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
