Macroeconomics Definitions

the lands, water, metals, minerals, animals and other gifts of nature that are available for producing goods and services.

the perpetual state of insufficiency of resources to satisfy people’s unlimited wants.

the study of how people work together to transform resources into goods and services to satisfy their most pressing wants, and how they distribute these goods and services among themselves

the ability of consumers to exercise complete control over what goods and services the economy produces (or doesn’t produce) by choosing what goods and services to buy (or not to buy).

an abstraction of an economic reality. It can be expressed pictorially, graphically, algebraically, or in words.

the Latin phrase meaning “everything else being equal”.

a model of how the economy’s resources, money, goods and services flow between households and firms through resource and product markets.

an economic unit of one or more persons, living under one roof, that has a source of income and uses it in whatever way it deems fit.

an economic unit that produces goods and services in the expectation of selling them to households, other firms or government.

a subarea of economics that analyzes individuals as consumers and producers, and specific firms and industries. It focuses especially on the market behavior of firms and households.

A subarea of economics that analyzes the behavior of the economy as a whole.

a subset of economics that analyzes the way the economy actually operates.

a subset of economics founded on value judgments and leading to assertions of what ought to be.

the use of statistics to quantify and test economic models.

any resource used in a production process. Resources are grouped into labor, land, capital and entrepreneurship.

the physical and intellectual effort of people engaged in producing goods and services.

manufactured goods used to make and market other goods and services.

the knowledge and skills acquired by labor, principally through education and training.

a natural state resource such as real estate, grasses and forests, and metals and minerals.

a person who alone assumes the risks and uncertainties of a business

the various combinations of good that can be produced in an economy when it uses its available resources and technology efficiently.

the quantity of other goods that must be given up to obtain a good.

a country is poor because it does not produce capital goods. It does not produce capital goods because it is poor.

an idea that eventually takes the form of new, applied technology

the less than full utilization of a resource’s productive capabilities.

the maximum possible production of goods and services generated by the fullest employment of the economy’s services.

the division of labor into specialized activities that allow individuals to be more productive.

a country’s ability to produce a good using fewer resources than the country it trades with.

a country’s ability to produce a good at a lower opportunity cost than the country with which it trades.

a change in the quantity demanded of a good that is caused solely by a change in the price of that good.

the inverse relationship between price and quantity demanded of a good or service, ceteris paribus.

a schedule showing the specific quantity of a good or service that people are willing and able to buy at different prices.

a curve that depicts the relationship between price and quantity demanded.

the sum of all individual demands in a market.

a schedule showing the specific quantity of a good or service that suppliers are willing and able to provide at different prices.

a market situation in which the quantity of a good supplied is fixed, regardless of price.

a curve that depicts the relationship between price and quantity supplied.

the difference, at a particular price, between quantity demanded, quantity supplied being the greater.

the difference, at a particular price, between quantity supplied, quantity demanded being the greater.

the price that equates quantity demanded to quantity supplied. If any disturbance from that price occurs, excess demand or excess supply emerges to drive price back to equilibrium.

the time interval during which suppliers are able to change the quantity of some but not all the resources they use to produce goods and services.

the time interval during which suppliers are able to change the quantity of all the resources they use to produce goods and services.

a change in quantity demanded of a good that is caused by factors other than change in the price of that good. These factors include changes in income, taste, prices of other goods, expectations about future prices, and population size.

a good whose demand increases or decreases when people’s incomes increase or decrease.

goods that can replace each other. When the price of one increases, the demand for the other increases.

goods that are generally used together. When the price of one increases, the demand for the other decreases.

a change in quantity supplied of a good that is caused by factors other than a change in the price of that good. These factors include changes in technology, resource prices, prices of other goods, and the number of suppliers

a phase in the business cycle in which the decline in the economy’s real GDP persists for at least a half year. Usually has high unemployment.

severe recession

a phase in the business cycle marked by a relatively high level of real GDP, full employment, and inflation.

an increase in the price level.

alternating periods of growth and decline in an economy’s GDP.

the bottom of a business cycle

a phase in the business cycle, following a recession, in which real GDP increases and unemployment declines.

the top of a business cycle

a phase in the business cycle in which real GDP declines, inflation moderates, and unemployment emerges.

total value of all final goods and services, measured in current market prices, produced in the economy during a year. Dependent on personal consumption expenditures, gross private domestic investment, government purchases, and net exports of goods and services.

GDP measured in terms of current market prices-that is, the price level at the time of measurement. (It is not adjusted for inflation).

