Ib macroeconomics: basic vocab and levels of economic activity

Macroeconomics

The branch of economics that examines the economy as a whole, by studying aggregates such as national income, output, employment and the overall price level.

Circular flow of income

A simplified model of the economy that shows the flow of money, goods and services between households and firms.

Leakages (withdrawals)

Refers to income not spent on domestic goods and services. Includes savings, taxes, and imports.

Injections

Refers to spending on domestic goods and services that does not come from households. Includes investment, government spending, and exports.

Equilibrium level of income

The level of income where total leakages equal total injections in the circular flow of income model.

National income

The total income earned by the factors of production owned by a country’s residents in a given period of time.

Gross Domestic Product (GDP)

The total value of all final goods and services produced in an economy within a given time period.

Gross National Income (GNI)

The total income received by the factors of production owned by the residents of a country, regardless of where the factors are located.

Net National Income (NNI)

GNI minus depreciation (the value of capital goods that have been used up or become obsolete).

Nominal GDP

The value of GDP measured at current prices, not adjusted for inflation.

Real GDP

The value of GDP adjusted for changes in the price level (inflation or deflation).

GDP per capita

Total GDP divided by the population; a measure of average output or income per person.

Green GDP

A measure of GDP that takes into account environmental destruction and resource depletion.

Business cycle

The short-term fluctuations of real GDP around its long-term trend or potential output.

Expansion

Phase of the business cycle where real GDP is increasing.

Boom

A period of rapid economic growth that may lead to inflationary pressures.

Contraction

A slowdown in economic activity where GDP growth decreases.

Recession

A period of falling real GDP lasting at least two consecutive quarters.

Depression

A long-lasting and severe recession, with high unemployment and falling output.

Output gap

The difference between actual output (real GDP) and potential output (full-employment level of output).

Potential output

The level of output an economy can produce when all resources are fully employed.

Actual output

The level of output that an economy is currently producing.

Full employment level of output

The level of output produced by an economy when there is no cyclical unemployment; corresponds to potential output.