Glossary
Aggregate Demand (AD)
The total demand for all goods and services produced in an economy at a given price level and in a given time period.
Example:
A significant increase in consumer confidence leading to more household spending would cause the Aggregate Demand curve to shift to the right.
Demand-Side Policies
Government policies, primarily fiscal and monetary, that aim to influence the economy by directly affecting aggregate demand.
Example:
During a recession, the government might implement demand-side policies like increased government spending on public works projects to boost overall spending.
Employment
The state of having paid work, with policies often aiming to increase the number of people working to boost overall economic output.
Example:
Policies that reduce barriers to entry for new businesses can lead to increased employment as more companies hire workers.
Human Capital
The economic value of a worker's experience and skills, which can be improved through education, training, and healthcare investments.
Example:
When a country invests heavily in its public education system, it is building its human capital, leading to a more skilled and productive workforce.
Infrastructure Spending
Government investment in fundamental facilities and systems serving a country, city, or area, such as transportation, communication, and utility networks.
Example:
Building new bridges and repairing existing roads through increased infrastructure spending makes it easier for businesses to transport goods and for people to commute.
Innovation
The creation of new ideas, methods, or products that drive long-term economic growth by improving efficiency and expanding production possibilities.
Example:
Government grants for research and development in renewable energy encourage innovation that can lead to new industries and sustainable growth.
Investment Tax Credit
A tax incentive that allows businesses to deduct a percentage of their new investment costs from their tax liability, encouraging capital formation and economic growth.
Example:
A company deciding to purchase new, more efficient machinery because of a government-offered investment tax credit is responding to a supply-side incentive.
Long-Run Aggregate Supply (LRAS)
A vertical curve representing the economy's potential output or full-employment output, determined by factors of production and technology, independent of the price level.
Example:
Investments in education and technology can shift the Long-Run Aggregate Supply curve to the right, indicating an increase in the economy's productive capacity.
Productivity Incentives
Policies or conditions that motivate individuals and firms to increase their output per unit of input, often through tax cuts or reduced regulations.
Example:
Lower income tax rates can act as productivity incentives, encouraging individuals to work more hours or take on more challenging roles.
Public Policy
Government actions and decisions designed to influence economic outcomes, particularly focusing on factors that boost productivity and employment to foster economic growth.
Example:
A government's decision to fund a new national high-speed rail system is an example of public policy aimed at improving infrastructure and economic efficiency.
Risk-Taking
The willingness of individuals and businesses to undertake ventures with uncertain outcomes, often encouraged by policies that increase the potential rewards or reduce the perceived costs of failure.
Example:
Lower capital gains taxes can encourage more risk-taking in financial markets, as investors keep a larger share of their profits from successful ventures.
Short-Run Aggregate Supply (SRAS)
A curve that shows the total quantity of goods and services that firms are willing and able to produce at different price levels in the short run, assuming input prices are fixed.
Example:
If the cost of raw materials suddenly increases, the Short-Run Aggregate Supply curve would shift to the left, indicating less output at each price level.
Supply-Side Economics
An economic theory that advocates for policies, typically tax cuts and deregulation, to increase aggregate supply by making it easier and more profitable for businesses to produce goods and services.
Example:
A government implementing significant tax cuts for corporations is practicing supply-side economics, hoping to stimulate investment and production.