VOCAB - 3. Macroeconomics

Consumption

spending by households (excl. spending on housing)

Investment

spending by firms or the government on capital goods (incl. spending on housing)

Net Exports

value of exports minus value of imports

GDP

measure of the market value of all final goods and services produced in a country over a time period (1 yr)

GNI

measure of the total income received by residents of a country regardless of the location of FoP over a time period (1 yr)

GDP per capita

GDP divided by population

Nominal GDP

GDP that does not account for changes in the price level

Real GDP

GDP that accounts for changes in the price level

Purchasing Power Parities (PPP)

value of one country's currency in

exchange rate at which the currency of one nation can be converted into the currency of another

Business cycle

short-term fluctuations in the growth of real GDP, altering between periods of expansion and contraction

Potential output/potential GDP/full employment level of output

level of output (GDP) produced when unemployment equals the natural rate of unemployment.

Full employment/natural rate of unemployment

level of unemployment when the economy is producing potential output

Inflationary gap

real GDP is greater than potential GDP

Recessionary (deflationary) gap

real GDP is less than potential GDP

Recession

economic contraction, when GDP decreases and unemployment increases for six months or more

Aggregate demand

total quantity of goods and services that all buyers in an economy are willing and able to purchase at various possible price levels during a particular time period, ceteris paribus

Wealth

people's money or assets minus debt

Indebtedness

amount of money people owe from past borrowing

Aggregate supply

total quantity of goods and services produced in an economy at various possible price levels during a particular time period, ceteris paribus

Unemployment

number of people in the labour force who are willing and able to work but not employed

Structural unemployment

unemployment due to changes in demand for labour

Frictional unemployment

unemployment due to workers in-between jobs

Seasonal unemployment

unemployment due to changes in demand for labour on a seasonal basis

Cyclical unemployment (demand-deficient unemployment)

unemployment due to fluctuations in the business cycle

Inflation

sustained increase in price level

Deflation

sustained decrease in price level

Disinflation

decrease in the rate of inflation

Consumer price index (CPI)

measure of the cost of living for the typical household

Deferred consumption

consumers postpone spending (ex. in deflation)

Government debt (national debt)

amount of money that a government owes to external lenders

Budget deficit

expenditure > tax

Budget surplus

expenditure < tax

Sustainable debt

level of debt where the government has enough revenue to meet debt obligations without defaulting, while also allowing economic growth

Debt servicing

payments needed to meet debt obligations (initial borrowed money + interest)

Economic inequality

degree that the population differs in their ability to satisfy economic needs

Poverty

inability to satisfy minimum consumption needs

Absolute poverty

inability to afford a basic standard of goods and services that is necessary for survival; below the poverty line

Relative poverty

inability to afford a standard of goods and services that is deemed "typical" in a society

Direct tax

taxes paid directly to the government (income tax, wealth tax)

Indirect tax

taxes on spending on goods and services

Proportional/progressive/regressive taxation

as income increases, the fraction of income paid as taxes remains constant/increases/decreases

Marginal tax rate

tax rate of the highest tax bracket an individual pays

Transfer payments

payments from the government to individuals in order to redistribute income

Monetary policy

policies by the central bank that change interest rates to influence AD

Central bank

a financial institution responsible for regulating the country's financial system and commercial banks

Interest

payment per unit time for borrowing money

Money

anything that is acceptable as payment for goods and services

Minimum reserve requirement

legally determined fraction of total deposits of commercial banks that must be kept within their vaults

Minimum lending rate (interest rate)

the interest rate charged by the central bank when lending to commercial banks

Inflation Targeting

central bank focuses on achieving a particular inflation target

Fiscal policy

policies by the government that change government expenditure and tax revenue to influence AD

Current expenditure

government spending on recurring costs

Capital expenditure

government spending on public investments

Crowding out

decrease in private investment due to an increase in government borrowing

Authomatic stabilisers

factors that automatically reduce short-term fluctuations of the business cycle: income tax, unemployment benefits

Keynesian Multiplier

degree to which real GDP increases due to an initial increase in government spending

Marginal propensity to consume

fraction of additional income that is spent on consumption of domestic goods and services

Marginal propensity to save

fraction of additional income that is saved

Marginal propensity to tax

fraction of additional income that is paid as taxes

Marginal propensity to import

fraction of additional income that is spent on imports

Privatisation

transfer of ownership of a firm from the public sector to the private secotr

Deregulation

decrease in government regulation on the free market

Market-based Policies

economic strategies relying on free market forces, involving minimal government intervention
(Unit 3: Market-based supply-side policies + Unit 4: Trade liberalization, Floating exchange rate system)

Interventionist Policies

economic strategies relying on government intervention to regulate and control the economy

Contracting Out (to the private sector)

when a government makes an agreement with a private firm to carry out a task initiated by the government