Macro Conditions Flashcards
Bust
Bottom of the business cycle. In a bust, consumer and producer confidence is low. The economy is stagnant, and unemployment is at a peak.
Boom
Peak of the business cycle. Consumer and producer confidence is high. The economy is growing, and unemployment is falling.
Depression
Downward spiral of the economy where GDP falls by 25% or more.
Downturn
When the economy slows and may even move into recession.
Economic Growth
When a country produces more goods and services in one period than in a previous one.
Measured by changes in the real GDP.
Economically Unproductive
Factors of production not fully utilised in their best use.
Machinery lying idle or broken is considered economically unproductive.
Full Employment
All resources are fully utilised in their best use.
Low consumer/business confidence
When individuals fear a recession.
Low consumer confidence induces individuals to save more, leading to a fall in consumption.
Low business confidence leads to lower levels of investment.
Natural Rate of Unemployment
The percentage of people who are unemployed for structural, seasonal and frictional reasons.
Potential Growth
When the production capacity of an economy increases from one period to another.
Potential Output
The total amount of goods and services that an economy can produce when all of its available resources are being used efficiently.
Recessionary Gap
Where the economy slows and operates below full employment.
It creates unemployment.
Recession
Negative economic growth occurring over two or more quarters.
SRAS
When resource prices for most firms will remain constant.
Stagflation
State of the economy when it experiences both high unemployment and high inflation.
This is caused by a fall in SRAS
Sticky Wages
Minimum wages, labour unions, and contracted or salaried work agreements that prevent wages from dropping to an equilibrium level.
This causes a surplus of labour supplied during demand-deficient periods.
IR Effect
The impact of interest rates on the spending and savings habits of citizens, affecting their propensity to demand in the economy.
Net Balance Effect
The effect of the relative price level of imports and exports on people’s propensity to demand in the economy.
Wealth Effect
The impact of citizen wealth on their aggregate propensity to demand in the economy.
Unsustainable Production
Production is unsustainable if it uses up natural resources faster than they can be replaced.
Automatic Stabilisers
Offset fluctuations in the business cycle without direct intervention by policy makers.
