A measure of the market value of the output of the economy in a given period
Gross Domestic Product (GDP)
The US National Bureau of Economic
... [Show More] Research defines it as a period when output is declining. It is over once the economy begins to grow again. An alternative definition is a period when the level of output is below its normal level, even if the economy is growing. It is not over until output has grown enough to get back to normal. The latter definition has the problem that the 'normal' level is subjective
Recession
Alternating periods of faster and slower (or even negative) growth rates. The economy goes from boom to recession and back to boom
Business Cycle
The empirical regularity that changes in the rate of growth of GDP are negatively correlated with the rate of unemployment
Okun's Law
The total output in an economy, across all sectors and regions
Aggregate Output
For a production process this is the value of output minus the value of all inputs (called intermediate goods). The capital goods and labour used in production are not intermediate goods
Value Added
Expenditure on newly produced capital goods (machinery and equipment) and buildings, including new housing
Investment (I)
Expenditure by the government to purchase goods and services. When used as a component of aggregate demand, this does not include spending on transfers such as pensions and unemployment benefits
Government Spending (G)
Spending by the government in the form of payments to households or individuals. Unemployment benefits and pensions are examples. Transfers are not included in government spending (G) in the national accounts
Government Transfers
The willingness to bear a cost in order to benefit somebody else
Altruism
A measure of the extent to which a firm, industry, or entire economy is producing as much as the stock of its capital goods and current knowledge would allow
Capacity Utilization Rate
A set of strategies, one for each player in the game, such that each player's strategy is a best response to the strategies chosen by everyone else
Nash Equilibrium
An increase in the general price level in the economy. Usually measured over a year
Inflation
A decrease in the general price level
Deflation
A mechanism through which the direct and indirect effect of a change in autonomous spending affects aggregate output
Multiplier Process
Consumption that is independent of current income
Autonomous Consumption
The change in consumption when disposable income changes by one unit
Marginal Propensity to Consume (MPC)
The point at which output equals the aggregate demand for goods produced in the home economy. The economy will continue producing at this output level unless something changes spending behaviour
Goods Market Equilibrium
Components of aggregate demand that are independent of current income
Autonomous Demand
The probability that an asset will be taken from its owner by the government or some other actor
Expropriation Risk
An equation that shows how investment spending in the economy as a whole depends on other variables, namely, the interest rate and profit expectations
Aggregate Investment Function
Coming from outside the model rather than being produced by the workings of the model itself
Exogenous
This term originated in the insurance industry to express the problem that insurers face, namely, the person with home insurance may take less care to avoid fires or other damages to his home, thereby increasing the risk above what it would be in absence of insurance. This term now refers to any situation in which one party to an interaction is deciding on an action that affects the profits or wellbeing of the other but which the affected party cannot control by means of a contract, often because the affected party does not have adequate information on the action. It is also referred to as the 'hidden actions' problem
Moral Hazard
Information that is relevant to the parties in an economic interaction, but is known by some but not by others
Asymmetric Information
Characteristics of the tax and transfer system in an economy that have the effect of offsetting an expansion or contraction of the economy. An example is the unemployment benefits system
Automatic Stabilizers
Changes in taxes or government spending in order to stabilize the economy
Fiscal Policy [Show Less]