Macroeconomics Basic Concepts PDF

COMPILED BY: RACHAEL NYARKOA NYARKO MACROECONS DIFFERENCES BETWEEN PAIR OF CONCEPTS 1. Real GDP measures actual physical volumes of economic activity. While Nominal GDP is the cedi value of the all-economic activity. 2. Real GDP per capita is...

COMPILED BY: RACHAEL NYARKOA NYARKO MACROECONS DIFFERENCES BETWEEN PAIR OF CONCEPTS 1. Real GDP measures actual physical volumes of economic activity. While Nominal GDP is the cedi value of the all-economic activity. 2. Real GDP per capita is the measurement of the total economic output of a country divided by the number of people and adjusted for inflation. While Nominal GDP per capita do not adjust for inflation. 3. Real IR is the IR adjusted to remove the effect of inflation. While Nominal IR is the IR before considering inflation. 4. Real exchange rate measure the price of domestic goods relative to foreign goods. Whiles Nominal exchange rate refers to the rate at which at which currencies of two countries are traded. 5. Demand for money refers the quantity of money individuals want to hold for transactions and other purposes. Whiles Supply of money is the level determined by central bank. 6. MPC measures the change in consumption per unit change in income. Whiles MPS is the fraction of any additional income that is saved. 7. ATM shows the effect of changes in autonomous taxes on equilibrium. Whiles ASM is a multiple by which a change in any component of autonomous expenditures increases equilibrium output. 8. Induced consumption is the portion of consumption that varies with disposable income. Whiles AC is the level of consumption that does not depend on income. 9. BBM shows the effect on income of an increase in government spending and autonomous taxes by equal amounts. Whiles MSM is the ratio of change in new money created to the change in reserves. 10. Fiscal policy is the use of government spending and/ government taxes to influence the level of economic activity. Whiles Monetary policy is changes in money supply that influence the level of economic activity. 11. Expansionary fp refers to increases in government spending or reduction taxes. Whiles Contractionary fp refers to increases in government taxes and/or reduction in government spending. 12. Expansionary mp refers to the increase in money supply or decrease in the IR. Whiles Contractionary mp refers to the decrease in the money or increase in the IR. 13. Inflationary gap is the gap whereby the potential GDP is less than the actual GDP. Whiles Recessionary gap is the gap whereby the potential GPD is greater than the actual GDP. 14. Actual GDP refers to what the economy does produce. Whiles Potential GDP refers to what the economy could produce if all the resources in the economy are fully utilized. 15. Inflation refers to rising general level of prices. Whiles Deflation refers is the negative of inflation. In addition, Disinflation is the reduction in the rate of inflation. The rate of inflation is measured as the percentage change in the consumer price index (CPI). 16. Narrow money (M1) is the money that consists of paper currency and coins with the public. Whiles Broad money (M2) is the money that consists of M1, savings account, time deposit account. 17. Commodity money is money that serves as a medium of exchange and it has an intrinsic value. Whiles Fiat money is a legal tender like paper, coins backed by the government. 18. Financial markets are markets that trade financial instruments. Whiles Financial intermediaries are institutions that provide financial services and products. 19. Primary budget deficit is a situation whereby there is an excess expenditure over revenue without interest payment from previous borrowing. While Overall budget deficit is a situation, whereby there is an excess expenditure over revenue including interest payment. 20. IS curve is a curve that shows equilibrium in goods markets. Whiles LM curve is a curve that shows equilibrium in a money market. 21. Unemployment refers to those who are not employed but are actively looking for work. Whiles Discouraged workers are people who have searched for jobs for long period without success and have given up the search. 22. Frictional unemployment is the unemployment that results from constant movement of workers between jobs. Whiles Structural unemployment results when the set of available jobs do not match skills of available workers. In addition, Cyclical unemployment arises out of low demand for labour across many sectors of the economy. 23. Unemployment spell is the period of time that an unemployed person remains continuously unemployed. Whiles Unemployment duration is the length of time an unemployment spell lasts. 24. Natural rate of unemployment is the unemployment rate that prevails when output and employment are at full employment level. Whiles Unemployment rate is the fraction of the labour force that is unemployed. 25. Headline inflation is a situation whereby inflation is calculated by counting all items in the CPI. Whiles Core inflation refers to inflation calculated excluding the prices of utilities and energy. 26. Anticipated inflation is the inflation rate that is expected. Whiles Unanticipated inflation occurs when inflation rates deviates from expectation. 27. Cost-Push inflation refers to aggregate-supply induced inflation. Whiles Demand-pull inflation refers to aggregate-demand driven inflation. 28. Balance of payment records all economic transactions of goods and services and movements of financial assets between a country and the rest of the world. Current Account records all income and expenditures related to imports and exports of goods and services, investment income and unilateral transfers. Whiles Financial account records transactions of assets between a country and the rest of the world. 29. CPI is a price index of consumer goods. Whiles GDP deflator is a price index that measures the overall level of prices goods and services included in the GDP. 30. Price index is a measure of the average level of prices for a specified set of goods and services relative to the prices in a specified base year. Three types: CPI, PPI, WPI, GDP deflator, etc