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14: Glossary

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    AD/AS model: a framework used to explain the behaviour of real output and prices in the national economy.(5.1)

    Aggregate demand: planned aggregate expenditure on final goods and services at different price levels, all other conditions remaining constant. (5.1)

    Aggregate expenditure (AE): planned expenditure by business and households. (6.2)

    Aggregate expenditure (AE): the sum of planned induced and autonomous expenditure in the economy. (6.2)

    Aggregate supply: the output of final goods and services businesses would produce at different price levels, all other conditions held constant. (5.1)

    Automatic stabilizers: tax and transfer programs that reduce the size of the multiplier and the effects of transitory fluctuations in autonomous expenditures on equilibrium GDP. (7.5)

    Autonomous expenditure (A): planned expenditure that is not determined by current income. (6.2)

    Balance of payments accounts: a record of trade and financial transactions between residents of one country and the rest of the world. (12.1)

    Balance of payments: the sum of the balances in current accounts and financial accounts, minus the change in the holdings of official reserves. (12.1)

    Balanced budget: revenues are equal to expenditures. (7.3)

    Bank of Canada: Canada's central bank. (8.3)

    Bank rate: the interest rate the central bank charges on its loans to commercial banks. (10.2)

    Bank reserves: cash (legal tender) held by banks to meet possible withdrawals by depositors. (8.1)

    Bankers risk: the risk that customers may demand cash for their deposits. (8.3)

    Barter exchanges: direct exchanges of goods or services for goods or services without the use of money. (8.1)

    Bond coupon: the annual fixed money payment paid to a bond holder. (9.1)

    Bond price: the present value of future payments of interest and principal. (9.1)

    Bond: a financial contract that makes one or more fixed money payments at specific dates in the future. (9.1)

    Boom: a period of high growth that raises output above normal capacity output. ( 1.6)

    Budget deficit: revenues are less than expenditures. (7.3)

    Budget function: the relationship between the budget balance and the level of national income for a specific budget program. (7.3)

    Budget surplus: revenues are greater than expenditures. (7.3)

    Business cycles: short-term fluctuations of actual real GDP. (5.4)

    Capital stock: the buildings, machinery, equipment and software used in producing goods and services. ( 1.6)

    Central bank intervention: purchases or sales of foreign currency intended to manage the exchange rate. (12.3)

    Central bank: an institution that conducts monetary policy using its control of monetary base and interest rates. (10.1)

    Centralized e-money: for example a multi-purpose pre-paid payment card, denominated in the currency of the controller of the currency, that has a money value based on funds received by the issuer. (8.2)

    Change in official international reserves: the change in the Government of Canada's foreign currency balances. (12.1)

    Circular flow diagrams: show the flows of money payments, real resources, and goods and services between households and businesses. (4.3)

    Comparative static analysis: compares an initial equilibrium with a new equilibrium, where the difference is due to a change in one of the conditions behind the initial equilibrium. (3.4)

    Complementary goods: when a price reduction (rise) for a related product increases (reduces) demand for a primary product it is a complement for the primary product. (3.3)

    Constant returns to scale: equal percentage increases in inputs of labour and capital increase output by the same percentage. (13.3)

    Consumer price index (CPI): a measure of the cost of living in any one year to the cost of living in a base year. (4.1)

    Consumer price index: the average price level for consumer goods and services. (2.1)

    Consumption possibility frontier (CPF): the combination of goods that can be consumed as a result of a give production choice. (1.4)

    Convertible currency: a national currency that can be freely exchanged for a different national currency at the prevailing exchange rate. (12.3)

    Cost of credit: the cost of financing expenditures by borrowing at market interest rates. (9.4)

    Credit easing: the management of the central bank's assets designed to support lending in specific financial markets. (10.4)

    Credit money: the debt of a private business or individual. (8.1)

    Cross-section data: values for different variables recorded at a point in time. (2.1)

    Currency appreciation: a rise in external value of the domestic currency that lowers the domestic currency price of foreign currency. (12.2)

    Currency depreciation: a fall in external value of the domestic currency that raises domestic currency price of foreign currency. (12.2)

    Current account: a record of trade in goods, services, and transfer payments. (12.1)

    Cyclical unemployment: would be eliminated by higher levels of economic activity. (4.1)

    Data: recorded values of variables. (2.1)

    Decentralized e-money: has no centralized issuer and is not denominated in any national currency. It is a cryptocurrency such as a bitcoin. (8.2)

    Deflation: a persistent fall in the general price level. (11.6)

    Demand curve: a graphical expression of the relationship between price and quantity demanded with all other influences unchanged. (3.3)

    Demand: the quantity of a good or service that buyers wish to purchase at each possible price with all other influences on demand remaining unchanged.(3.2)

