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Actual growth

Occurs when real output (real GDP) increases through time and is a result of greater or better use of existing resources.

Business confidence

A measure of the degree of optimism that businesses have about the economic future.

Business cycle

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

Central bank

An institution charged with conducting monetary and exchange rate policy, regulating commercial banks, and providing banking services to the government.

Circular flow of income

A simplified illustration showing the flows of income and expenditures in an economy.

Consumer confidence

A measure of the degree of optimism that households have about their income and economic prospects.

Consumer price index (CPI)

The average of the prices of the goods and services that the typical consumer buys, expressed as an index number.

Consumption (C)

Spending by households on durable and non-durable goods and on services over a period of time.

Contractionary fiscal policy

Refers to a decrease in government expenditures and/or an increase in taxes to reduce aggregate demand and inflationary pressures.

Corporate social responsibility

A corporate goal to create and maintain an ethical and environmentally responsible image.

Cost-push inflation

Inflation caused by increased production costs, such as rising money wages or commodity prices.

Crowding out

The idea that expansionary fiscal policy may not be effective in increasing aggregate demand because the government's increased borrowing needs lead to higher interest rates, reducing private sector investment and consumer spending.

Cyclical (demand-deficient) unemployment

Unemployment resulting from a decrease in aggregate demand and economic activity, occurring during a recession.

Debt servicing

The repayment of principal and interest on debt by a person, firm, or country.

Deflation

A sustained decrease in the average price level of a country.

Deflationary/recessionary gap

Arises when equilibrium real output is less than potential output due to a decrease in aggregate demand.

Demand management

Policies that aim to manipulate aggregate demand through changes in interest rates or government expenditures and taxation to influence growth, employment, and inflation.

Demand-pull inflation

Inflation caused by increases in aggregate demand.

Demand-side policies

Economic policies that aim to affect aggregate demand and thus macroeconomic variables such as growth, inflation, and employment.

Deregulation

Policies that reduce or eliminate regulations to decrease production costs, resulting in increased competition and higher output levels.

Direct taxes

Taxes on income, profits, or wealth paid directly to the government.

Discount rate

The interest rate that a central bank charges commercial banks for short-term loans.

Disinflation

When the average price level continues to rise but at a slower rate, so the inflation rate is still positive but lower.

Economic growth

Increases in real GDP over time.

Economic well-being

A multidimensional concept related to prosperity and quality of living standards in a country.

Expansionary fiscal policy

Refers to an increase in government expenditures or a decrease in taxes to increase aggregate demand and real output.

Expansionary monetary policy

Monetary policy aimed at increasing aggregate demand through a decrease in interest rates.

Expenditure approach

A method of measuring GDP by adding all the expenditures made on final domestic goods and services.

Fiscal policy

A demand-side policy using changes in government spending and/or direct taxation to influence aggregate demand and economic growth.

Frictional unemployment

Unemployment of individuals between jobs, often due to quitting to find a better position or moving to a different location.

Twin deficits

The simultaneous occurrence of a fiscal deficit and a current account deficit in a country.

Full employment

The state when all available labor resources are being used efficiently, and the economy is producing at its potential level of output with only natural unemployment.

Full employment level of output

The level of output produced by an economy when there is only natural unemployment.

Gini coefficient

A measure of income inequality that ranges from 0 (perfect equality) to 1 (perfect inequality), calculated as the ratio of the area between the Lorenz curve and the diagonal.

Government (national) debt

The total amount a government owes to domestic and foreign creditors, accumulated from past budget deficits minus any surpluses.

Government spending (G)

Refers to all spending by the government, which can be divided into current expenditures, capital expenditures, and transfer payments.

Gross domestic product (GDP)

The total value of all final goods and services produced within a country in a given time period, usually a year or a quarter.

Gross national income (GNI)

The total income earned by all national factors of production, regardless of their location, over a period of time, equal to GDP plus factor income earned abroad minus factor income paid abroad.

Growth in production possibilities

When the production possibilities of a country increase due to more/better resources or technology, shown by a shift outwards of the production possibilities curve (PPC).

Happiness Index

An index used to measure the economic well-being of a population using several quality of life dimensions.

Happy Planet Index

An index that combines well-being, life expectancy, inequality of outcomes, and ecological footprint to show how efficiently residents of different countries use environmental resources to lead long, happy lives.

Household indebtedness

The total money that households owe to creditors.

Human Development Index (HDI)

A composite index of development reflecting three basic goals: a long and healthy life, improved education, and a decent standard of living.

Income approach

A method for measuring GDP by adding all incomes generated in the production process, such as wages, profits, interest, and rent.

Income effect

States that if the price of a good increases, the real income of consumers decreases, and they typically tend to buy less of the good.

Indirect taxes

Taxes levied on expenditure to buy goods and services.

Industrial policies

Government policies that support specific industries through tax cuts, subsidies, or preferential loans, aiming to stimulate the growth of targeted industries.

Inflation

A sustained increase in the average price level of a country.

Inflationary gap

A situation where equilibrium real output exceeds potential output due to an increase in aggregate demand.

Inflation rate

The percentage change in the average price level between two periods, typically measured using the CPI.

Injections

Expenditures on domestic output that do not come from households, including investment spending, government expenditures, and exports.

