Latest Terms

Consumption Function

Consumption function is an equation that shows how personal consumption expenditure changes in response to changes in disposable income, wealth, interest rate, etc. Generally, consumption equals autonomous consumption plus the product of marginal propensity to consume and disposable income.

Phillips Curve

Phillips curve refers to the trade-off between inflation and unemployment. It shows that in the short-run, low unemployment rate results in high inflation and vice versa.

Liquidity Trap

Liquidity trap (also called zero lower bound) is a situation in which nominal interest rates is already close to zero and any further increase in money supply does not have any expansionary effect.

Geometric Mean

Geometric mean is one of the methods to estimate mid-value of some data. In geometric mean the midpoint criteria is based on the geometric progression where the difference between the consecutive values increase exponentially. It is calculated as the nth root of the product of the values.

LM Curve

LM curve is a graph that plots equilibrium output dictated by the financial market at different interest levels. It slopes upward because high output/GDP is associated with high interest rate due to high demand for money and vice versa.

IS Curve

IS curve is a schedule/curve that shows the equilibrium output level that occurs in the market for goods and services at different levels of interest. The IS curve is one part of the IS-LM model and it is plotted with interest on y-axis and output on x-axis.

IS-LM Model

IS-LM model is a macroeconomic model that links the output level of an economy in the short-run with interest rate determined by the interplay of fiscal policy and monetary policy in the goods market and financial market.

Cyclical Unemployment

Cyclical unemployment refers to the increase in total unemployment that occurs when an economy is in recession. It is represented by difference between the unemployment rate and the natural rate of unemployment.

Frictional Unemployment

Frictional unemployment is the unemployment that results from the time it takes workers in finding jobs. The level of frictional unemployment depends on the rate of job separations and the average time of job finding.

Natural Rate of Unemployment

Natural rate of unemployment is the long-run unemployment rate around which the actual employment rate oscillates. It is the combined effect of frictional unemployment and structural unemployment.