Macroeconomics definitions.

Human development index (HDI)

A composite index that brings together three variables, namely the measurements of health, education and living standards in order to attempt to measure relative development. Elements of the HDI are life expectancy at birth, adult literacy rate, school enrolment rate, and GDP per capita. The indicators are combined to give an index value between 0 and 1

Deflationary gap

A deflationary gap is present when an economy is in equilibrium at a level of output that is less than the full employment level of output, thus causing unemployment.

Fiscal policies

A demand-side policy using changes in government spending and tax rates to achieve economic objectives, which are usually related to inflation and unemployment

Monetary policy

A demand-side policy using changes in the money supply or interest rates to achieve economic objectives, usually related to inflation and unemployment.

Green GDP

A measure of GDP that takes into consideration any environmental costs incurred from the production of the goods and services included in the GDP figures. Green GDP = GDP- environmental costs of production

Economic development

A multidimensional concept involving improvement in standards of living, reduction in poverty, improved health and education, reduced income inequality and increased employment opportunities. It is also about increased freedom and economic choice

Circular flow of income

A simplified model of the economy that shows the flow of money through the economy

Crowding out

A situation where the government spends more than it receives in revenue (mainly taxation), and needs to borrow money, forcing up interest rates and "crowding out" private investment and private consumption, since it becomes more expensive to borrow money.

Exports

Domestic goods and services that are bought by foreigners, resulting in an inflow of export revenues (injection) to the country.

Long run aggregate supply (LRAS)

Aggregate supply that is dependent upon the resources in the economy and that can only be increased by increases in the quantity and/or improvements in the quality of factors of production.

Imports

Goods and services that are bought from foreign producers, resulting in an outflow of import expenditure (leakage) from the country.

Short-run aggregate supply (SRAS)

Aggregate supply that varies with the level of demand for goods and services and that is shifted by changes in the costs of factors of production.

Inflationary gap

An inflationary gap is present when an economy is in equilibrium at a level of output that is greater than the full employment level of output, thus causing inflation.

Demand-side policy

Any government policy, fiscal or monetary, designed to influence the level of aggregate demand in the economy, thus affecting average price level and real output

Supply-side policies

Government policies designed to shift the long run aggregate supply curve to the right, thus increasing potential output in the economy, by bringing about an increase in the quantity and/or improving the quality of the factors of production.

Interest rates

The cost of borrowing money, usually expressed as a percentage, and it represents the opportunity cost of current consumption.

Economic growth

The growth of real output in an economy over time. It is usually measured as growth in real gross domestic product (GDP)

Privatization

The sale of government-owned firms to the private sector, in the hope that privately-owned, profit-maximizing firms will be more efficient, thus increasing the potential output of the economy.

Macroeconomics

The study of aggregate economic activity. It investigates how the economy as a whole works.

Aggregate supply

The total amount of goods and services, including both consumer goods and capital goods, supplied by all industries in the economy at every given price level.

Per capita GDP

The total money value of all final goods and services produced in a country in one year, divided the size of the population

Gross domestic product (GDP)

The total money value of all final goods and services produced in a country in one year, regardless of who owns the productive assets, or the total value of all spending in the economy which would be expressed as GDP=C+I+G+(X-M)

Gross national product/ income (GNP/GNI)

The total money value of all final goods and services produced in an economy in one year, plus net property income form abroad, i.e, the total income earned by a county's factors of production regardless of where the assets are located.

Net national product/income (NNP/NNI)

The total money value of all final goods and services produced in an economy in one year, plus net property income from abroad (GNI), minus depreciation (capital consumption).

Real GDP

The total money value of all goods and services produces in a country in one year, adjusted to inflation

Nominal GDP

The total money value of all goods and services produces in a country in one year, not adjusted to inflation

National income

The total value of all final goods and services produced in an economy during a certain period of time, usually one year.

Recession

Two consecutive quarter of negative GDP growth (falling GDP). Characteristics include increased unemployment and lower rates of inflation, or maybe deflation.

Transfer payment

When a payment is received without a productive service being rendered. The is no increase in output as it is a transfer of income, rather than income in exchange for output. Ex: old age pensions, unemployment benefits

Aggregate demand

Is the total spending on goods and services in an economy, consisting of consumption, investment, government expenditure and net exports. AD=C+I+G+(X-M)

Injections

Income received by firms that does not come directly from the spending of households on goods and services. Ex: Government spending, investments, export revenue.

Leakages

Income received by household, but not used to finance expenditure on domestic goods and services, that is, not returning directly to firms. Ex: taxes, savings and import expenditure.

Savings

Income that is not spend, but rather stored in a financial institution. Savings are a withdrawal (leakage) from the circular flow of income

Business cycle

Shows fluctuation in the level of economic activity in an economy over time measured by changes in real GDP, and suggests that the changes are cyclical. Stages in the business cycle include boom, peak, recession, trough, and recovery.

Investment

Spending by firms on the addition of capital stock to the economy in the form of factories, offices, machinery, and equipment which is used to produce goods and services

Consumption

Spending by individuals or households on domestic goods and services over a period of time.