Macroeconomics

The Accelerator Effect, a Keynesian concept, is used to explain the level of investment in an economy. The accelerator effect refers to a positive effect on private fixed investment of the growth of the market economy.

Expansionary monetary policy is a form of macroeconomic monetary policy that seeks to amplify economic growth and aggregate demand. In order to do so, regulatory authorities like central banks “loosen” monetary policy by increasing the money supply and/or lowering interest rates.

Frictional unemployment is a form of unemployment that specifically arises in a healthy economy. In most cases, frictional unemployment is voluntary.

Demand side policies affect aggregate demand to affect output, employment and inflation.They can be classified into fiscal policy and monetary policy.

The different phases and fluctuations that an economy goes through over time, such as periods of booms (expansions) and economic recessions (contractions), are collectively known as the business cycle.

A fall in Aggregate Supply is the cause of Cost-Push Inflation. An interaction of cost-push inflation & demand-pull inflation results in a wage-price spiral.

Cyclical unemployment is a form of unemployment that occurs as a result of an economic decline or periods of negative economic growth in a business cycle. Other names for cyclical unemployment are “deficient-demand unemployment” or “Keynesian unemployment”.

The economic growth of a country is the increase in the market value of the goods and services produced by an economy over time.

Inflation is the sustained increase of the price level. The rate of inflation is the change in general price levels over a period. When the price level rises, each unit of currency buys fewer goods and services.

The term “collective bargaining” describes the way in which groups of workers (typically represented by labor unions) negotiate with their employers to determine the terms of their employment.

Structural unemployment is a persistent, extended type of unemployment resulting from changes in the foundational structure of the economy. Factors that contribute to structural unemployment include government policy, competition, technology, and more.

Stagflation is an unusual economic situation in which high inflation (leading to increasing prices) coincides with increasing unemployment rates and decreasing levels of output/stagnation of economic growth. That’s why it’s called “stagflation”.

A person is considered to be unemployed if he doesn’t currently doesn’t have a job and is actively searching for one. When we look at the unemployment rate, we consider someone who is actively seeking a job. Otherwise, we do not count them in the labor force.

GDP stands for Gross Domestic Product, and the GDP of a country is the total value of all final goods and services produced within that country over a period of time.

The concept of seasonal unemployment describes a situation when workers experience unemployment at certain times of the year when the demand has decreased. Although unemployment is always problematic, the upside is that seasonal unemployment doesn’t last–eventually, the peak season of a given industry arrives and many workers become employed once again.

Otherwise known as an expansionary gap, an inflationary gap is the gap between an economy’s full-employment real GDP and its real GDP. In other words, the inflationary gap refers to the difference (that is, the gap) between the actual gross domestic product (GDP) and the GDP that would exist if the economy were at full employment (this is also known as the “potential GDP”).

Discretionary fiscal policy refers to government policy that alters government spending or taxes. Its purpose is to expand or shrink the economy as needed. For instance, when the UK government cut the VAT in 2009, this was intended to produce a boost in spending.

Supply Side Economics involves policies aimed at increasing aggregate supply (AS), a shift from left to right. They are based on the belief that higher rates of production will lead to higher rates of economic growth.

The nominal interest rate is the interest rate that has not yet had inflation accounted for in the overall number. This interest rate will be quoted on things like loans, bonds, and the like. It is the rate “as advertised,” which will not necessarily reflect the reality of how the interest rate will actually manifest as influenced by inflation, compounding interest, taxation, fees, and other such factors.

The real interest rate is found by adjusting a standard interest rate so that the effects of inflation are not present. This allows you to understand the interest rate better by revealing the true yield of lenders and investors as well as the true cost of funds for borrowers.

One of the five major and common macroeconomic goals of most governments is the equitable (fair) distribution of income, which is a crucial element of a functioning democratic society. With regard to this macroeconomic goal, the distribution of income or wealth in an economy is represented by a Lorenz curve.

The Gini coefficient, or Gini index, is derived from the Lorenz curve, and like the Lorenz curve, it measures the degree of economic equality across a given population and simplifies this reality into a single number.

There are three main types of taxes, each with very different properties: progressive, proportional, and regressive. This article will describe the most important details of each of these systems.

A regressive tax is one that is applied so that the rate of taxation decreases for those who earn higher incomes (so that the rich pay a smaller percentage of their income in taxes than the poor).

A proportional tax is a kind of income tax wherein all taxpayers are taxed at the same percentage rate, no matter how high or low their income. A proportional tax system means that everyone experiences the same tax rate, whether low, middle, or high-income.

A progressive tax involves taxing lower-income citizens at a lower rate than higher-income citizens. As a member of a society with a progressive tax, the tax rate you are placed in is based on your income—whether you can afford to pay a certain tax level. Higher-income earners have a greater percentage of their wealth and income taxed.

The crowding out effect is a prominent economic theory stating that increasing public sector spending has the effect of decreasing spending in the private sector. In other words, according to this theory, government spending may not succeed in increasing aggregate demand because private sector spending decreases as a result and in proportion to said government spending.

The circular flow of income is illustrated in the circular flow model of the economy, which is one of the most significant basic models within economics. This model shows how different units in an economy interact, breaking things down in a highly simplified manner.

Say’s Law is short for “Say’s Law of Markets,” which states that the production of goods produces its own demand. In other words, supply creates its own demand.

Aggregate demand (AD) is the total demand for final goods and services in a given economy at a given time and price level.

The Multiplier Effect is defined as the change in income to the permanent change in the flow of expenditure that caused it. In other words, the multiplier effect refers to the increase in final income arising from any new injections.

The money multiplier describes how an initial deposit leads to a greater final increase in the total money supply. Also known as “monetary multiplier,” it represents the largest degree to which the money supply is influenced by changes in the quantity of deposits. It identifies the ratio of decrease and/or increase in the money supply in relation to the commensurate decrease and/or increase in deposits.

The Fisher Effect demonstrates the connection between real interest rates, nominal interest rates, and the rate of inflation. According to the Fisher Effect, the real interest rate is equal to the nominal interest rate minus the expected rate of inflation.

A duopoly is a kind of oligopoly: a market dominated by a small number of firms. In the case of a duopoly, a particular market or industry is dominated by just two firms.

The Laffer Curve was conceptualized for modern economies by Arthur Laffer during a meeting in which he argued against President Gerald Ford’s tax increase. The Laffer Curve shows the relationship between tax revenue collected by the government and tax rates paid by citizens.

The Consumer Price Index (CPI) is usually represented by a basket of goods or products. It measures the average change in the price of this basket of goods over a defined period of time. Economists and Policymakers widely use the Consumer Price Index as a measurement for the inflation rate.