    Deposit multiplier: increase in bank deposits as the result of an increase in monetary base. (8.5)

    Depreciation of the national currency: a decline in the value of the currency relative to other national currencies, which results in a rise in the domestic price of foreign currencies. (9.3)

    Devaluation (revaluation): a reduction (increase) in the international value of the domestic currency. (12.3)

    Discretionary fiscal policy: changes in net tax rates and government expenditure intended to offset persistent autonomous expenditure shocks and stabilize aggregate expenditure and output. (7.5)

    Disinflation: a persistent fall in the inflation rate. (11.6)

    Disposable income (YD): national income minus net taxes. (7.2)

    E-payments: payments made using mobile access to bank accounts eg. by internet ot telephone. (8.2)

    Economic equity: the distribution of well-being among members of the economy. (2.2)

    Economic growth: an increase in real GDP. (4.1)

    Economic growth: the annual percentage change in real GDP or per capita real GDP. (13.1)

    Economic recession: national output falls below the economy’s capacity output. (1.6)

    Economy-wide PPF: the set of goods and services combinations that can be produced in the economy when all available productive resources are in use. (1.5)

    Effective lower bound (ELB): A bank's policy interest rate cannot be set below a small positive number. (10.4)

    Employment rate: percent of the population 15 years of age and over that is employed. (4.1)

    Employment: number of adults employed full-time and part-time and self-employed. (4.1)

    Endogenous growth: growth determined economic behaviour and policy within the model. (13.5)

    Equilibrium GDP: img856.png, planned expenditure equals current output and provides business revenues that cover current costs including expected profit. (5.1)

    Equilibrium price: the price at which quantity demanded equals quantity supplied. (3.2)

    Excess demand: amount by which quantity demanded exceeds the quantity supplied at the current price. (3.2)

    Excess supply: amount by which quantity supplied exceeds the quantity demanded at the current price. (3.2)

    Exchange rate regime: the policy choice that determines how foreign exchange markets operate. (12.3)

    Exchange rate target: monetary policy maintains a fixed price for foreign currency in terms of domestic currency. (10.3)

    Exogenous variable: a variable with a value determined outside the model. (13.5)

    Expenditure-based nominal GDP: sum of the market value of all the final goods and services bought in a given time period, say one year. (4.4)

    Fiat money: money the government has declared as legal tender. (8.1)

    Final goods and services: goods and services are purchased by the ultimate users. (4.4)

    Financial account: the record of capital transfers and the purchases and sales of real and financial assets. (12.1)

    Financial intermediary: a business that specializes in bringing borrowers and lenders together. (8.3)

    Financial panic: a loss of confidence in banks and rush to withdraw cash. (8.4)

    Fintech: emerging and evolving range of technology based financial services. (8.2)

    Fiscal austerity: cuts in government expenditure and /or increases in taxes aimed at improving the government's budget balance. (7.4)

    Fiscal policy: government expenditure and tax changes designed to influence AD. (5.7)

    Fixed exchange rate: an exchange rate set by government policy that does not change as a result of changes in market conditions. (12.3)

    Flexible exchange rates: Supply and demand in the foreign exchange market determine the equilibrium exchange rate without central bank intervention. (12.3)

    Foreign exchange rate: the domestic currency price of a unit of foreign currency. (9.3)

    Forward guidance: information on the timing of future changes in the central bank's interest rate setting. (10.4)

    Frictional unemployment: a result of the time involved in adjusting to changing labour force and employment opportunities. (4.1)

    Full employment output Yc: img857.png. (1.6)

    GDP deflator: index of current final output prices relative to base year prices. (4.5)

    GDP (Y): the national accounts measure of the sum of actual expenditure in the economy. (6.2)

    Government budget: planned government spending and revenue. (7.3)

    Government expenditure (G): government spending on currently produced goods and services. (7.2)

    Growth accounting: measurement of the contributions of labour, capital, and technology to growth in output. (13.2)

    High (low) frequency data: series with short (long) intervals between observations. (2.1)

    Income-based GDP: sum of the factor costs of production of all goods and services plus the net in direct taxes included in market price. (4.4)

    Index number: value for a variable, or an average of a set of variables, expressed relative to a given base value. (2.1)

    Induced expenditure (cm)Y: planned consumption and imports expenditures that change when income changes. (6.2)

    Inferior good: a good for which demand falls in response to higher incomes. (3.4)

    Inflation (deflation) rate: the annual percentage increase (decrease) in the level of consumer prices. (2.1)

    Inflation rate target: monetary policy objective defined as an announced target inflation rate. (10.3)

    Inflation: a persistent rise in the general price level. (4.1)

    Innovation: the application of new knowledge into production techniques. (13.4)

    Interest rate: the current market rate paid to lenders or charged to borrowers. (9.1)

