The national and international economy Key Terms

Macroeconomic objectives

Goals that governments aim to achieve to ensure economic stability and growth, including economic growth, full employment, and price stability.

Trade-off

A situation where achieving one objective may lead to the compromise of another, such as the trade-off between economic growth and environmental sustainability.

Macroeconomic Indicators

Statistics that provide information about the overall health and performance of an economy.

Ceteris Paribus

A Latin phrase meaning 'all other things being equal,' used to isolate the effect of one variable in economic analysis.

Index number

A statistical figure that represents the relative change in a variable, such as price level, over time, expressed as a ratio to a base period.

Real wage

The nominal wage adjusted for changes in the price level, reflecting the purchasing power of income.

Nominal GDP

The total value of all goods and services produced in a country, measured at current market prices.

Real GDP

The total value of all goods and services produced in a country, adjusted for inflation to reflect true economic growth.

Circular Flow of Income

A model that illustrates the movement of money, goods, and services between households and firms in an economy.

Injections and Withdrawals

Injections are additions to the economy (like investment), while withdrawals are leakages (like savings) that affect the overall flow of income.

Ceteris Paribus

A Latin phrase meaning 'all other things being equal', used to isolate the effect of one variable in economic analysis.

Equilibrium Price Level

The price level at which the quantity of aggregate demand equals the quantity of aggregate supply.

Aggregate Demand

The total quantity of goods and services demanded across all levels of the economy at a given price level.

Consumer Confidence

A measure of how optimistic or pessimistic consumers are regarding their expected financial situation and the overall economy.

Aggregate Demand

The total quantity of goods and services demanded across all levels of the economy at a given price level.

Multiplier Effect

The process by which an increase in spending produces an increase in national income and consumption greater than the initial amount spent.

Aggregate Supply (AS)

The total supply of goods and services produced within an economy at a given overall price level in a given time period.

Cost-Push Inflation

Inflation caused by an increase in the costs of production, leading to a decrease in short-run aggregate supply.

Long-run aggregate supply (LRAS)

The total output an economy can produce when all resources are fully employed and utilized efficiently.

Determinants of LRAS

Factors that influence the productive capacity of an economy, including technology, labor force, and capital stock.

Gross Domestic Product (GDP)

The total monetary value of all final goods and services produced within a country's borders in a specific time period.

Economic cycle

The natural rise and fall of economic growth that occurs over time, consisting of expansion, peak, contraction, and trough.

Unemployment Rate

The percentage of the labor force that is unemployed and actively seeking employment.

Labor Force Participation Rate

The percentage of the working-age population that is part of the labor force, either employed or actively seeking work.

Consumer Price Index (CPI)

A measure that examines the weighted average of prices of a basket of consumer goods and services, used to assess price changes associated with the cost of living.

Aggregate Demand

The total demand for goods and services within a particular market or economy at a given overall price level and in a given time period.

Macroeconomic objectives

Goals that governments aim to achieve to ensure economic stability and growth, including low unemployment, stable inflation, and sustainable growth.

Policy conflict

A situation where achieving one macroeconomic objective may hinder the achievement of another, such as inflation versus unemployment.

Financial Market

A marketplace where financial assets are bought and sold, facilitating the flow of capital and investment.

Monetary Policy

The process by which a central bank manages the money supply and interest rates to achieve macroeconomic objectives.