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Economics: Key Terms and Definitions

BREAKING DOWN 'Macroeconomics'

❶Personal and social change for a green energy future. Surplus -- A market condition where the quantity supplied exceeds the quantity demanded.

Macroeconomics - key terms

11 thoughts to “Economics: Key Terms and Definitions”
What is 'Macroeconomics'
Gross Domestic Product (GDP)

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.

Investment in improving human capital is generally through education and training. Accumulation of human capital could also mean hiring people who are useful for doing work. Financial capital is essentially just money. It refers to the ability to use money to acquire other forms of capital. In this way the ability to take on debt by borrowing from someone else is a form of financial capital. High value commodities such as gold are often considered as being another form of financial capital.

These are non-human, non-monetary objects that are useful for conducting valuable work. Social capital refers to the power of social networks to accomplish work. This could be due to enhanced communication abilities, or it could be simply customer loyalty. There are many forms that social capital could take. Land, forests, rivers, rainfall, wind, sunlight, animals, and everything else that comprises the natural world is regarded as natural capital.

One could think of this as the category that includes everything else other than the above forms of capital. Externalities can be positive or negative. Positive externalities are good for people not involved in the trade in question, while negative externalities are bad.

An example of a positive externality would be a nice office building in a city makes the city seem more prosperous and civilized, causing people to enjoy living there more. An example of a negative externality would be pollutants emitted by coal power plants. These pollutants can make people and animals ill, damage forests and crops, and damage buildings with acid rain. This refers to negative externalities that they do not want to pay for.

Employment -- A measure of those individuals in the labor force working, at least one hour per week, for pay. Equilibrium -- A situation where there is no tendency for change.

Exchange Rate -- The value of a domestic currency expressed in terms of a foreign currency or basket of foreign currencies. Factors of Production -- An exhaustive list of inputs required for any type of production.

Financial Intermediation -- A form of indirect finance where an institution a bank acts as an intermediary to reduce transactions costs and facilitate borrowing and lending. Final Goods and Services -- Goods and services that are purchased for direct consumption. Fixed nonresidential Investment -- Additions to the existing stock of plant and equipment used in the production of goods and services. Fixed Residential Investment -- Additions to the existing stock of housing used to provide housing services.

Flow Variable -- A variable that is measured per unit of time.. Frictional Unemployment -- Unemployment that exists as a natural consequence of market activity where individuals are in-between jobs. The market value of all final goods and services produced in a given time period.

Gross Investment -- Investment that includes additions to the capital stock as well a the replacement of depreciated capital. 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.

Permanent Income -- Expected levels of individual income that guide consumption expenditure decisions. Personal Income -- The income earned by individual households in a given time period. Potential Output -- A measure of the economy's ability to produce goods and services.

Present Value -- The value of a future payment or stream of payments discounted by some appropriate rate of interest. Activity in this market represents direct finance where actual borrowing and lending activity takes place.

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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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A Glossary of Macroeconomics Terms The Accelerator -- A parameter that defines the relationship between national income and required capital stock. An Asset -- Anything of value owned by an individual, institution or economic agent. Study Flashcards On Macroeconomics Chapter 7 Key Terms at Quickly memorize the terms, phrases and much more. makes /5(1).

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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.