Interest rate

The cost of borrowing money or the reward for saving money, expressed as a percentage over a specific period.

Interventionist supply side policies

Policies that rely on government intervention, such as infrastructure spending and education, to increase an economy's productive capacity.

Investment (I)

Spending by firms on capital goods, such as machines, tools, and factories.

Keynesian aggregate supply curve

A curve showing the relationship between real output and the price level in an economy, consisting of horizontal, upward-sloping, and vertical sections.

Keynesian revolution

An economic theory based on the works of John Maynard Keynes, advocating for government intervention to manage aggregate demand and economic activity.

Labour

One of the four factors of production, referring to the physical and mental contributions of workers to the production process.

Labour market flexibility

The ability of the labor market to quickly adjust to changes in labor demand and supply conditions.

Labour union

An organization of workers that seeks to improve working conditions and negotiate for higher compensation for its members.

Leakages

Income not spent on domestic goods and services, including savings, taxes, and import expenditure.

Long-run aggregate supply (LRAS)

Aggregate supply that is independent of the price level and is determined by the resources and technology in the economy. It is vertical at the level of potential output.

Long run in macroeconomics

The period of time when the prices of all factors of production, especially wages, change to match changes in the price level.

Long-term growth

Growth over long periods, shown by outward shifts of the production possibilities curve (PPC) or rightward shifts in the LRAS curve in the AD-AS model.

Lorenz curve

A curve showing the cumulative distribution of income or wealth in an economy. It measures income inequality, with the further the curve from the line of perfect equality, the greater the inequality.

Macroeconomics

The study of aggregate economic activity, investigating how the economy as a whole works.

Market-based supply side policies

Policies aimed at promoting long-term economic growth by encouraging well-functioning competitive markets, shown by increases in long-run aggregate supply.

Market-oriented approaches

Policies based on actions by private decision-makers operating in markets with minimal government intervention.

Minimum income standards

A measure of poverty based on what is considered essential to achieve a minimum acceptable standard of living.

Monetarist/new classical counter-revolution

An economic school of thought that argues that the price mechanism and well-functioning competitive markets are sufficient to achieve full employment, with minimal government intervention.

Monetary policy

A demand-side policy using changes in the money supply or interest rates to influence economic output, employment, and inflation.

Money

Anything that is generally accepted as a means of payment for goods and services, typically consisting of currency and checking accounts.

Money creation

The process by which commercial banks create new money through the loans they make.

Money supply

The total amount of money available in the economy at a particular time, including currency and checking accounts.

Monetary supply

The total amount of money available in the economy at a specific time, which includes currency and checking accounts.

Quantitative easing

A form of monetary policy where a central bank buys long-term government bonds or other financial assets to increase the money supply and stimulate economic activity.

Multidimensional Poverty Index (MPI)

An international measure of poverty that complements traditional income-based measures by considering deprivations in health, education, and living standards.

Output approach

A method of measuring GDP by adding the value of all final goods and services produced in a given time period.

National income

The total income earned by the factors of production in an economy, which includes wages, interest, rents, and profits.

National income accounting

The services provided by a statistical entity in every country that measures the economy's national income and output as well as other economic activity.

National income statistics

The data used to measure a nation's income and output and perform national income accounting.

Natural rate of unemployment

The rate of unemployment that occurs when the economy is producing at its potential output, which includes only frictional, structural, and seasonal unemployment.

Net exports (X - M)

The difference between a country's export revenues and import expenditures.

Nominal gross domestic product (GDP)

The total monetary value of all final goods and services produced in an economy in a given time period, not adjusted for inflation.

Nominal gross national income (GNI)

The total income earned by all residents of a country in a given time period, not adjusted for inflation.

Nominal interest rates

Interest rates that have not been adjusted for inflation.

Opportunity cost

The next best alternative forgone when a decision is made.

Portfolio investment

The purchase of financial assets such as stocks and bonds to earn a financial return through interest or dividends. It appears in the financial account of the balance of payments.

Potential output

The level of output that an economy can produce when it is operating at full employment equilibrium, or long-run equilibrium.

Poverty

A condition where the lack of material possessions or money prevents individuals or families from achieving a minimum satisfactory standard of living.

Poverty line

A level of income determined by the government or an international body that is just enough to ensure a family can meet their basic needs (food, clothing, and shelter).

Poverty trap/cycle

A situation where low income leads to low savings, low investment, and low growth, which in turn keeps people trapped in poverty.

Price deflator

A price index used to remove the effects of inflation when measuring real economic variables, such as real GDP.

Primary commodities

Raw materials produced in the primary sector, such as agricultural products, metals, and minerals.

Primary sector

The part of the economy involved in the extraction of natural resources, such as farming, mining, and fishing.

Privatization

The sale of public sector assets to private firms, often to increase efficiency or reduce government involvement in the economy.

Productive capacity

The maximum output an economy can produce, typically based on available resources and technology.

Progressive taxation

A system where the percentage of income paid in taxes increases as income increases.

Proportional tax

A tax system where the tax rate remains constant as income rises, so the tax paid increases proportionally with income.

Purchasing power parity (PPP)

A method used to compare the buying power of different currencies by adjusting for price level differences between countries.

Real GDP

The total value of all final goods and services produced in an economy in a given time period, adjusted for inflation.