Term
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Definition
| When a market fails to produce efficient outcomes, and in particular, does not achieve allocative efficiency |
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Term
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Definition
| Costs or benefits of economic activity which are met by others rather than the party which causes them |
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Term
| Positive externalities (social benefits) |
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Definition
| Benefits of economic activity that are not accounted for in production costs or price |
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Term
| Negative externalities (social costs) |
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Definition
| Costs of economic activity that are not accounted for in production costs or price |
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Term
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Definition
| Goods and services that everyone can consume at the same time, and are non-rivalrous and non-excludable and therefore would not be normally provided by the private market |
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Term
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Definition
| Goods and services that are excludable and rivalrous and are therefore provided by the market |
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Term
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Definition
| Goods and services that would be provided by the market but because of their positive externalities are wholly or partly provided by the government |
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Term
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Definition
| A good is rivalrous if the use of it by one person prevents the use of another |
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Term
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Definition
| People are excluded from using the good unless they pay a price for it |
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Term
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Definition
| A good with positive externalities that benefit a third party (e.g. education - the market will only provide at a private optimum level and hence under produce the socially optimum level, so an underproduction or underconsumption of merit goods results) |
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Term
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Definition
| A good with negative externalities to a third party (e.g. overconsumption of alcohol impairs judgment, can cause violence and is the cause of many road accidents - market price of alcohol does not reflect its social costs and hence there is an overproduction or overconsumption of demerit goods) |
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Term
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Definition
| Those who benefit from a good or service without paying a share of its cost - this is why the market will not provide public goods |
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Term
| Internalize the externality |
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Definition
| Making the user pay or be responsible |
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Term
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Definition
| When social costs and benefits are not reflected in the market price, and the market mechanism does not reflect these costs and benefits |
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Term
| Allocatively efficient output |
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Definition
| Occurs where marginal social cost (MSC) equals marginal social benefit (MSB) - socially optimum level or output |
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Term
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Definition
| Development of resources that meets the needs of the present without compromising the ability of future generations to meet their own needs |
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Term
| Production possibility curve (PPC) |
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Definition
| A curve that shows all possible combinations of two goods that a country can produce efficiently during a given period of time |
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Term
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Definition
| Land (rent), labor (wage), capital (interest), enterprise (profit) |
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Term
| Gross national product (GNP) |
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Definition
| Total income that is earned by a country's factors of production regardless of where the assets are located |
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Term
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Definition
| GDP + net property income from abroad |
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Term
| Net national product (NNP) |
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Definition
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Term
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Definition
| Value at current prices, and adjust it for inflation to get the GDP at constant prices |
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Term
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Definition
| Nominal GDP adjusted for inflation |
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Term
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Definition
| Easiest of the national income statistics to measure - total GDP divided by the size of the population |
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Term
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Definition
| Increase in a country's output over time that is an increase in national income |
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Term
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Definition
| A much broader concept than merely economic growth, often involving non-economic and often quite intangible improvements in the standard of living, such as freedom of speech, freedom from oppression, healthcare, employment, and education |
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Term
| Human development index (HDI) |
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Definition
| Composite index that measures a long and healthy life, education, and ability to meet basic needs |
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Term
| Human poverty index (HPI) |
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Definition
| Looks at the proportion of people who are deprived of the opportunity to reach a basic level in each area of development |
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Term
| Gross domestic product (GDP) |
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Definition
| Total worth estimated in currency values of a nation's production in a given year |
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Term
| Purchasing power parity (PPP) |
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Definition
| Exists when a given amount of currency will buy exactly the same bundle of goods, in each of two countries, at the current exchange rate |
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Term
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Definition
| The total spending of goods and services in a certain period of time at a given price level |
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Term
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Definition
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Term
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Definition
| The total amount of goods and services that all industries in the economy will produce in a certain period of time at a given price level |
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Term
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Definition
| Purchase of firms on new buildings, new plants, new vehicles, new machiner, and additions to inventory |
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Term
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Definition
| Means the average of all price levels measured using an index, used to give the real total output or expenditure |
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Term
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Definition
| When price of final goods and services change, but factor prices do not - there is a time lag, so this is also the SRAS curve |
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Term
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Definition
| When factor prices do adjust to final price changes the macro economy is in the long-run, so this is the LRAS curve |
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Term
| Natural rate of unemployment |
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Definition
| The level of unemployment which still exists when the labor market clears, so there is no cyclical unemployment, only structural/frictional/seasonal, increase in AD at this level will cause inflation |