    Intermediate inputs: services, materials, and components purchased from other businesses and used in the production of final goods. (4.4)

    Invention: the discovery of new knowledge. (13.4)

    Investment function, I=I(i): explains the level of planned investment expenditure at each interest rate. (9.4)

    Labour force: adults employed plus those not employed but actively looking for work. (4.1)

    Legal tender: money that by law must be accepted as a means of payment. (8.1)

    Liquidity: the cost, speed, and certainty with which asset values can be converted into cash. (8.3)

    Longitudinal data: follow the same units of observation through time. (2.1)

    Macroeconomics: the study of the economy as a complete system that determines national output, employment and prices. (1.1)

    Marginal product: the change in total output caused by a change of one unit in the input of that factor to production. (13.3)

    Marginal propensity to consume (img858.png): the change in consumption expenditure caused by a change in income. (6.2)

    Marginal propensity to import (img859.png): the change in imports caused by a change in income. (6.2)

    Market demand: the horizontal sum of individual demands. (3.7)

    Market value of outputimg860.pngtotal expenditureimg861.pngmarket value of factor servicesimg862.pnghousehold income. (4.3)

    Means of payment: a commodity or token generally accepted in payment for goods and services or the repayment of debt. (8.1)

    Microeconomics: the study of individual behaviour in the context of scarcity. (1.1)

    Mixed economy: goods and services are supplied both by private suppliers and government. (1.1)

    Model: a formalization of theory that facilitates scientific inquiry. (1.2)

    Monetary base (MB): legal tender comprising notes and coins in circulation plus the cash held by the banks. (8.5)

    Monetary policy instrument: the monetary variable the central bank manipulates in pursuit of its policy target. (10.3)

    Monetary policy: central bank action to control inflation and support economic growth through control of the money supply, interest rates, and exchange rates to change aggregate demand and economic performance. (10.1)

    Monetary policy: changes in interest rates and money supply designed to influence AD. (5.7)

    Monetary policy rule: describes central bank settings of interest rates in terms of inflation and output targets. (10.4)

    Money supply target: a central bank adjusts interest rates and the monetary base to control the nominal money supply, or the rate of growth of the nominal money supply. (10.3)

    Money supply: notes and coin in circulation outside banks plus bank deposits. (8.2, 8.5)

    Money supply: the means of payment in the economy, namely currency (notes and coin) in circulation outside the banks and bank deposits. (8.1)

    Moral suasion: a central bank persuades and encourages banks to follow its policy initiatives and guidance. (10.4)

    Multiplier (img863.png): the ratio of the change in equilibrium income Y to the change in autonomous expenditure A that caused it. (6.4)

    NAIRU: the 'non-accelerating inflation rate of unemployment' that corresponds to NF at YP. (11.2)

    Natural unemployment rate: the unemployment rate at "full employment". (4.1)

    Natural unemployment rate: the unemployment rate that corresponds to potential GDP. (5.2)

    Net interest income: the excess of loan interest earned over deposit interest paid. (8.3)

    Net taxes: taxes on incomes minus transfer payments. (7.2)

    Nominal exchange rate (er): the domestic currency price of a unit of foreign currency. (12.1)

    Nominal GDP: the output of final goods and services, the money incomes generated by the production of that output, and expenditure on the sale of that output measured at current prices in a specific time period. (4.4)

    Normal good: a good for which demand increases in response to higher incomes. (3.4)

    Normative economics: offers recommendations that incorporate value judgments. (2.2)

    Official exchange reserves: government foreign currency holdings managed by the central bank. (12.3)

    Open market operation: central bank purchases or sales of government securities in the open financial market. (10.2)

    Opportunity cost: what must be sacrificed when a choice is made. (1.3)

    Output gap: the difference between actual output and potential output. (5.4)

    Overnight rate: the interest rate large financial institutions receive or pay on loans from one day until the next. (10.3)

    Participation rate: percent of the population that is either working or unemployed. (4.1)

    Per capita real GDP: real GDP per person. (4.6)

    Percentage change: img864.png. (2.1)

    Perfect capital mobility: when very small differences in expected returns cause very large international flows of funds. (12.1)

    Positive economics: studies objective or scientific explanations of how the economy functions. (2.2)

    Potential output: the real GDP the economy can produce on a sustained basis with current labour force, capital and technology without generating inflationary pressure on prices. (5.2, 11.2)

    Present value is the discounted value of future payments. (9.1)

    Price controls: government rules or laws that inhibit the formation of market determined prices. (3.7)

    Price index: a measure of the price level in one year compared with prices in a base year. (4.1)

    Price level: a measure of the average prices of all goods and services produced in the economy. (4.1)

    Price of a marketable bond: the current price at which the bond trades in the bond market. (9.1)

