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Definitions of Economic Terms

This document defines various economic terms related to fiscal and monetary policy, macroeconomic indicators, and factors of production. It defines terms such as automatic stabilizers, budget deficit, crowding out, deflation, inflation, inflation targeting, recession, stagflation, unemployment, and others. The definitions cover concepts important for understanding macroeconomic policy and the functioning of the overall economy.

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47 views

Definitions of Economic Terms

This document defines various economic terms related to fiscal and monetary policy, macroeconomic indicators, and factors of production. It defines terms such as automatic stabilizers, budget deficit, crowding out, deflation, inflation, inflation targeting, recession, stagflation, unemployment, and others. The definitions cover concepts important for understanding macroeconomic policy and the functioning of the overall economy.

Uploaded by

TheAssassin1144
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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DEFINITIONS OF ECONOMIC TERMS

Automatic Stabilisers government tax and expenditure policies that automatically work
toward stabilising the economy by reducing the short term fluctuations of the business cycle
Budget deficit when government expenditure is greater than government income
Budget surplus when government expenditure is greater than government income
Crowding out situation where the government borrows money to pay for its expenditures,
causing the interest rate to increase and hence reducing consumption and investment
expenditure
Deflation sustained decrease in average price levels of goods and services in an economy
over a given time
Deflationary gap an economys potential output exceeding actual output
Economic growth increase in real output of an economy over a period of time
Fiscal policy manipulations by the government on its expenditures and taxes to influence
the aggregate demand
Inflation sustained increase in average price levels of goods and services in an economy
over a given time
Inflation targeting monetary policy that tries to keep inflation at a targeted rate
Inflationary gap actual output exceeding economys potential output
Infrastructure essential facilities and services such as roads, airports etc.; necessary for
economic activity; usually supplied by government; adds to capital stock of economy
Interest rate cost of borrowing money
Interventionist supply-side policies policies that government directly participates in
improving the quality and quantity of factors of production to improve productivity capacity
Investment Expenditure by firms on capital; addition of capital stock to economy
Market-based supply-side policies policies that the gov. aims to reduce its role in working
of markets and let markets operate with least restrictions to improve total productivity
capacity
Market failure situation where price mechanism cannot achieve allocative efficiency,
resulting in overproduction or underproduction of goods or services
Opportunity cost the next best alternative foregone when an economic decision is made
Productivity amount of output that is produced with one unit of factor input
Progressive tax where the higher the level of income, the higher the percentage of
taxation paid
Real output value of goods and services produced in a country, adjusted for inflation
Recession two or more consecutive quarters of negative economic growth
Resources (factors of production) land, labour, capital, are those needed for production of
goods and services
Scarcity situation where limited resources/factors of production are not enough to satisfy
humans needs and unlimited wants.
Stagflation phenomenon where price level increases, real output decreases (and causes a
higher level of unemployment)
Subsidies government financial assistance to producers to reduce costs of production
Supply-side policies policies to improve efficiency and productive capacity (productivity of
labour) in the economy, improving the potential output of an economy
Unemployment people who are willing and able to work at equilibrium wage but does not
have a job
Unemployment rate [unemployment] / labour x 100, expressed as a percentage

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