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Macroeconomics
48 flashcards
Macroeconomics is the study of economy-wide phenomena, including inflation, unemployment, economic growth, and monetary and fiscal policies.
Inflation is a sustained increase in the general price level of goods and services in an economy over time.
Unemployment is a situation where individuals who are able and willing to work are unable to find employment.
Economic growth is an increase in the production of goods and services over a specific period, typically measured by the increase in gross domestic product (GDP).
GDP is the total monetary value of all finished goods and services produced within a country's borders over a specific time period, typically one year.
Monetary policy refers to the actions taken by a country's central bank to influence the money supply and interest rates, with the aim of promoting economic growth and stability.
Fiscal policy refers to the use of government spending and taxation to influence the economy.
The central bank's primary role is to control the money supply, set interest rates, and regulate the banking system to promote economic growth and stability.
The Phillips curve is a historical inverse relationship between rates of unemployment and inflation, suggesting that lower unemployment leads to higher inflation and vice versa.
The business cycle is the cyclical fluctuation of economic activity, consisting of periods of economic expansion, peak, contraction, and trough.
Aggregate demand is the total demand for final goods and services in an economy at a given time and price level.
Aggregate supply is the total amount of goods and services that firms are willing and able to supply at a given price level.
Keynesian economics is a theory that states that government spending and intervention can be used to increase aggregate demand and promote economic growth during times of economic stagnation or recession.
Stagflation is a situation in which an economy experiences slow economic growth, high unemployment, and high inflation simultaneously.
The multiplier effect is an economic phenomenon where an initial spending increase leads to a larger increase in national income and consumption due to the circular flow of money in an economy.
The balance of payments is a statement that summarizes all economic transactions between residents of a country and the rest of the world over a specific period.
The trade balance is the difference between a country's exports and imports of goods and services.
Exchange rate policy refers to the actions taken by a country's central bank or government to influence the value of its currency relative to other currencies.
The IMF is an international organization that promotes global monetary cooperation, financial stability, and economic growth.
The World Bank is an international financial institution that provides loans and grants to developing countries for capital projects and policy-based reforms.
The Laffer curve is a theoretical representation of the relationship between tax rates and government tax revenue, suggesting that increasing tax rates beyond a certain point can lead to a decrease in tax revenue.
The circular flow of income is a model that illustrates the movement of money, goods, and services between households, firms, and the government in an economy.
The natural rate of unemployment is the rate of unemployment that exists when the economy is in equilibrium, with no cyclical factors influencing the labor market.
The production possibility frontier is a curve that shows the maximum possible output combinations of two goods or services that an economy can produce with its available resources and technology.
The Solow growth model is a neoclassical economic model that explains long-run economic growth as a function of labor, capital, and technological progress.
The paradox of thrift is a situation where individuals attempt to increase their savings, leading to a decrease in overall consumption and economic growth.
The Ricardian equivalence is an economic theory that suggests that households will save any increase in government debt, as they anticipate future tax increases to pay off the debt.
The marginal propensity to consume is the fraction of an additional dollar of disposable income that households consume rather than save.
The multiplier effect of government spending refers to the increase in national income resulting from an initial increase in government spending, due to the circular flow of money in the economy.
A liquidity trap is a situation in which injections of cash into the economy by a central bank fail to decrease interest rates and hence increase investment spending.
The Heckscher-Ohlin model is an economic theory that explains patterns of international trade based on the relative factor endowments of countries.
The Mundell-Fleming model is an economic model that describes the behavior of an open economy under different exchange rate regimes and capital mobility.
The Taylor rule is a guideline for setting interest rates based on the divergence of inflation from its target and the divergence of output from its potential level.
The Quantity Theory of Money is a theory that states that the general price level is directly proportional to the money supply in an economy.
The IS-LM model is a macroeconomic tool that shows the relationship between interest rates and real output in an economy, representing the interaction between the goods and money markets.
The Keynesian cross is a graphical representation of the relationship between income and expenditure in an economy, used to determine the equilibrium level of output.
The multiplier in Keynesian economics is a numerical value that represents the change in national income resulting from a change in investment or government spending.
The accelerator principle is an economic theory that states that an increase in consumer demand for goods and services will lead to a more than proportional increase in investment spending by businesses.
Economic convergence is the process by which developing countries' incomes and living standards catch up with those of developed countries over time.
The Dutch disease is an economic phenomenon where the discovery of a natural resource, such as oil or gas, leads to a decline in the manufacturing sector due to an appreciation of the domestic currency.
Purchasing power parity is a theory that suggests that the exchange rate between two currencies will adjust to equalize the purchasing power of different currencies in their respective countries.
Effective demand is the total demand for goods and services in an economy that is backed by the ability and willingness to pay for them.
Say's Law is an economic principle that states that supply creates its own demand, implying that producers will always find buyers for their goods and services.
The real business cycle theory is a macroeconomic theory that attributes economic fluctuations to real shocks, such as changes in technology, rather than nominal shocks like changes in money supply.
The monetarist theory is an economic theory that emphasizes the role of the money supply in determining economic growth and inflation, advocating for a stable and controlled growth of the money supply.
The rational expectations theory is a concept in macroeconomics that suggests that people's expectations about future economic conditions are based on their best available information and past experiences.
The permanent income hypothesis is an economic theory that suggests that consumers base their consumption decisions on their expected long-term income, rather than their current income.
The life-cycle hypothesis is an economic theory that suggests that individuals plan their consumption and savings behavior over their lifetime, based on their expected income and wealth at different stages of life.