microeconomics

When firms spend money on capital goods to increase their productive capacity

1) borrow money 2) investing a retain profits they have

1) expected profit 2) expected demand in economy

Profit left after corporation taxes are paid.

there is an increase in rate of GDP which encourages further investment. If rate of GDP increases, encourage more investment, which will increase rate of rGDP, etc…

Level of disposable income, interest rates, consumer confidence, asset prices, household indebtedness

The willingness of a household to spend any extra income earned.

Levels of real disposable income, interest rates, consumer confidence, range of financial institutions, tax incentives, age structure of population

An increase in rGDP in an economy in a year caused by an increase in AD or increase in LRAS.

Increase in LRAS, increase in the productive capacity of the economy

increase in quality / quantity of fop and in productive efficiency

Increase in labour productivity, workforce size, investment, infrastructure, competition, new resource discoveries

Value of all final goods and services produced in an economy in a year

Measure of independent incomes in the economy

not accurate measure of output, parallel markets, impacts on society, pollution, resource depletion, ignores inequality and other factors

Measurement of economic activity involves measuring an economy’s national income or the value of output

adds up all spending to buy final goods and services produced in a country over a time period

adds up all income earned by factors of production that produce all goods and services within a country over time

value of all final goods and services produced in an economy

total income received by the residents of a country

measuring eliminates the influence of price changes

measuring in terms of current prices

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

income earned by all national fop independently of where they are located over a period of time, adjusted for inflation

amount of country’s currency that is needed to buy the same quantity of local goods and services that can be brought with 1 USD in the US.

boom and expansion / growth

contraction / trough

initiative pioneering the development of economic indicators which better capture multiple dimensions of economic and social progress

real GDP per capita, social support, health life expectancy, freedom to make life choices, generosity, perceptions of corruption

economic indicator from ecological point of view

total amount of real output that stakeholders want to buy at each price level, over a particular time period, c.p. The sum of all demand in the economy

business confidence, intereste rates, technology, business tax, indebtness

changes in political and economic priorities

Real disposable income earned abroad / home, strong or weak exchange rates, protectionism, at home and abroad, relative inflation levels

decreased value of exchange rate of currency value

increased value of exchange rate currency

period of time when resource prices do not change, usually wages

total quantity of goods and services produced in an economy (rGDP) over a particular time period at different price levels.

costs of fop, indirect taxes, subsidies, supply shocks

period of time when all resource prices are flexible

full employment level of output

a situation where rGDP is greater than potential GDP, Y>Yfe

a situation where rGDP is less than potential GDP, Yfe>Y

exists when the economcy is producing at its potential level of real output and thus there is only natural employment. Yfe = Y

low unemployment, economic growth, low and stable inflation, sustainable level of government intervention, equity in the distribution of income

levels of income, wealth and consumption of goods and services including healthcare ad education

the people above a certain age (working age) who are not working and who are actively looking for a job

number of people who are employed plus the number of people of working age population who are unemployed

people who are not included in the unemployment statistics due to reasons including : discouraged workers and underemployment

people of working age with part-time jobs when they would rather work full-time or with jobs that do not make full use of their skills and education

people who have been out of a job for so long that they are discourage from even looking for work

hidden unemployment, parallel markets, average

less tax revenue, benefits, loss in rGDP, worsening of distribution of income, decrease in economic capacity

frictional, structural, cyclical, seasonal

structural, seasonal, frictional

occurs during the downturns of the business cycle when the economy is in recession

occurs as a result of changes in demand for particular types of labor skills, changes in geographical location of industries and labor market rigidities

prevent market forces from operating, stops demand and supply being equal

occurs when the demand for labor in certain industries changes on a seasonal basis because of variations in needs

occurs when workers are between jobs or entering the labor force.

sustained increase in the general price level for two or more consecutive quarters

sustained decrease in the general price level

when inflation occurs at a lower rate

average spending of an average consumer on goods and services

average, changes in consumption ?, substitutes, over a year

inflation caused by an increase in AD

inflation caused by an increase in cost of production causing a decrease in SRAS

when an economy stagnates and experiences inflation

energy crisis 2023 causing increase in fop

uncertainty, redistributive effects, effects on savings, damage to export competitiveness, impact on economic growth, inefficient resources allocation

the price levels increase by more than 50% per month up to thousands or millions of percent per year

firms don’t decrease prices easily, there are fixed contracts and minimum wages.

uncertainty, redistributive effects, deferred consumption, high cyclical unemployment, increase in debt, inefficient resource allocation, policy ineffectiveness

refers to the amount of money that a government owes to lenders outside of the government itself

tax revenue < gov spending

debt servicing costs, credit ratings, impact on future taxation and government spending

shows the relationship between inflation and unemployment in the SR and LR

focus on changing aggregate demand to achieve several macroeconomic goals

demand side policy carried out by the central bank. It involves manipulating AD through the use of money supply and interest rates.

preserve stability, printing money, electronic payment systems, control interest rates, overseas commercial banks, banker for the government, exchange rates

aimed at increasing AD, so decreases interest rates in order to decrease cost of borrwing to increase investment and consumption, increasing AD

aimed to decrease AD, so increase interest rates in order to, increase cost of borrowing, decreasing investment and consumption, decreasing AD

a central bank follows an explicit target for the inflation rate for the medium-term and announces this inflation target to the public i.e. 2%

a country’s revenues from exports are balanced by spending on imports over an extended period of time.

open market operations, minimum reserve requirements, changes in base rate, quantitive easing

market rate that prevails at any moment in time

interest rate that has been corrected for inflation

direct and indirect taxation, sales of goods and services from state-owned entreprises, sales of government assets

current expenditures, capital expenditures, transfer payments

spending on day to day operations

spending by the gvoernment on physical capital

made by the government to individuaks, they receive nothing in return, i.e. pensiosn

demand side policy using changes in government spending and / or direct taxation to influence AD

an increase in government expenditures and / or a decrease in direct taxes that aim to increase AD

a decrease in government expenditures and / or an increase in direct taxes that aim to decrease AD

institutionally built in features that tend to decrease the short term fluctuation of the business cycle without the need for the government to intervene, i.e. unemployment benefits

rising public sector spending drives down or even eliminates private sector spending

idea that an increase in any injection will lead to a greater increase in rGDP because an increase in spending generates additional income that leads to further spending and thus more income.

marginal propensity to save

government policies designed to shift the long run aggregate supply curve to the right, thus increasing potential output in the economy