A Glossary of Macroeconomics Terms
- The Accelerator-- A parameter that defines the relationship between national income and required capital stock.
- An Asset-- Anything of value owned by an individual, institution or economic agent.
- Autonomous Expenditure-- Expenditure that takes place independent of national income.
- A Bond-- A long term (10+ years) debt instrument.
- Business Inventories-- Additions or deletions to existing inventory levels in response to economic conditions (a flow variable).
- Business Cycle -- An economic contraction (recession) followed by an expansion.
- Capital Gain -- A positive difference between the sale price of an asset and its purchase price.
- Capital Loss -- A negative difference between the sale price of an asset and its purchase price.
- Constant Returns to Scale (CRS)--A long run production concept where a doubling of all factor inputs exactly doubles the amount of output.
- Consumer-- An economic agent that desires to purchase goods and services with the goal of maximizing the satisfaction (utility) from consumption of those goods and services.
- Consumer Price Index (CPI)-- A weighted average of the prices of a representative market basket of goods and services that represents consumption patterns in some base time period.
- Cyclical Unemployment-- Changes in unemployment attributed to cyclical behavior in economic activity.
- Deflation-- A decline in the aggregate price level over some defined time period.
- Demand-- A relationship between market price and quantities of goods and services purchased in a given period of time.
- Depreciation-- A measure of the wear and tear that affects capital equipment or other intermediate goods.
- Diminishing Marginal Productivity (DMP)--A short run production concept where increases in the variable factor of production lead to less and less additional output.
- Direct Finance The transfer of loanable funds
through the use of capital markets (i.e., the Stock and Bond markets)
usually facilitated by investment banks.
- Disinflation-- A decline in the overall rate of inflation. Prices are still rising but by a smaller amount relative to previous time periods.
- Disintermediation-- The removal of funds from a financial intermediary (a bank or other depository institution).
- Disposable Personal Income--Personal Income less taxes paid.
- Durable Goods-- Goods that deliver consumption services over an extended period of time.
- Economic Expansion-- Growth in Real GDP for one fiscal quarter or more.
- Economics-- The study of how a given society allocates scarce resources to meet (or satisfy) the unlimited wants and need of its members.
- Employment-- A measure of those individuals in the labor force working, at least one hour per week, for pay.
- Equilibrium-- A situation where there is no tendency for change.
- Exchange Rate-- The value of a domestic currency expressed in terms of a foreign currency or basket of foreign currencies.
- Factors of Production-- An exhaustive list of inputs required for any type of production.
- Financial Intermediation-- A form of indirect finance where an institution (a bank) acts as an intermediary to reduce transactions costs and facilitate borrowing and lending.
- Final Goods and Services-- Goods and services that are purchased for direct consumption.
- Fixed nonresidential Investment-- Additions
to the existing stock of plant and equipment used in the production
of goods and services.
- Fixed Residential Investment-- Additions to the existing stock of housing used to provide housing services.
- Flow Variable -- A variable that is measured per unit of time..
- Frictional Unemployment-- Unemployment that exists as a natural consequence of market activity where individuals are in-between jobs.
- GDP-- Gross Domestic Product: The market value of all final goods and services produced in a given time period.
- Gross Investment-- Investment that includes additions to the capital stock as well a the replacement of depreciated capital.
- Human Capital/Wealth A measure of the skills,
ability or productivity of human beings.
- Implicit Price Deflator (IPD)-- The ratio between Nominal GDP and Real GDP.
- Income Producing Asset-- An asset that is used to generate revenue from the production and sale of goods and services.
- Indirect Business Taxes-- Taxes that tend to be built into the price of a particular good (i.e., excise taxes).
- Income Taxes-- Taxes that are based on and vary with personal or corporate income.
- Indirect Finance-- The transfer of loanable funds (deposits) through the use of financial intermediaries (commercial banks).
- Induced Expenditure-- Changes in spending due to changes in (national) income. See the Marginal Propensity to Spend.
- Inflation-- An increase in the price level over some defined time period.
- Interest Sensitivity of Investment-- A measure of responsiveness of investment expenditure to changes to the (real) interest rate.
- Interest Sensitivity of Money Demand-- A measure of responsiveness of the demand for cash balances to changes in the (nominal) interest rate.
- Intermediate Goods and Services-- Goods (or services) used to produce other goods (i.e., capital equipment).
- Investment-- Changes to the existing capital stock or business inventories.
- Labor Force Participation Rate-- The ratio of those in the labor force (the employed and unemployed) and those that are available for work.
- Laspeyres Index-- A weighted average of prices based on the use of base-period consumption patterns. Also known as the Consumer Price Index (CPI).
- Liquidity-- A measure of the ease by which a financial asset can be converted into a form readily accepted as payment for goods and services.
- Liquidity Premium-- An adjustment to a real interest rate to compensate for the direct relationship between uncertainty and the duration of a debt contract.
- M1 -- A narrow money supply measure that includes currency in circulation and the value of demand deposits.
- M2 -- A broad money supply measure that includes currency, demand deposits, and the value of time deposits.
