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Macroeconomics Principles

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Monetary Policy

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Central bank actions involving the management of interest rates and the total supply of money in circulation. It is crucial for controlling inflation, managing the business cycle, and fostering economic growth.

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Monetary Base

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The total amount of a currency that is either circulated in the hands of the public or in the commercial bank deposits held in the central bank's reserves. It's foundational for controlling the money supply.

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Contractionary Monetary Policy

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A policy used by central banks to decrease the money supply and increase interest rates to combat inflation. It matters because it can help to stabilize an overheating economy.

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GDP (Gross Domestic Product)

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The total value of goods and services produced within a country's borders during a specific time period, indicating the size of its economy. It matters because it serves as a broad measure of overall domestic production and economic health.

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Fiat Money

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Currency that a government has declared to be legal tender, but it is not backed by a physical commodity. It matters because it relies on the government's credit and the stability of the monetary system.

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Fiscal Multiplier

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The ratio of a change in national income to the change in government spending that causes it. It reflects the effectiveness of fiscal policy on stimulating economic growth.

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Recession

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A significant decline in economic activity spread across the economy, lasting more than a few months. It matters because it typically results in increased unemployment, decreased consumer spending, and economic hardship.

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Budget Deficit

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A situation where a government's expenditures exceed its revenues, leading to the accumulation of debt. It matters because it affects a country's borrowing needs, interest rates, and fiscal sustainability.

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Phillips Curve

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A historical inverse relationship between rates of unemployment and corresponding rates of inflation. It suggests that inflation and unemployment have a stable and inverse relationship.

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Stagflation

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A situation in which the inflation rate is high, the economic growth rate slows down, and unemployment remains steadily high. It presents a dilemma for economic policy, as measures to lower inflation may exacerbate unemployment.

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Expansionary Monetary Policy

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A policy used by central banks to increase the money supply and lower interest rates to boost economic activity. It matters during periods of economic downturn to stimulate borrowing and spending.

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Natural Rate of Unemployment

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The level of unemployment consistent with sustainable economic growth, where the labor market is in equilibrium. It matters because it helps gauge the level of joblessness that can't be eliminated.

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Unemployment Rate

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The percentage of the labor force that is jobless and actively seeking employment. It matters because it's an indicator of the economy's health and affects consumer confidence and spending.

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Supply-Side Economics

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A macroeconomic theory advocating for lower taxes and decreased regulation to stimulate production (supply) rather than demand. It matters because it aims to boost long-term economic growth.

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Balance of Payments

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A statement that summarizes a country's transactions with the rest of the world for a specific period. It matters because it's an indicator of a country's economic dealings and affects currency exchange rates.

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Current Account

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A component of a country's balance of payments that measures trade in goods and services, net income from investments, and net transfers. A surplus or deficit reflects a nation’s foreign economic strength.

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Capital Account

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Part of the balance of payments which records all transactions between a country's residents and the rest of the world involving assets. It matters for understanding capital flows and investment trends.

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Quantitative Easing

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A monetary policy strategy used by central banks to increase the money supply by buying government securities or other securities from the market. It matters for stabilizing the economy during crises.

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Inflation

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The rate at which the general level of prices for goods and services is rising, eroding purchasing power. It matters because it affects consumers' buying power, investments, and savings.

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Exchange Rate

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The value of one currency for the purpose of conversion to another. It matters because it affects international trade, investment flows, and the valuation of companies doing business internationally.

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Fiscal Policy

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Government adjustments to its spending levels and tax rates to influence a nation's economy. It matters because it aims to stabilize the economy, encouraging growth, and controlling inflation.

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Crowding Out Effect

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A situation where increased public sector borrowing leads to higher interest rates, which reduces investment spending in the private sector. It matters because it can hamper economic growth and efficiency.

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Multiplier Effect

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The proportional amount of increase, or decrease, in final income that results from an injection, or withdrawal, of spending. It matters for understanding the impact of fiscal and monetary policies on the economy.

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Liquidity Trap

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A situation in which prevailing interest rates are low and savings rates are high, rendering monetary policy ineffective. It's important as it limits the central bank's ability to boost economic growth.

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Aggregate Demand

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The total demand for final goods and services in an economy at a given time and price level. It matters because it reflects the overall demand in the economy and can drive economic expansion or contraction.

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Comparative Advantage

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The ability of a country to produce goods or services at a lower opportunity cost than other countries. It matters for international trade because it allows for specialization and productivity gains.

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Hyperinflation

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An extremely high and typically accelerating rate of inflation, often exceeding 50% per month. It matters because it can erode savings, create uncertainty, and cause severe economic instability.

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Lorenz Curve

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A graphical representation of the distribution of income or wealth within a society. It matters because it provides insight into economic inequality and informs policy decisions.

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Aggregate Supply

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The total supply of goods and services that firms in an economy plan on selling during a specific time period. It matters because it helps determine the level of prices and production in an economy.

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Bond Yield

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The amount of return an investor realizes on a bond. It matters because it influences the cost of borrowing for governments and corporations and is an indicator of market confidence.

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