Macroeconomics Definitions

IMPORTANT: This is not a definitive list, and I can not guarantee all definitions are present here
Black terms are for SL and HL
Purple terms are for HL only.
Underlined terms are important definitions that are very commonly used
There are some doubles, as some terms are key in multiple chapters.
For the list of definitions made by the IB themselves, please go here (all definitions from all chapters are unsorted here, and some words are unusal since they aren't listed on the actual syllabus.)

This list could be useful for flashcards!

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3.1 Measuring Economic Activity

National Income: The value of all goods and services produced in a country within a certain time period.
The Output Method: Measures national income by calculating the value of all finished goods and services produced in the country's economy in a year.
The Income Method: Measures the national income by calculating the sum of wages, rent, interest, and profits in a year.
The Expenditure Method: Measures the national income by calculating the total amount of expenditure in the economy in a year.
Gross Domestic Product: The value of a country's output of finished goods and services in a year.
Gross National Income: The value of a country's output of finished goods and services in a year, plus incomes from abroad.
Real GDP/GNI: [GDP/GNI], adjusted for inflation by using constant prices.
Real GDP/GNI Per Capita at Purchasing Power Parity: [Real GDP/GNI], adjusted for the cost of living in countries.
Business Cycle: A model that describes both the short and long term trends in economic activity over time.
OECD Better Life Index/Happiness Index/Happy Planet Index: An alternative to national income as a measure of wellbeing.

3.2 Aggregate Demand and Aggregate Supply

Aggregate Demand: The total value of all goods and services consumers are willing and able to purchase in an economy per year.
Aggregate Supply: The total value of all goods and services producers are willing and able to sell in an economy per year.
Inflationary Gap: Exists when an economy's real GDP exceeds its potential long-run full employment output.
Deflationary Gap: Exists when an economy's real GDP is below its potential long-run full employment output.
Full Employment: Exists when an economy is at its natural rate of unemployment, and the economy is operating at its full capacity.
Natural Rate of Unemployment: The level of employment at when the economy is operating at full employment, consisting of seasonal, frictional, and structural unemployment.

3.3 Macroeconomic Objectives

Economic Growth

Economic Growth: A sustained increase in a country's real GDP over time.
Actual Output: The current level of real GDP in an economy.
Potential Output: The possible level of real GDP to reach in an economy.

Macroeconomic Objectives - Low Unemployment

Unemployment: The issue when people willing and able to work are unable to find jobs.
Labor Force: All people of working age who are either employed or willing and able to work.
Hidden Unemployment: People who classify as unemployed but are not included in official unemployment records.
Underemployment: The issue when people in the labor force are unable to find enough work.
Cyclical Unemployment: Unemployment caused by a lack of demand for goods and services.
Structural Unemployment: Unemployment caused by technical mismatches between worker abilities and job requirements.
Seasonal Unemployment: Unemployment caused by periodical changes in the demand for labor during the year.
Frictional Unemployment: Unemployment caused by temporarily jobless people actively searching for new jobs.
Natural Rate of Unemployment: The level of employment at when the economy is operating at full employment, consisting of seasonal, frictional, and structural unemployment.

Low and Stable Rate of Inflation

Inflation: A sustained rise in the general price level of an economy over time.
Deflation: A sustained decrease in the general price level of an economy over time.
Disinflation: A fall in the rate of inflation.
Consumer Price Index: A weighted average of prices of typical household goods and services.
Cost-Push Inflation: Inflation caused by higher costs of production, which decreases aggregate supply, increasing the general price level.
Demand-Pull Inflation: Inflation caused by higher aggregate demand for goods and services, increasing the general price level.

Sustainable Level of Government Debt

Government/National Debt: The sum of all debt accumulated and owed by the government.
Debt Servicing Costs: The expenses of the government repaying the accumulated debt.
Credit Rating: A measure of a borrower's ability to repay loans.

Potential Conflicts Between Macroeconomic Objectives

Stagflation: Occurs when there is rising inflation but falling real GDP.

3.4 Economics of Inequality and Poverty

Inequality and Poverty

Equity: Refers to economic fairness, where people working harder will earn higher salaries.
Income Inequality: The issue of income being unequally distributed in an economy.
Wealth Inequality: The issue of assets being unequally distributed in an economy.
Gini Coefficient: A measure of either wealth or income inequality in an economy, with values ranging from 0 to 1.
Absoulute Poverty: Deprivation of basic human needs such as food, shelter, and sanitation.
Relative Poverty: The issue of households being unable to afford the standard of living in an economy.
Human Capital: The valued accumulation of skill knowledge, and experience of the labor force.

Taxes

Progressive Taxes: Taxes that charge an increasing percentage as incomes increase.
Proportional Taxes: Taxes that charge a constant percentage at every income level.
Regressive Taxes: Taxes that charge a decreasing percentage as incomes increase.
Marginal Tax Rate: The tax percentage paid on the last dollar of an income.
Direct Taxes: Taxes imposed on income, rather than expenditure.
Indirect Taxes: Taxes imposed on expenditure, rather than income.

3.5 Monetary Policy

Monetary Policy: The use of interest rates and the money supply to influence the level of economic activity and order to achieve macroeconomic objectives.
Interest Rates: The cost of borrowing money.
Real Interest Rate: The cost of borrowing money, adjusted for current inflation.
Money Supply: The total amount of money circulating in an economy.
Money Creation: The process in which commercial banks create credit from deposits and loans.
Open Market Operations: The buying and selling of government bonds by the central bank.
Minimum Reserve Requirements: The lowest amount of customer deposits commercial banks are obliged to keep in the bank.
Minimum Lending Rate: The interest rate charged by the central bank when commercial banks borrow from it.
Quantitative Easing: The buying and selling of corporate bonds by the central bank, thereby injecting money into the economy.
Money Demand: The demand of households and firms to hold money for current spending, rather than saving, in the economy.
Money Supply: The supply of circulating money in the economy.

3.6 Fiscal Policy

Fiscal Policy: The use of taxation and government expenditure policies to influence the level of economic activity and achieve macroeconomic objectives.
Current Expenditure: Government expenditure on goods and services within the current fiscal year.
Capital Expenditure: Government expenditure on long-term projects.
Transfer Payments: A sum of money from the government to households or firms with no goods or services exchanged in the return.
Keynesian Multiplier: A calculation that shows an increase in injections in the economy results in a proportionately greater effect on aggregate demand.
Crowding Out: An effect where increased government borrowing (as a result of fiscal policy) causes commercial bank interest rates to rise, reducing household consumption and capital investment.
Automatic Stabilizers: Fiscal policy measures that reduce fluctuations in economic activity, stabilizing the growth.

3.7 Supply-Side Policy

Supply-Side Policies: Long-term government strategies used to increase the quality and quantity of factors of production to influence the productive capacity of the economy.

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