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3.3 Macroeconomics

IB Economic for the Unit mentioned above

TermDefinition
Actual growth Occurs when real output (real GDP) increases through time and is a result of greater or better use of existing resources. In the PPC model it can be illustrated by a movement from a point inside a PPC to another point in the northeast direction.
Consumer price index (CPI) The average of the prices of the goods and services that the typical consumer buys expressed as an index number. The CPI is used as a measure of the cost of living in a country and to calculate inflation.
Cost-push inflation Inflation that is a result of increased production costs (typically because of rising money wages or rising commodity prices) and illustrated by a leftward shift of the SRAS curve.
Credit rating A grade assigned by certain agencies (such as Moody’s or Standard and Poor’s) on the borrowing risks a prospective issuer of debt (for example, of a bond) presents to lenders.
Cyclical (demand-deficient) unemployment Unemployment that is a result of a decrease in aggregate demand and thus of economic activity; it occurs in a recession.
Debt servicing Refers to the repayment of principal and interest on the debt of a person, a firm or a country.
Deflation A sustained decrease in the average price level of a country.
Deflationary/recessionary gap Arises when the equilibrium level of real output is less than potential output as a result of a decrease in AD.
Demand-pull inflation Inflation that is caused by increases in aggregate demand.
Disinflation When the average price level continues to rise but at a slower rate so that the rate of inflation is positive but lower.
Economic growth Refers to increases in real GDP over time.
Frictional unemployment Unemployment of individuals who are in-between jobs, as people quit to find a better job or to move to a different location.
Full employment Full employment exists when the economy is producing at its potential level of real output and thus there is only natural unemployment . when the economy is producing on the PPC.
Full employment level of output The level of output that is produced by the economy when there is only natural unemployment.
Government (national) debt The sum of all past budget deficits minus any budget surpluses; the total amount the government owes to domestic and foreign creditors.
Gross domestic product (GDP) The value of all final goods and services produced within an economy over a period of time, usually a year or a quarter.
Inflation A sustained increase in the average level of prices.
Inflationary gap The case where equilibrium real output exceeds potential output as a result of an increase in AD.
Inflation rate The percentage change between two periods of the average price level, usually measured through the CPI.
Labour market flexibility The labour market is considered flexible if it can adjust fast and fully to changes in labour demand and labour supply conditions.
Long-run aggregate supply (LRAS) Aggregate supply that is dependent upon the resources and technology in the economy, thus being independent of the price level. It is vertical at the level of potential output.
Long-run Phillips curve A curve showing the monetarist view that there is no trade-off between inflation and unemployment in the long run and that there exists a natural rate of unemployment at the level of potential output.
Long-term growth trend Refers to average growth over long periods of time shown in the business cycle diagram as the line that runs through short-term fluctuations, indicating changes in potential output
Natural rate of unemployment The rate of unemployment that occurs when the economy is producing at its potential output or full employment level of output. It is equal to the sum of structural, frictional and seasonal unemployment.
Phillips curve A curve showing the relationship between the rate of unemployment and the rate of inflation.
Potential output Output produced by an economy when it is at full employment equilibrium, or long-run equilibrium according to the monetarist/new classical model.
Price deflator A price index that removes the impact of changes in the price level when measuring nominal economic variables.
Real GDP The total value of all final goods and services produced in an economy in a given time period, usually one year, adjusted for inflation.
Recession Occurs when real GDP falls for at least two consecutive quarters.
Seasonal unemployment Unemployment that arises when people are out of work because their usual job is out of season, for example, agricultural workers during winter months.
Short-run Phillips curve A curve showing the inverse relationship between the rate of unemployment and the rate of inflation, which suggests a trade-off between inflation and unemployment.
Short-term fluctuations of economic activity Periods of growth of real GDP followed by periods of contraction, which are part of the business cycle.
Structural unemployment A kind of long-term unemployment that arises from a number of factors including: technological change; changes in the patterns of demand for different labour skills; changes in the geographical location of industries; labour market rigidities.
Unemployment When a person (who is above a specified age and is available to work) is actively looking for work, but is without a job.
Unemployment rate The number of unemployed workers expressed as a percentage of the total workforce.
Wage Payment received by the factor of production labour, which is a certain amount per unit of time.
Created by: Ms Michelle
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