Macroeconomics: Key Terms

Regressive Taxation

..., A system of taxation in which tax is levied at a decreasing average rate as income rises. This form of taxation takes a greater proportion of tax from the low-income taxpayer than from the high-income taxpayer.

Indirect Taxation

..., A tax on expenditure or consumption. It is added to the selling price of a good or service and is sometimes known as an avoidable tax.

Structural Unemployment

..., Unemployment of workers whose skills are not demanded by employers, who lack sufficient skill to obtain employment, or who cannot easily move to locations where jobs are available

Deflation

..., a contraction of economic activity resulting in a decline of prices

Inflation

..., an economic situation in which there is more money with less value

Proportional Taxation

..., an income tax that everyone pays at the same rate, whatever the income level

Demand-Pull Inflation

..., increases in the price level (inflation) resulting from an excess of demand over output at the existing price level, caused by an increase in aggregate demand

Progressive Taxation

..., tax rates increase with income. policy to help reduce inequality, tax wealthier people and redistribute money to poor through welfare

Direct Taxation

..., taxes imposed on people's income or wealth, and on firms' profits. Unavoidable, because households and firms are obliged to declare their full income to governments and pay taxes on it accordingly.

Cost-Push Inflation

..., theory that higher wages and profits push up prices

Cyclical Unemployment

..., unemployment directly related to swings in the business cycle

Real Wage Unemployment

..., unemployment that exists when real wages (wages adjusted for inflation) in the economy get pushed up above their equilibrium, either by the government or by trade unions.

Seasonal Unemployment

..., unemployment that occurs as a result of harvest schedules or vacations, or when industries slow or shut down for a season

Frictional Unemployment

..., unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills

Supply-Side Policies

Government policies designed to shift the long run aggregate supply curve to the right, thus increasing potential output in the economy

Monetary Policy

Government policy that attempts to manage the economy by controlling the money supply and thus interest rates.

Inflationary Gap

The amount by which aggregate spending at full employment exceeds full-employment output.

Fiscal Policy

The federal government efforts to keep the economy stable by increasing or decreasing taxes or government spending

Full Employment

The lowest possible level of unemployment in an economy.

Unemployment

The percentage of those in the labor force over the age of 16 actively seeking work, but who are unable to find jobs.

Short-Run Aggregate Supply

The relationship between the quantity of real GDP supplied and the price level when the money wage rate, the prices of other resources, and potential GDP remain constant.

Gross National Product

The total value of goods and services, including income received from abroad, produced by the residents of a country within a specific time period, usually one year.

Net National Product

a measure of all goods and services produced by a country in a year, including production from its investments abroad, MINUS the loss or degradation of natural resource capital as a result of productivity

Circular Flow of Income

economic model that pictures income as flowing continuously between businesses and consumers

Demand-Side Policies

policies that are aimed at increasing the aggregate demand to increase the equilibrium level of output within an economy

Deflationary Gap

present when total spending (aggregate demand) is less than the full employment level of output, thus causing unemployment

Business Cycle (Trade Cycle)

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

Aggregate Demand

sum of all personal consumption expenditures, business expenditures, and government expenditures in a particular time period; total quantity of goods and services all citizens, businesses, government will want at any one time

Nominal GDP

the GDP measured in terms of the price level at the time of measurement (unadjusted for inflation)

Underemployment

the condition when people work at jobs for which they are overqualified or that do not utilize their skills

Gross Domestic Product

the dollar amount of all final goods and services produced within a country's borders in a year.

Unemployment Rate

the percentage of the work force that is unemployed at any given date

Real GDP

the production of goods and services valued at constant prices

Aggregate Supply

the total supply of all the goods and services available in an economy

Per Capita GDP

total GDP divided by the number of people in a country

Consumption

(economics) the utilization of economic goods to satisfy needs or in manufacturing

Human Development Index

Indicator of level of development for each country, constructed by United Nations, combining income, literacy, education, and life expectancy

Long-Run Aggregate Supply

inputs prices (ex: wages) adjust with output prices and vice versa, this eliminates the incentive to produce more or less output at higher or lower price levels since purchasing power of per-unit profits has not changed

Investment

money that is invested with an expectation of profit