Monday, November 17, 2014

List of the Most Important Definitions for Chapter 5: Theory and Measurement in the Macroeconomy (A2)



1. Active balances: Refers to demand for money held under transactions and precautionary motives

2. Accelerator principle: An economic concept which relates the rate of change in aggregate demand (AD) to the rate of change in investment

3. Autonomous consumption: Level of consumption which does not depend on the level of income

4. Autonomous investment: Level of investment which does not depend on the level of income

5. APC (Average propensity to consume): Proportion of income that is being spent

6. APS (Average propensity to save): Proportion of income that is being saved

7. AD (Aggregate demand)/ AE (Aggregate expenditure): total demand or total expenditure into the economy which comes from households (C), firms (I), government (G) and foreigners (X-M)

8. AS (Aggregate supply): total value of all output produced by all firms in an economy at different price levels

9. Balanced budget: It is where government expenditure equals to tax revenue

10. Bond: A type of monetary instrument which can be sold by the private firms or government with the intention to raise more money at certain interest rates

11. Budget deficit: It is where government expenditure exceeds tax revenue

12. Budget surplus: It is where government expenditure is less than the tax revenue

13. Broad money supply: A measure of the stock of money which reflects the total potential purchasing power in an economy

14. Central bank: The main bank of a country which acts as a banker to the government, provides financial services to all financial institutions, is responsible for money supply, alters the interest rate and ensures stability of the exchange rate

15. Circular flow of income: A theory which describes how money flows within the economy, taking into account all injections and withdrawals/ leakages

16. Consumption: Spending by consumers in an economy over a period of time

17. Credit creation: A situation in which banks make more loans to consumers and businesses with the result that the amount of money in circulation increases

18. Credit/ money multiplier: The ratio of total money supply to the monetary base

19. Closed economy: An economy which does not trade with the rest of the world

20. Constant prices: Data which has been adjusted to take into account the impact of inflation

21. Current prices: Data which is expressed in terms of the most up-to-date prices

22. Depreciation: When the value of a currency falls against another

23. Deflationary gap/ negative output gap: It is when the aggregate demand (AD) falls below the aggregate supply (AS)/ actual output is less than the potential output

24. Dissaving: It is when consumption exceeds income and so people have to rely on savings that have been accumulated in the past

25. Economic growth: It is when the real GDP increases

26. GDP (Gross Domestic Product): Total value of all final goods and services produced within the country over a period of time

27. GDP deflator: A ratio of price indices that is being used in the measurement of national income statistics to take away the impact of inflation so that the final figure is more reliable

28. GNP (Gross National Product): GDP plus income earned by its citizens abroad minus income earned by non-residents located in that country

29. Human Development Index (HDI): A measurement of development which takes into account real GDP per capita (adjusted for PPP), life expectancy at birth and number of years spent in education

30. Idle balances: Refers to demand for money held under speculative purposes

31. Induced investment: Level of investment which depends on the level of income

32. Inflationary gap/ positive output gap: It is when the aggregate demand (AD) exceeds the aggregate supply (AS)/ actual output exceeds potential output

33. Injection: Money which flows into the circular flow of income that does not come from consumption

34. Keynesian: An approach that is based on the views of the economist John Maynard Keynes (1883-1946)

35. Leakage/ withdrawal: Money which flows out from the circular flow of income

36. Liquidity trap: A situation described in Keynesian economics in which injections of cash into the private banking system by the central bank fails to decrease interest rates and hence make the monetary policy ineffective.

37. Loanable funds theory: An economic concept developed by the Monetarists to describe how market demand and market supply of loans interact to determine the rate of interest

38. MPC (marginal propensity to consume): Additional increase in consumption due to a dollar increase in disposable income

39. MPM (marginal propensity to import): Additional increase in imports due to a dollar increase in disposable income

40. MPS (marginal propensity to save): Additional increase in savings due to a dollar increase in disposable income

41. MPT (marginal propensity to tax): Additional increase in tax paid due to a dollar increase in disposable income

42. MPW (marginal propensity to withdraw): Additional amount of money which leaks out from the circular flow of income due to a dollar increase in disposable income

43. MEW (Measurable Economic Welfare)/ NEW (Net Economic Welfare): A measurement of development which adjusts the value of GDP by adding the value of leisure and DIY activities and deducting expenditures on national defence, police force and negative externalities

44. Multiplier: A measure of how much the national income increases due to an initial injection into the economy

45. Monetarist: An approach that is based on the views of a number of economists of which the most well-known is Milton Friedman (1912-2006)

46. MPI (Multidimensional Poverty Index): A measurement of development which uses three dimensions just like HDI but further breaking them down into more categories

47. Money supply: Amount of money available to the general public and the banking system in an economy

48. Narrow money supply: A measure of the stock of money in an economy which is mainly cash

49. National debt: Total amount of debts accumulated by the government

50. Net domestic product: The GDP of a country minus depreciation (wear and tear of capital equipment over the time, leading to a fall in its value)

51. Net national product: The GNP of a country minus depreciation (wear and tear of capital equipment over the time, leading to a fall in its value)

52. Open economy: An economy which trades with the rest of the world

53. Paradox of thrift: A theory which holds the view that it may be bad if people try to save money collectively during an economic recession because that would eventually lead to lower growth and more job losses

54. Precautionary demand for money: Money held to cover unexpected expenditures

55. Quantity theory of money: An economic theory which states that money supply has a direct and proportional relationship with the price level


56. Real GDP: Total value of all final goods and services produced within the country over a period of time adjusted for inflation


57. Savings: Amount of disposable income that is not spent on consumption

58. Speculative demand for money: Money held with the intention to buy bonds

59. Transaction demand for money: Money held to pay for the purchase of goods and services

60. Underground/ hidden/ black/ informal economy: Market in which goods and services are traded illegally
 
61. Yield: Percentage of return from the holding of an asset such as bond