total amount of domestic goods and services supplied by businesses and the government.

Trade cycle

The periodic or regular fluctuations in national income/economic activity/GDP. The economy moves through various stages including booms, recessions, slumps and recoveries.

Capital Gains

The increase in the value of a capital asset when it is sold. It occurs when you sell an asset for more than what you originally paid for it.

Capital Expenditure

Spending by the government that includes infrastructure spending such as new motorways and roads, hospitals, schools and prisons.

Circular flow

The way in which income flows around the economy, from firms to households and back to firms in a continuous process.

Claimant count

A method of measuring unemployment that counts those who are eligible for job seekers allowance(JSA). Age range 18 - 60. Must be able to prove that the person is looking for work.

Consumer price Index(CPI)

A measure of the cost of living of the typical household. It compares the value of a basket of goods and services in one year with the value of the same basket in a base year. Measured as a percentage change in the value of the basket from one year to another

Consumption(C)

The total of all household spending in the economy. A component of AD.

Cost push inflation

Increases in companies' costs which are passed on to the consumer in the form of higher prices

Contractionary fiscal policy

Fiscal policy involves lower G and/or higher taxation

Contractionary monetary policy

An increase in interest rates which increases the cost of borrowing. Helps decrease I and C leading to lower AD.

Current Government Spending

This is spending on state-provided goods & services that are provided on a recurrent basis every week, month and year. For example salaries paid to people working in public healthcare and resources for state education and defence.

Deflation

Sustained percentage fall in the general price level

Deflationary gap (negative output gap/recessionary gap)

Occurs when real output is below the full employment level of output and unemployment is greater than the natural rate of unemployment

Demand pull inflation

AD increases faster than AS causing more demand for goods. Cause by rising AD and shown in the AD/AS model as a shift to the right of the AD curve

Discretionary fiscal policy

When governments make decisions regarding the amount of taxation and government spending in the economy.

Disinflation

A decrease in the rate of inflation. Inflation is positive by prices are rising by a smaller amount.

Disposable income

The money individuals have left over after income tax has been deducted from their salary.

Direct tax

A tax paid directly to the government by the persons on whom it is imposed.

Distribution of income

The spread of incomes between those paid the highest incomes and those paid the lowest incomes. Can be narrow or wide. Concerned with how much of an economy's total income different individuals or groups in the population receive.

Economic growth

Increases in total real output in an economy over time

Equilibrium

A state of balance such that there is no tendency to change

Equilibrium level of output

The level of output where where AD is equal to AS.

Exchange rate

The rate at which one currency can be exchanged for another or the number of units of foreign currency that correspond to the domestic currency

Expansionary fiscal policy

Fiscal policy that involves an increase in G up and/or decrease in T. Usually pursued in a recession and helps increase AD.

Expansionary monetary policy

Monetary policy that involves lower interest rates to decrease the cost of borrowing. Helps increase AD.

Factors production

The resources or inputs used to produce goods and services-
land, labour, capital and enterprise

Fiscal policy

The use of government spending, taxation and public sector borrowing in order to influence the level of AD in the economy.

Full employment

The unemployment that exists when the economy is producing potential output or real GDP and is in equilibrium

Gini Index

A summary measure of the information contained in the Lorenz curve. It measures the area between the diagonal line and the Lorenz Curve and represents it as a percentage of the whole area under the diagonal line.

Government spending

The third largest component of AD. The amount of money spent by the government on health, education etc.

Human Capital

The skills, abilities and knowledge acquired by people as well as good levels of health which makes labour more productive. It provides a stream of future benefits by increasing the amt of output that can be produced in the future.

Gross Domestic Product

The value of all goods and services produced by an economy in a year generated by factors of production located in that country.

Green GDP

GDP that takes into account the costs to the environment of economic activity.

Nominal GDP

GDP measured in terms of current prices, which do not take into account changes in the price level

Real GDP

The value of all goods and services produced by an economy in a year adjusted for inflation which is useful for making comparisons of changes in GDP over time

Real GDP per capita

It is a measure of the output of an economy in one year per person in the population adjusted for inflation.

Gross National Income

A measure of the goods and services produced by factors of production owned by residents of a country. It is equal to the value of all final goods and services produced by the FOP supplied by the country's residents regardless of where the FOP are located

GNI

GDP plus income from abroad minus income sent abroad

Income inequality

When there is a large difference between people who earn high incomes and those earning low incomes.

Index

A figure reflecting price or quantity compared with a base value. The base value always has an index number of 100. The index number is then expressed as 100 times the ratio to the base value.

