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Economics: Key Terms and Definitions

What is 'Macroeconomics'

❶Through central banks, the government will come up with its fiscal and monetary policies to keep the economy in check. Fixed Residential Investment -- Additions to the existing stock of housing used to provide housing services.

Gross Domestic Product (GDP)

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Macroeconomics - key terms
BREAKING DOWN 'Macroeconomics'

This can be represented by a graph, called a supply and demand curve. Here is an example of a supply and demand curve from the Wikimedia commons. The S curve is an example of a supply curve, and the D1 and D2 curves are examples of two slightly different demand curves.

When looking at the supply curve, we can see that an increase in price will create additional supply the quantity goes up , while an increase in price stimulates a decrease in the amount demanded the D curve. Equilibrium is the point where everybody willing to pay the market price has their demand satified, and anybody willing to produce at the market price has a buyer for the good.

At any other point along either curve the market forces would drive supply and demand toward equilibrium. For instance, at a lower price, demand would outstrip supply.

Unsatisfied consumers could offer to pay more to receive goods, and the increased price is an incentive for a profit seeking producer to produce more goods, causing supply to increase. In general, market forces will cause the market to move towards the equilibrium point.

A labourer who hones skills with regards to one specific task will be more effective at the given task than someone who is unskilled. The market encourages people to develop special skill sets and trade their labour, or the products of their labour, with others for the things they need or want.

Alternatively people could directly satisfy their own needs. The key to specialization is that a specialist can perform their work generally better and more quickly than a non-specialist. A group of five specialists could all trade their respective goods and services to each other.

This five specialists would be more wealthy capable of enjoying more free time, and having better quality goods and services than five equally capable people who all worked to provide for all their own needs on their own without specializing and trading with each other.

This is one of the key benefits of market and trade concepts, as this interdependent network of specialists are capable of dramatically more effective action than would otherwise be possible. A place where goods and services are exchanged.

One might imagine a bustling street full of vendors and customers or a stock exchange full of people buying and selling stocks. These are physical manifestations of what we call a market, but the definition is not limited to these examples. Goods and services are exchanged at many levels.

We can imagine markets at a local, national, and global scale. We can still use those first mental images, but we should be aware that markets can span continents and cross borders.

They manifest themselves in many ways. The most general rules that define the way a market acts is via supply and demand see above. Markets are also places where discussions can happen between people and organizations regarding appropriate quantities and prices for their exchange of goods.

A useful definition of capital is anything that can enhance the ability to do economically useful work 1. Economically useful essentially means anything that has value to human beings. There are many ways to produce value, so it makes sense that there are several types of capital that we can refer to. Human beings who can perform useful work.

This includes physical as well as mental work and specialized skills. If inflation goes up, but GDP remains the same, this is an indication that a country is becoming less productive. Nominal GDP is a measurement that is no adjusted for inflation. This is simply the dollar amount of GDP without any adjustments made for inflation during the period. The unemployment rate is percentage of people who are looking for work, but have not yet found work.

The total number of people actively seeking work is divided by the total workforce to obtain the unemployment rate.

It does not include those who are retired, disabled, or otherwise not looking for employment. As more paper money is printed, it causes the relative value of the currency to decrease in value. The Federal Reserve Bank controls this continuous trend by making changes to monetary policy. Fiscal policy defines the choices of government in relation to revenues and expenditures.

Income Producing Asset -- An asset that is used to generate revenue from the production and sale of goods and services. Indirect Business Taxes -- Taxes that tend to be built into the price of a particular good i.

Income Taxes -- Taxes that are based on and vary with personal or corporate income. Indirect Finance -- The transfer of loanable funds deposits through the use of financial intermediaries commercial banks. Induced Expenditure -- Changes in spending due to changes in national income. See the Marginal Propensity to Spend. Inflation -- An increase in the price level over some defined time period. Interest Sensitivity of Investment -- A measure of responsiveness of investment expenditure to changes to the real interest rate.

Interest Sensitivity of Money Demand -- A measure of responsiveness of the demand for cash balances to changes in the nominal interest rate. Intermediate Goods and Services -- Goods or services used to produce other goods i. Investment -- Changes to the existing capital stock or business inventories. Labor Force Participation Rate -- The ratio of those in the labor force the employed and unemployed and those that are available for work.

Laspeyres Index -- A weighted average of prices based on the use of base-period consumption patterns. Liquidity -- A measure of the ease by which a financial asset can be converted into a form readily accepted as payment for goods and services.

Liquidity Premium -- An adjustment to a real interest rate to compensate for the direct relationship between uncertainty and the duration of a debt contract. M 1 -- A narrow money supply measure that includes currency in circulation and the value of demand deposits.

M 2 -- A broad money supply measure that includes currency, demand deposits, and the value of time deposits. Marginal Propensity to Consume --The fraction of each additional dollar of income devoted to consumption expenditure.

Marginal Propensity to Spend -- The fraction of each additional dollar of income devoted to any type of spending i. Market -- A place or institution where buyers and sellers come together and exchange factor inputs or final goods and services. A market is one of several types of economic rationing systems. Money Market Instrument -- A short term less than 10 years debt instrument. Money Multiplier -- The relationship between changes in the monetary base and the money supply.

Monetary Base -- Also known as High-powered Money. National Income -- The sum of all types of income wages, net interest, profits, and net rental income earned in a given time period by any type of economic agent individuals or corporation.

Natural Rate of Unemployment -- That rate of unemployment where there is neither upward nor downward pressure on prices. Net Investment -- Investment exclusive of replacement of depreciated capital. Nominal Interest Rate -- The interest rate published as part of a debt contract. Non-Durable Goods --Goods that tend to be immediately consumed or deliver consumption services over a short period of time.

Non-Income Producing Asset --Something of value that does not generate any income or revenue stream. Normal Current Yield -- The ratio between the annual income generated by an asset and its purchase price.

Also known as the present value of a perpetuity. Paasche Index -- A weighted average of prices based on current expenditure patterns. Peak -- A point of transition in the business cycle from expansion to contraction.

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This key term glossary covers the vast majority of concepts needed for students preparing for their AS (Unit 2) macro economics exam. It is suitable for all.

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View Notes - Macroeconomics Key Terms from ECON at Carleton University. Macroeconomics Terms Paper. The following paper will define 8 key terms related to macroeconomics for the Individual Assignment in ECO Week 1.