1. Macroeconomics Semester 2

10. C = all household consumption on durables, non-durables and services I = firm’s replacement investment(spending on capital to maintain productivity) or induced investment to increase production G = all government spending X-M = spending by foreigners on exports less domestic spending on imports

20. Business Cycle Peak Trough Expansion Peak Real GDP Trough Potential GDP

21. Recession A recession is when the economy experiences two consecutive quarters of falling GDP.

23. Government Spending + Taxation

28. Macroeconomic Goals Growth Income Distribution Employment External Stability Price Stability

29. Inflation Is a sustained increase in the general level of prices and a fall in the value of money LRAS AS AD

30. Deflation Is a persistent fall in the average level of prices in an economy.

31. Demand Pull inflation Is inflation that is caused by increasing AD in an economy That shifts the AD curve to the right AS AD2 AD1

32. Cost Push inflation Is the inflation that is caused by a increase in The cost of production in the economy That shifts the SRAS curve to the left. AS2 AS1 AD

33. Unemployment Is a situation that exists when people who are willing and able to work cannot get a job

34. Full employment Exists when the number of jobs available in an economy is equal to or greater than the number of people actively seeking work

35. Underemployment When workers are carrying out jobs for which they are over qualified, that is they are not using their full skills and abilities or when workers are employed part time, even though they are available for full time employment, or when workers in a planned economy are undertaking jobs that would not exist in a free market

36. Demand deficient Or Cyclical unemployment Is unemployment that exists when there is insufficient AD in the economy and real wages Do not fall to compensate for this

37. Direct taxation Is taxation imposed on people’s income or wealth, and on firms profit.

38. Indirect Taxation Is tax on expenditure. IT is added to the selling price of a good or service