Indirect tax

A tax levied on spending to buy goods and services. Payment by the consumer is involved but paid to the government through suppliers

Inflation

A sustained percentage increase in the general price level

Inflationary gap (positive output gap)

When real output is above potential output/GDP and lower than the natural rate of employment. It arises when the AD curve and SRAS curve intersect at a higher level of real GDP than potential GDP.

Interest rates

The cost of borrowing money expressed as a percentage

Interventionist Supply Side Policies

A policy based on government intervention in the market intended to affect the supply side of the economy. It increases potential output and aims to achieve long term economic growth.

Investment(I)

The spending by firms on capital equipment, adding to the capital stock of an economy. It is an injection into the circular flow of income.

Injections

In the circular flow of income model, it refers to the entry into income flow of funds.

I, G and X

injections into the circular flow

Labour force

People of working age who are not students, homemakers or disabled.

Labour force survey

A survey of 60,000 households/100,000 people. Counts those who looked for work in the last 4 week and are available for work in the next 2 weeks.

S, T and M

leakages from the circular flow

Level of unemployment

The number of people in the labour force who are unemployed

Long Run AS

The total quantity of goods and services produced in an economy in the long run

Market-Based Supply Side Policies

Policies based on promoting well-functioning, competitive markets in order to influence the SS of the economy. It aims to shift the LRAS curve to the right, increase potential output and achieve long term economic growth.

Minimum wage

A price of labour set by governments in the labour market in order to ensure that low skilled workers can earn a wage high enough to access to basic goods and services. An example of a price floor

Monetary policy

A demand side policy that influences AD by changing interest rates, the money supply and/or access to credit.

Monetarist's inflation

Any increase in the money supply that is not backed up by an increase in GDP will lead to inflation.

Monetarist's LRAS

Perfectly inelastic (vertical) at the full employment level of output.

NAIRU (Non accelerating inflation rate of unemployment)

The rate of unemployment that exists when the labour market is in equilibrium (no cyclical or real wage unemployment). It is usually made up of frictional, structural and seasonal unemployment.

Natural Rate of Unemployment.

The rate of unemployment that exists when the labour market is in equilibrium (no cyclical or real wage unemployment). It is usually made up of frictional, structural and seasonal unemployment.

Net exports

The smallest component of AD; Exports minus imports.

Positive output gap

when real output/GDP is above the potential level of output. Occurs in a boom. Inflationary.

Negative output gap

when real output/GDP is below the potential level of output. Occurs in a slump. Deflationary.

Potential growth

An increase in the amount an economy can produce (increase in PPF).

The poverty line

A monetary threshold under which an individual is considered to be living in poverty. The current international poverty line is $2.15 per day.

Productivity

Measured by the output per unit of input. The greater the units of outputs per unit of input the greater the productivity.

Real Wages

Payment for labour that have been adjusted for inflation.

Recession

An economic contraction where GDP is falling and the economy experiences two quarters of negative economic growth

Relative poverty

It describes circumstances in which people cannot afford to actively participate in society and benefit from the activities and experiences that most people take for granted. It is often defined as household income below 50% of the median household income; exists in all countries.

Savings

Income that is not spent but stored in financial institutions; a leakage from the circular flow of income.

Short Run AS

The total quantity of goods and services produced in an economy im the short run when wages and other resource prices are held constant

Supply side policies

Policies that focus on AS and aim to shift the LRAS curve to the right in order to achieve long term economic growth. The policies usually allow firms to lower their costs, thus boosting efficiency and competitiveness.

Sustainable development

Present development that allows future generation to access resources for further development in ways that do not deplete or degrade these resources

Transfer payments

A payment made by the government to individuals to redistribute income. A payment for which no good or service is received.

Wealth effect

An increase in wealth will lead to an increase in consumption.

Unemployment

The number of unemployed people above a particular age who are not working and who are actively looking for a job

Structural unemployment

unemployment caused by a change in the structure of the economy which causes a mismatch between the skills of those out of work and the skills needed to fill the available vacant job opportunities.

Cyclical unemployment

unemployment caused by a lack of AD in the economy

Classical unemployment

unemployment caused by the real wage being too high in the economy

Frictional unemployment

Time spent whilst workers leave one job and find another. A short term problem.

Seasonal unemployment

Unemployment caused by the changing of the seasons.

Universal Basic Income(UBI)

A government program in which every adult citizen receives a set amount of money regularly. The goals are to alleviate poverty and replace other need-based social programs that potentially require greater bureaucratic involvement

Lorenz Curve

A curve illustrating the degree of equality of income distribution in an economy. It plots the cumulative percentage of income received by cumulative shares of the population.