    Prime lending rate: the base for setting the interest rates charged by banks on loans and lines of credit. (10.3)

    Production function: outputs determined by technology and inputs of labour and capital. (11.2)

    Production possibility frontier (PPF): the combination of goods that can be produced using all resources available. (1.4)

    Productivity of labour: the output of goods and services per worker. (1.6)

    Productivity: output per unit of input. (11.2)

    Public debt (PD): the outstanding stock of government bonds issued to finance government budget deficits. (7.6)

    Public debt ratio (PD/Y): the ratio of outstanding government debt to GDP. (7.6, 11.5)

    Quantitative easing: central bank purchases of financial assets to increase its asset holdings and the monetary base. (10.4, 11.6)

    Quantity demanded: the amount purchased at a particular price. (3.2)

    Quantity supplied: the amount supplied at a particular price. (3.2)

    Quotas: are physical restrictions on output. (3.7)

    Rate of economic growth: the annual percentage change in real GDP. (4.1)

    Real exchange rate: the relative price of goods and services from different countries measured in a common currency. (12.1)

    Real GDP: the quantity of final goods and services produced by the economy in a specified time period. (4.1)

    Real money supply (M/P): the nominal money supply M divided by the price level P. (9.2)

    Real price: the actual price adjusted by the general (consumer) price level in the economy. (2.1)

    Recession: decline in economic activity, often defined as two consecutive quarters of negative growth in real GDP. (4.2)

    Regression line: representation of the average relationship between two variables in a scatter diagram. (2.2)

    Repeated cross-section data: cross-section data recorded at regular or irregular intervals. (2.1)

    Required reserve ratio: a legal minimum ratio of cash reserves to deposits. (10.2)

    Reserve ratio (rr): the ratio of cash reserves to deposit liabilities held by banks. (8.4)

    Short run: a time frame in which factor prices, supplies of factors of production, and technology are fixed by assumption. (5.1)

    Short-run equilibrium output: Aggregate expenditure and current output are equal (img865.png). (6.3)

    Solow residual: the growth in real GDP or per capita real GDP not caused by growth in factor inputs, but attributed to improved technology. (13.2)

    SPRA: A Bank of Canada purchase of securities one day combined with an agreed resale of the securities the next day. (10.3)

    SRA: A Bank of Canada sale of securities one day combined with an agreed repurchase of the securities the next day. (10.3)

    Standard of deferred payments: the units in which future financial obligations are measured. (8.1)

    Store of value: an asset that carries purchasing power forward in time for future purchases. (8.1)

    Structural budget balance (SBB): the government budget balance at potential output. (7.4)

    Structural primary government balance (SPBB=tYPG): the difference between net tax revenue at YP and government program expenditure. It excludes interest payments on the public debt and the effect of output gaps. (11.5)

    Structural unemployment: caused by changes in economic structure relative to labour characteristics. (4.1)

    Substitute goods: when a price reduction (rise) for a related product reduces (increases) demand for the primary product, then it is a substitute for the primary product. (3.4)

    Supply curve: a graphical expression of the relationship between price and quantity supplied with all other influences unchanged. (3.3)

    Supply: the quantities of a good or service that sellers are willing to sell at each possible price with all other influences on supply reaming unchanged. (3.2)

    Sustained growth in per capita real GDP: improvements in technology overcome the diminishing returns to increases in the capital to labour ratio. (13.4)

    Taylor rule: central bank interest rate settings based on inflation and output targets. (10.4)

    Theory: a logical view of how things work. Frequently formulated on the basis of observation. (1.2)

    Time-series: a set of measurements made sequentially at different points in time. (2.1)

    Token money: convertible claims on commodity money. (8.1)

    Total factor productivity (TFP): output relative to the combined inputs of labour and capital, the total factor inputs to production. (13.2)

    Transmission mechanism: links money, interest rates, and exchange rates through financial markets to output and employment and prices. (9.4)

    Unemployment rate is the number of unemployed persons as a percentage of the labour force. (4.1)

    Unemployment: number of adults not working but actively looking for work. (4.1)

    Unit of account: the standard in which prices are quoted and accounts are kept. (8.1)

    Unplanned changes in business inventories: indicators of disequilibrium between planned and actual expenditures – incentives for businesses to adjust levels of employment and output (Y). (6.3)

    Value added: the difference between the market value of the output of the business and the cost of inputs purchased from other businesses. (4.4)

    Variables: measures that can take on different values. (2.1)

    Very long run: the time required for changes to occur in the stock of capital, the size of the labour force, and the technology of production. (13.2)

    Wealth effect: the change in expenditure caused by a change in real wealth. (9.4)

    Yield on a bond: the return to a bond holder expressed as an annual percentage. (9.1)

    Zero-sum game: an interaction where the gain to one party equals the loss to another party. (1.4)

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