Macroeconomics Chapter 6: Macroeconomics: The Big Picture

Self Regulating

the view that in an economy problems such as unemployment would be corrected through the working of the invisible hand and that government attempts to improve the economy's performance would be ineffective at best - and would probably make things worse

Keynesian Economics

a depressed economy is the result of inadequate spending and can be fixed through the use of monetary and fiscal policy

Monetary Policy

policies that use changes in the quantity of money to alter interest rates, which in turn affect the level of overall spending

Fiscal Policy

policies that use changes in taxes and government spending to affect overall spending

Recession

periods of economic downturn when output and employment are falling
(also known as contractions)

Expansion

periods in which economic numbers are following there normal upward trend
(opposite of recession)
(sometimes referred to as a recovery)

Business Cycle

the alternation between recessions and expansions

Business-Cycle Peak

the point at which the economy shifts from expansion to recession

Business-Cycle Trough

the point at which the economy shifts from recession to expansion

Long-Run Economic Growth

the sustained rise in the quantity of goods and services the economy produces

Inflation

a rise in the overall level of prices

Deflation

a fall in the overall level of prices

Price Stability

a situation in which the overall level of prices is changing, if any, only slowly

Open Economy

an economy that trades goods and services with other countries

Trade Deficit

occurs when the value of goods and services bought from foreigners is more than the value of the goods and services it sells them

Trade Surplus

occurs when the value of goods and services sold to foreigners is more than the value of the goods and services it buys from them