IB Economics SL General Terms

What is cost-push inflation? inflation caused by higher production costs

What is demand-pull inflation? inflation caused by an excess of demand over supply

Who controls monetary policy? The central bank

Who controls fiscal policy? The government

What is the goal of monetary policy? To maintain healthy inflation, stable prices, liquidity, and economic growth

What is the goal of fiscal policy? To maintain government spending and promote a strong economy

How can monetary policy be implemented? Bank rates, reserve requirements, and open market operations

What is supply? The total amount of a good that is available to consumers

What is demand? A consumer’s willingness to purchase a good or service for any given price

What is the bank rate? The interest rate that a central bank institutes on loans to commercial banks

What is the central bank? The government institution that manages currency and monetary policy

What is a reserve requirement/ratio? The percentage of a commercial bank’s deposits that must be kept in liquidity

What is a liquid asset or liquidity? An asset that can easily be converted into cash.

What is an interest rate? The price that is paid to borrow money

What is currency? An official form of money

What is a consumer? A person who purchases goods and services

What is a producer? A person who creates goods and services

What is inflation? A gradual increase in prices over time

What is aggregate demand? The total demand for all goods and services in an economy

What is aggregate supply? The total supply of all goods and services in an economy at a given price level during a certain period

What is price level? The average of current prices across purchased goods and services in an economy

What is unemployment? The rate that individuals search for work but cannot find it

How is unemployment measured? (unemployed / labor force) * 100

What does microeconomics refer to? The study of individual actors in an economy

What does macroeconomics refer to? The study of an economy as a whole

What is the Gross Domestic Product (GDP)? The total market value of all goods and services produced in an economy in a certain period

How is GDP calculated? Consumption + Investment + Government Spending + Net Exports

What is the Consumer Price Index (CPI)? The periodical change in prices paid by consumers

How is CPI calculated? By dividing the current market basket price by a previous base market basket price and multiplying the result by 100

What is a market basket? A collection of goods and services that mimic the purchases of an average consumer.

What is Price Elasticity of Demand (PED)? The measurement of the change in demand for a good or service in relation to a change in price

What is an elastic good? One where a change in price leads to a proportionally larger change in demand

What is an inelastic good? One where a change in price leads to a proportionally smaller change in demand

What is a Veblen Good? A luxury good where demand increases as price increases

What is a Giffen Good? A non-luxury good where demand increases as price increases