GDP adjusted for changes in the price level

a measure comparing the prices of consumer goods and services that a household typically purchases to the prices of those goods and services purchased in a base year.

the reference year with which prices in other years are compared in a price index.

a measure of prices in one year expressed in relation to prices in a base year.

a measure comparing the prices of all goods and services produced in the economy during a given year to the prices of those goods and services purchased in a base year.

the total quantity of goods and services that firms in the economy are willing to supply at varying price levels.

the total quantity of goods and services demanded by households, firms, foreigners, and government at varying price levels. = C+I+G+(X-M)

inflation caused primarily by an increase in aggregate demand

a period of stagnating real GDP, inflation and relatively high levels of unemployment.

inflation caused primarily by a decrease in aggregate supply.

the movement of goods and services from firms to households and of resources from households to firms.

the movement of income in the form of resource payments from firms to households and of income in the form of revenue from households to firms.

a method of calculating GDP that adds all expenditures made for final goods and services by households, firms, and government.

goods purchased for final use, not for resale.

goods used to produce other goods

the difference between the value of a good that a firm produces and the value of the goods the firm uses to produce it.

all goods and services bought by households.

the purchase by firms of plant equipment and inventory goods

all goods and services bought by the government

an economy’s exports to other economies, minus its imports from other countries.

goods expected to last at least a year.

goods expected to last less than a year.

productive activities that are instantaneously consumed.

stocks of finished goods and raw materials that firms keep in reserve to facilitate production and sales.

a method of calculating GDP that adds all the incomes earned in the production of final goods and services.

the sum of all payments made to resource owners for the use of their resources includes adding interest, corporate profit, rent compensation of employees and proprietors’ income.

the market value of all final goods and services in an economy produced by resources owned by people of that economy regardless of where the resources are located.

the value of existing capital stock used up in the process of producing goods and services.

national income, plus income received but not earned, minus income earned but not received.

income received but not earned. Examples is winning the lottery.

personal income minus direct taxes.

the unreported or illegal production of goods and services in the economy that is not counted in GDP.

the relationship between consumption and income.

as national income increases, consumption spending increases, but by diminishing amounts. That is, as national income increases, the MPC decreases.

the ratio of the change in consumption spending to a given change in income.

as national income increases, consumption spending increases as well, always by the same amount. That is, as national income increases, MPC remains constant.

a person’s consumption spending is related to his or her permanent income.

typically, a person’s MPC is relatively high during young adulthood, decreases during the middle age years, and increases when the person is near or in retirement.

the regular income a person expects to earn annually.

the unexpected gain or loss of income that a person experiences. It is the difference between a person’s regular and actual income in any year.

consumption spending that is independent of the level of income.

that part of national income not spent on consumption.

the chang in saving induced bya change in income.= change in savings/change in income

a line, drawn at a 45 degree angle, showing all points at which the distance to horizontal axis equals the distance to the vertical axis.

investment spending that producers intend to undertake.

investment that is independent of the level of income. Determined by technology level, interest of rate,expectations of future economic growth, rate of capacity of utilization.

spending by consumers on consumption goods, businesses on investment goods, government and spending by foreigners on net exports. Same as GDP or AD

I=S

goods produced for consumption that remain unsold.

investment spending that producers actually make-that is, intended investment (investment spending that producers intend to do), plus or minus unintended changes in inventories.

a curve that shows the quantity of aggregate expenditures at different levels of national income or GDP.

the multiple by which income changes as a result of a change in aggregate expenditure. 1/1-MPC or 1/MPS

the more people try to save, the more income falls, leaving them with no more and perhaps with even less savings.

relatively brief periods of unemployment caused by people deciding to voluntarily quit work in order to seek more attractive employment.

unemployment that results from fundamental technological changes in production, or from the substitution of new goods for customary ones.

unemployment associated with the downturn and recession phases of the business cycle..

unemployed people who give up looking for work after experiencing persistent rejection in their attempts to find work.

workers employed in jobs that do not utilize their productive talents or experience.

people who are gainfully employed or actively seeking employment. Counts underemployed workers as working and discouraged workers as nothing.

the rate of unemployment caused by frictional plus structural unemployment in the economy.

an employment level at which the actual rate of employment in the economy is equal to the economy’s natural rate of unemployment. Cyclically unemployment is zero.

the amount by which aggregate expenditure falls short of the level needed to generate equilibrium national income at full employment without inflation.

the amount by which aggregate expenditure exceeds the aggregate expenditure level needed to generate equilibrium national income at full employment without inflation.

government spending and taxation policy to achieve macroeconomic goals of full employment without inflation.

government spending equals tax revenues.

the multiple by which the equilibrium level of national income changes when a dollar change in taxes occurs. Dependent on marginal propensity to consume. (-MPC/1-MPC)

the effect on the equilibrium level of national income of an equal change in government spending and taxes. Always equal to 1.

government spending exceeds tax revenues. G>T

tax revenues exceed government spending. G