- Marginal Propensity to Consume--The fraction of each additional dollar of income devoted to consumption expenditure.
- Marginal Propensity to Spend-- The fraction of each additional dollar of income devoted to any type of spending (i.e., consumption, investment, government, or net exports).
- Market-- A place or institution where buyers and sellers come together and exchange factor inputs or final goods and services. A market is one of several types of economic rationing systems.
- Money Market Instrument-- A short term (less than 10 years) debt instrument.
- Money Multiplier-- The relationship between changes in the monetary base and the money supply.
- Monetary Base-- Also known as High-powered Money. Reserves + Currency in the monetary system -- the main liabilities
of the central bank.
- National Income -- The sum of all types of income (wages, net interest, profits, and net rental income) earned in a given time period by any type of economic agent (individuals or corporation).
- Natural Rate of Unemployment-- That rate of unemployment where there is neither upward nor downward pressure on prices.
- Net Investment -- Investment exclusive of replacement of depreciated capital.
- Nominal GDP--GDP measured at current prices.
- Nominal Interest Rate -- The interest rate published as part of a debt contract.
- Non-Durable Goods--Goods that tend to be immediately consumed or deliver consumption services over a short period of time.
- Non-Income Producing Asset--Something of value that does not generate any income or revenue stream.
- Normal (Current) Yield-- The ratio between the annual income generated by an asset and its purchase price. Also known as the present value of a perpetuity.
- Paasche Index -- A weighted average of prices based on current expenditure patterns. Also known as the GDP (or Implicit Price) Deflator.
- Peak-- A point of transition in the business cycle from expansion to contraction.
- Permanent Income -- Expected levels of individual income that guide consumption expenditure decisions.
- Personal Income -- The income earned by individual households in a given time period.
- the Phillips Curve-- A theoretical relationship between the unemployment rate of a given economy and rates of (wage) inflation.
- Potential Output-- A measure of the economy's ability to produce goods and services.
- Present Value-- The value of a future payment or stream of payments discounted by some appropriate rate of interest.
- Primary Stock/Bond Market --The market where new shares of stock or new bonds are bought and sold. Activity in this market
represents direct finance where actual borrowing and lending activity takes place.
- Producer-- An economic agent that converts inputs (factors of production) into output (goods and services) with the goal of maximizing profits from production and sale of those goods and services.
- Profits-- The difference between sales revenue and the costs of production..
- The Quantity Equation-- Also known as the Equation of Exchange, an identity relating the amount of money in circulation to the price level and level of output
in an aggregate economy.
- Rate of Time Preference-- The equivalent of a personal interest (or discount) rate. The measure by which individuals compare current and future economic activity.
- Real GDP-- GDP measured at constant (some base period) prices.
- Real Interest Rate-- An interest rate that has been adjusted for changes in the price level or changes in purchasing power over some time period.
- Recession--Negative growth in Real GDP for two or more fiscal quarters.
- Relative Price-- A ratio of any two prices or one particular price compared to a price index.
- Risk-- A measure of uncertainty about the value of an asset or the benefits of some economic activity.
- Risk Premium-- An adjustment to a real interest rate to compensate for uncertainty in the ability of a borrower to service a loan.
- Savings-- The difference between income and expenditure in the current time period.
- Scarcity-- A physical or economic condition where
the quantity desired of a good or service exceeds the availability of
that good or service in the absence of a rationing system.
- Stagnation-- An economic condition where an economy is facing relatively high rates of inflation, little or no growth, and high unemployment.
- Secondary Stock/Bond Market -- The market where existing shares of stock or existing bonds are traded. This market provides liquidity to these types of financial assets.
- A Share of Stock--A financial instrument that
give the holder a share of ownership in a publicly held corporation.
- Shortage-- A market condition where the quantity demanded of a particular good or service exceed the quantity available.
- Speculation-- The purchase of a good or asset not intended for final consumption but rather in the expectation of future sale at some higher price.
- Spending Multiplier-- The relationship between an autonomous spending shock and eventual changes in aggregate income.
- Standard of Living--The ratio of the output of an economy and population. Also known as per-capita output.
- Stock Variable-- A variable measured at point in time.
- Structural Unemployment-- Unemployment that exists as a consequence of structural changes in economic activity.
- Supply-- A relationship between market price and quantities of goods and services made available for sale in a given period of time.
- Surplus-- A market condition where the quantity supplied exceeds the quantity demanded.
- Transitory Income -- Unexpected changes or shocks to individual income. Often measured as the difference between observed income and permanent income.
- Trough-- A point of transition in the business cycle from contraction to expansion.
- Unemployment-- The difference between the number of people in the labor force and those working for pay.
- Utility-- A measure of the satisfaction received from some type of economic activity (i.e., consumption of goods and services or the sale of factor services).
- Velocity--The number of times a given quantity (stock) of money changes hands in a given time period (the ratio of expenditure in that time period to a given measure of the money supply).
- Yield-- The ratio between the flow of returns (income, revenue, profits) generated by an asset and the purchase price of that asset.
© 1999-2004, Douglas A. Ruby