econ ch. 17-22

aggregate demand

the total value of total demand for all goods and services in the economy per time period (total amount of spending in the economy / year)

aggregate supply

total amount of output of goods and services that firms within an economy are willing and able to supply at a given time and at an overall price level (measure of the economy’s potential output)

indirect taxes

government levies or charges on expenditure, rather than on incomes (ex. VAT or GST) —> adds to cost of production

inflationary gap (positive output gap)

when real national output exceeds the full employment level of output due to excess levels of aggregate demand for the consumption of G&S.

deflationary gap (recessionary gap)

real national output is below the full employment level of output due to lower levels of aggregate demand

full employment

when those who are willing and able to work have or can find a job, so the economy is operating at full capacity

natural rate of unemployment

the level of unemployment at the full employment equilibrium level of national output, comprising frictional, seasonal and structural unemployment

economic growth

an increase in a country’s real gross domestic product (GDP) over time. (usually expressed as annual % change in real output)

negative economic growth

when the level of economic activity declines (fall in real GDP) — associated with recession in the business cycle

labour force

people of working age who are in employment (including self-employed) plus those who are seeking seeking work/available for work at current real wage rates

conflicting macroeconomic objectives

it is not always possible for a government to simultaneously achieve all of its macroeconomic objectives owing to potential trade-offs

labour supply

the number of people able and willing to work at the prevailing market equilibrium wage rate W_e

formal sector employment

officially recorded employment, with workers paying income taxes and contributing to the country’s official GDP

unemployment

when people are willing and able to work and actively seeking employment but are unable to find work

labour force

people of working age who are in employment (incl. self-employed) and those who are seeking work (those who are available for work at current real wage rates)

claimant count

measure of the number of people who are out of work, actively seeking employment but claiming unemployment benefits

hidden/disguised unemployment

those who are technically unemployed (do not have full time jobs) but are not included in the official measurement for unemployment (ex. discouraged workers and underemployed workers)

discouraged workers

people who have stopped looking for jobs because they are disheartened by having been rejected too many times :(

female participation rate

additional measure to calculate the proportion of of women who are economically active in the labour force 

cyclical unemployment / demand-deficient unemployment

unemployment caused by a lack of demand for the goods and services in the economy

structural unemployment

when demand for labour is less than the supply of labour in that particular industry

seasonal unemployment

unemployment caused by regular and periodical changes in the derived demand for labour at differing times of the year 

frictional/transitional unemployment

when people are temporarily unemployed while actively searching for a new job/waiting to start new job

inflation

the sustained rise in the general price level in an economy over time

price stability

when the general level of prices remain largely constant due to a low and stable rate of inflation in the economy 

hyperinflation

extortionately high and uncontrollable rates of inflation that causes serious macroeconomic problems

consumer price index (CPI)

weighted index of average consumer prices of goods and services over time, used to measure inflation (or changes in the cost of living) for the average household in the economy

money supply

amount of money in circulation within the economy at a particular point in time, as determined by the central bank

demand-pull inflation

inflation caused by higher levels of aggregate demand (AD) in the economy, which drives up the general price level.

shoe leather costs

as customers spend more time searching for better deals, they gather increasing opportunity costs in terms of the time and effort required

menu costs

with prices continually rising, firms incur ongoing costs of changing and updating price lists and price tags

wage-price spiral

circular cause of higher inflation due to trade unions negotiating higher wages owing to higher costs of living, which causes higher costs for firms.

malign deflation

generally harmful deflation. due to a decline in aggregate demand for goods and services in the economy

benign deflation

generally unharmful deflation as the economy is able to produce more without an increase in the general price level (increase in SRAS)

disinflation

when there is a fall in the rate of inflation. prices are still rising, but at a slower pace.

deflationary spiral

circular process of downward pressure on the general price level caused by a weak economy, which leads to lower wages and confidence levels that in turn causes prices to fall further.

budget deficit

when the value of government spending exceeds its revenue per time period

government/national debt

the sum of all accumulated government budget deficits from previous years.

debt to GDP ratio

a country’s national debt as a percentage of its GDP (national income). 

multiplier effect

initial injection of spending leads to a total increase in national income and economic output that is greater than the original amount spent

debt servicing costs

expenses of financing the national debt (repaying the principal amount borrowed plus interest costs)

credit rating

the measure of a borrower’s ability to repay a loan.

austerity measures

cutbacks in fiscal spending in order to repay national debt, achieved by reducing government spending and raising taxation