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Term
| Short run aggregate supply (SRAS) |
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Definition
| The period of time before factor prices adjust to a change in prices |
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Term
| Long run aggregate supply (LRAS) |
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Definition
| Period of time when all markets are in equilibrium, including the labor market |
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Term
| Full employment level of national income |
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Definition
| The level of national income at which there is no deficiency in demand |
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Term
| Macroeconomic equilibrium |
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Definition
| Occurs at the price level where aggregate demand equals aggregate supply (AD = AS) |
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Term
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Definition
| Periodic fluctuations of national output around its long-term trend, often occurs at a generally upward growth path |
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Term
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Definition
| Occurs when the level of aggregate demand in the economy is not sufficient to buy up the potential output that could be produced by the economy at the full employment level of output |
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Term
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Definition
| Increase in aggregate demand and an economic expansion |
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Term
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Definition
| Two consecutive quarters of negative GDP growth |
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Term
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Definition
| National income is rising |
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Term
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Definition
| Policy regarding the size and composition of government spending and revenue used to influence both the level and parter of economic activity in a country |
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Term
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Definition
| Policy regarding the size and composition of government spending and revenue used to influence both the level and parter of economic activity in a country |
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Term
| Discretionary fiscal policy |
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Definition
| Deliberate change to the government spending and or taxation (expansionary - increase, contractionary - decrease) |
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Term
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Definition
| Attempts by central banks to deliberately increase or decrease the money supply through interest rates, reserve requirement ratio, and open market operations |
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Term
| Expansionary monetary policy |
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Definition
| Decrease interest rates, RRR and purchase of government bonds and securities |
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Term
| Contractionary monetary policy |
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Definition
| Increase interest rates, RRR and the sale of government bonds and securities |
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Term
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Definition
| A process where a change in autonomous expenditure (investment, tax cuts, or increase in export demand) brings about a magnified change in national income |
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Term
| Marginal propensity to consume (MPC) |
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Definition
| Determines the value of the multiplier (size of multiplier) |
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Term
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Definition
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Term
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Definition
| People of working age who are without work, available for work, and actively seeking employment (ILO) |
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Term
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Definition
The number of people who are unemployed
expressed as a percentage of the total labor force |
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Term
| Types of equilibrium unemployment |
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Definition
| Frictional, seasonal, structural |
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Term
| Types of disequilibrium unemployment |
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Definition
| Real-wage (classical), demand-deficient |
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Term
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Definition
| Unemployment as a result of people who are in-between jobs |
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Term
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Definition
| Unemployment associated with industries or regions where the demand for labor is lower at certain times of the year |
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Term
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Definition
| Unemployment caused by a change in the demand for skills as the nature of the economy changes |
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Term
| Disequilibrium unemployment |
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Definition
| When the market is kept from clearing (reaching equilibrium) |
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Term
| Demand-deficient unemployment |
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Definition
| Where demand for workers is not enough by firms andthus there is unemployment |
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Term
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Definition
| When wages are forced above normal market level andtherefore causing unemployment as it becomes more expensive to hire workers |
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Term
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Definition
| Because of the power of unions and work contractions, wage rates are very hard to push down and thus they are "sticky" |
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Term
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Definition
| A progressive rise in average price levels of all goods and services in an economy over a given period of time |
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Term
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Definition
| Increasing the costs of production (and decreasing AS)will result in inflation |
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Term
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Definition
| Increasing AD in an economy when the economy is reaching full employment will only result in inflation |
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Term
| Inflation due to excess monetary growth |
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Definition
| Excessive increases in monetary supply are also the cause of inflation |
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Term
| Consumer price index (CPI) |
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Definition
| "Basket" of common goods and services that represents the consumption habits of an average family |
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Term
| :Producer price index (PPI) |
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Definition
| Different from CPI in that it represents the average prices of the most common supplies in an economy |
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Term
| Wholesale price index (WPI) |
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Definition
| Represents the costs to an average wholesaler (product distributors like supermarkets) |
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Term
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Definition
| Comes from improvements in the demand side of the economy, fall in AD will result in a decrease in the price level and a decrease in real output |
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Term
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Definition
| Comes from improvements in the supply side of the economy and/or increased productivity, an increase in the LRAS can result in an increase in real output and a fall in the price level |
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Term
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Definition
| Situation where government spending displaces or crowds out private spending, refers to reduction in private demand for investment caused by an increase in government spending that is financed by a budget deficit |
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