Key terms

3.1

部分见课件
Gross domestic product (GDP) Calculation of GDP
Gross national income (GNI) Calculation of GNI
GNI=GDP+net property income from abroad
Net property income is income earned by national residents overseas that flow into
the national income less/minus income earned by foreign residents that flow out of the
domestic economy.
Real GNI per capita is measuring GNI per head of population, adjusted for inflation.

The circular flow of income model is an economic model that illustrates the flow of
money between firms and households at a macroeconomic level. It can be further
developed to include foreign trade, government and banking sectors. Whilst the model
has been around since the 17th century, its importance as an economic theory was
developed by John Maynard Keynes in his book, General Theory of Employment,
Interest and Money which was published in 1936.
Injections are the flow of funds into the circular flow that come from firms investing,
government spending and exports revenue resulting from foreign trade.
Withdrawals from the circular flow occur when money leaves the economy through
household savings, taxation by the government and imports expenditure resulting
from foreign trade.

Business cycles are a type of fluctuation found in the aggregate economic activity of a
nation -- a regular cycle that consists of expansions occurring at about the same time
in many economic activities(output, employment, income, and sales), followed by
similarly general contractions.
Boom is in the phase of expansion which becomes closer to peak of the business
cycle.
Recession is the downswing of the economic cycle during which AD is growing
slowing, if at all, and may be beginning to decline. In mainstream economics, it
means continuous falling of real GDP for at least six months.
Recovery is the process of reallocating resources and workers from failed businesses
and investments to new jobs and uses after a recession. It leads into a new
expansionary business cycle phase.

3.2
Aggregate demand - the total expenditure on all final goods and services produced in
the economy at a given price level and at a given point in time, consisting of
consumption, investment, government expenditure and net exports. This is calculated
by the formulae: C+G+I+(X-M).
Private consumption (C) - spending by households on domestic consumer goods and
services over a period of time. Consumer confidence is household expectations of
their future economic prospects.
Government spending (G) - public sector spending whether by national or local
governments. This includes spending on public services such as health, education,
public transport, defence and infrastructure projects.
Investment (I) - expenditure by firms on capital equipment and is an injection into
the economy.
Net exports (X-M) - the value of exports (ie export revenues) - value of import (ie
import expenditures).
Aggregate supply - also known as total output, is the total supply of goods and
services produced within an economy at a given time and at an overall price level.
The short-run in this model is the time period when the price level in the economy
can change but the cost of factors of production is held constant.
The long-run aggregate supply curve represents the level of national income where
all the resources of the economy are being used efficiently with the existing
technology.

Supply shock - an unexpected event that impacts on the supply of a product

or commodity, resulting in a sudden change in price. Supply shocks are generally
negative, resulting in a sudden fall in supply but can also sometimes be positive,
leading to increased supply.
Price level / average price level - the average of current prices across the entire
spectrum of goods and services produced in the economy.
Keynesian economics consists of a set of theories focused on total spending in the
economy and the effect that spending has on output and inflation. Keynesian
economists believe that increased government expenditures and lower taxes can be
used to stimulate demand and close a deflationary gap. If the economy is in
equilibrium at a level of real output below the full employment level of output, then
there is a deflationary (recessionary) gap. Increases in aggregate demand in the
Keynesian AD/AS model need not be inflationary, unless the economy is operating
close to, or at, the level of full employment.
Short run macroeconomic equilibrium - where short run aggregate supply is equal
to aggregate demand. In Keynesian model, this may appear at multiple points along
the SRAS curve - not just at the full employment rate.

3.3
Full employment: the level of employment at which all those who wish to work have
found jobs, with the exception of those who are frictionally unemployed.
Full-capacity output: the highest level of output which can be achieved in the
economy as a whole, given the type of resources available and their existing locations.
Aggregate demand for goods and services in excess of this level of output will lead to
accelerating inflation. However, there may at this level of output still be some
structural unemployment

Inflation is a sustained increase in the general or average level of prices, with its
percentage change measured by Consumer Price Index.
Deflation is a sustained decrease in the average level of prices (general price level) in
an economy.
Consumer price index (CPI) - measures changes in the price level of market
basket of consumer goods and services purchased by typical households.
Producer price index (PPI) - a price index that measures the average changes
in prices received by typical domestic producers for their output.
Weighted price index - the weights attached to a price index which reflect the
spending patterns of households in the nation. The greater the proportion of
disposable income used consume a product, the higher the good or service is
weighted.
Core / underlying inflation - represents the change in the costs of goods and services
but does not include those from the food and energy sectors. This measure
of inflation excludes these items because their prices are much more volatile.

Disinflation - when the rate of inflation falls, this is not the same as deflation as
prices are still rising but at a slower rate than before.
Demand-pull inflation - the result of when rises in AD are greater than the countries
ability to produce those goods and services.
Examples of factors that might cause a rise in demand pull inflation:

 a rise in income levels

 loose monetary policy (very low interest rates)
 printing of money (quantitative easing) by Central banks.

Cost-push inflation - the result of a rise in production costs, leading to a rise in

average prices and a fall in real GDP or national income.
Examples of factors that might cause a rise in cost push inflation:

 supply side shocks such as sharp rise in oil or commodity prices

 a deterioration of the currency price
 a rise in labour costs (without a corresponding rise in productivity rates).
Purchasing power ： the value of a currency expressed in terms of the number of
goods or services that one unit of money can buy. It can weaken over time due to
inflation.
exchange rate: the price of one currency expressed in terms of other currencies.
interest rate: the price of using currency in terms of borrowing and lending.