ECON - MACRO definitions

Gross domestic product
Measures the quantity of goods and services produced in an economy

Real gross domestic product
The value of GDP adjusted for inflation

Gross National Income

Natural Rate of Unemployment
The UnE that still exists when eq real output is at full employment (Yf). It is the sum of: Structural, frictional, and seasonal.

Unemployment rate %
(# of unemployed ÷ labour force) x 100

Inflation rate %

A sustained rise in the average price level.

Situation when people who are willing, able and available for work are unable to find work

A sustained fall in the average price level

A fall in the rate of inflation

Fixed wage period

Flexible wage period

Aggregate demand
The total amount of goods and services demanded in the economy at a given average price level and in a given time period. C+I+G+(X-M)

Aggregate Supply

The total amount of goods and services that all industries in the economy will produce at every given price level and in a given time period.

The set of government policies relating to its receipts and expenditure.

Demand side government policy to control money supply and alter interest rates

Where increasing real Output beyond this will only result in inflation (in the LR). There is no cyclical UnE.

An increase in real GDP of an economy over time.

an increase in the amount of goods and services produced per head of the population over a period of time

When an economy experiences two consecutive quarters of negative GDP.

Consumer Price Index
A current social and economic indicator that is constructed to measure changes over time in the general level of prices of consumer goods and services that households acquire, us or pay for consumption.

when the government expenditure is larger than the government revenue

when government revenues exceed total expenditures

Measures the difference between the current real GDP and the potential GDP at full employment

Occurs when a country's real GDP is lower than its GDP at full employment

goods that have been manufactured. ready for consumption

Average Price Level
Index of the average price of goods in a country over time

All economic activity taking place in a country

because of weak demand for various goods and services, firms decrease their output and fire workers

people are switching jobs

people are out of job because their workplace only operates seasonally (e.g. skiing resorts)

people are out of job because their skills are no longer required (e.g. technology improved and machinery replaced humans or consumer preferences changed and a service/good is no longer produced)

Any act that generates production, income, employment or expenditure

The aggregate of economic activity over a long period of time measured by a correlation between GDP and time.

the hourly rate of pay adjusted for inflation

expressed at current prices and is not adjusted for the effects of inflation

decrease in government spending and increase in taxation to reduce inflation

government aiming to increase AD – through deliberately increasing real government spending and/or lowering direct and indirect taxes, which is financed by an increase in the size of the budget (fiscal) deficit.

• Low and stable rate of inflation

• Low unemployment

• Economic growth

• Equity in distribution of income

• Sustainable balance between imports and exports

• Environmental sustainability

Taking in account of inflation, prices are put in real terms ie. Using a deflator from the base year

The money value of an economic variable, before it has been adjusted for inflation

inflation induced by a persistence of an excess of aggregate demand in the economy over aggregate supply. AD has shifted right.

The situation in an economy where there is sustained price rises because of production costs increasing, eg. Wages, imported materials, interest rates, rent. SRAS has shifted left

when price levels decline, leading to lower production, reduced wages, decreased demand, and continued price declines

a situation in which prices increase, then people are paid more in their jobs, which then causes the price of goods and services to increase again, and so on.

all people who are of working age, and able and willing to work

• Geographical (there is work but not within commuting distance of where they live)

• Sectorial – (eg there is work in say IT but not in coal mining)

• Technological – (eg labour is trained in obsolete skills eg printers, typists were replaced by machines)

Is a measure of inflation. It is used to deflate GDP to real prices. (you don’t need to know how it is calculated)

Peak of business cycle, right before a recession

Recovery is an increase in GDP from a recessionary level to match the level of output produced before the recession.

When the economy grows beyond its previous level of output

Components:

• firms (businesses)

• households (individuals)

is the opportunity cost of borrowing/lending money. It is the % paid buy borrowers for the use of money. Eg if a firm borrows money to buy capital it might have to pay the lender 5% a year.

Money that doesn’t re-enter the economy in terms of circular flow (i.e. non-consumption uses: savings, taxes, imports)

The oversupply of a good

An amount of money owed by a person, firm or government (the borrower) to a lender

Requires the poor and middle class to pay a larger proportion of their income in taxes than the rich

Ratio between the output volume and the volume of inputs. In other words, it measures how efficiently production inputs, such as labour and capital, are being used in an economy to produce a given level of output.

higher tax on higher incomes

good 1, good 2