Glossary
Aggregate Production Function
A theoretical function that shows the relationship between the inputs (factors of production) used in an economy and the total output (Real GDP) produced.
Example:
An upward shift in the aggregate production function means the economy can produce more output with the same amount of labor and capital, often due to technological progress.
Economic Growth
An increase in a country's ability to produce more goods and services over time, signifying an expansion of its productive capacity.
Example:
When a country's factories produce more cars and its farms yield more crops year after year, it's experiencing economic growth.
Human Capital
The skills, knowledge, and experience possessed by an individual or population, viewed in terms of their value or cost to an organization or country.
Example:
When a government funds extensive vocational training programs, it aims to improve the human capital of its workforce, making them more productive.
Investment
The act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit, often referring to spending on new capital goods.
Example:
A business deciding to build a new factory is making an investment in physical capital, hoping to increase future production and profits.
Long-Run Aggregate Supply (LRAS) Curve
A vertical curve representing the economy's potential output or full-employment output, independent of the price level in the long run.
Example:
An increase in a nation's labor force or technological advancements would cause the Long-Run Aggregate Supply (LRAS) Curve to shift rightward, indicating higher potential output.
Natural Resources
Materials or substances such as minerals, forests, water, and fertile land that occur in nature and can be used for economic gain.
Example:
A country rich in oil reserves has abundant natural resources, which can significantly contribute to its economic output.
Physical Capital
Manufactured resources used in the production of goods and services, such as machinery, tools, buildings, and infrastructure.
Example:
A company investing in new, faster assembly line robots is increasing its physical capital, which can boost its production capacity.
Production Possibilities Frontier (PPF)
A curve illustrating the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employed.
Example:
A rightward shift of the Production Possibilities Frontier indicates that an economy can now produce more of both consumer goods and capital goods, showing increased potential.
Productivity
The amount of output produced per unit of input, typically measured as output per worker or per hour worked.
Example:
If a factory implements new robots and its workers can now assemble more cars per day, the factory's productivity has increased.
Real GDP per Capita
A measure of a country's total economic output per person, adjusted for inflation, used to gauge the average standard of living.
Example:
If a nation's real GDP per capita rises, it suggests that, on average, each person in that country can access more goods and services.
Savings
The portion of income not spent on consumption, which can be used to fund investment.
Example:
When households deposit money into bank accounts instead of spending it all, their savings become available for banks to lend out for business investments.
Technology
The application of scientific knowledge for practical purposes, especially in industry, leading to more efficient production methods or new products.
Example:
The invention of the internet revolutionized communication and commerce, demonstrating how advancements in technology can drive economic growth.