This document defines key economic terms and concepts related to market failure, macroeconomics, unemployment, inflation, and the Phillips curve. It provides real world examples to illustrate positive and negative externalities, different types of GDP, aggregate demand and supply components, unemployment rates, and causes of inflation. Diagrams are included to explain the inflationary and deflationary gaps, multiplier effect, accelerator, and short-run versus long-run Phillips curve. In summary, the document outlines essential microeconomics and macroeconomics terminology.

1. Economics Definitions/Diagrams Yeong-Se Chang Mr. Economist

2. Section 2 Market Failure

3. Positive Externalities- Third Parties benefit from the production or consumption of goods and services Real World Example: Medicine Negative Externalities- Third parties bear spillover costs of the production or consumption of goods and services. Real World Example: Substances like alcohol, tobacco, etc

4. Negative Production Externalities

5. Negative Consumption Externality

6. Positive Production Externality

7. Positive Consumption Externality

8. Section 3: Macroeconomics

9. Gross Domestic Product: is the total money value of all final goods and services produced in an economy in one year. Gross National Product: is the total money value of all final goods and services produced in an economy in one year, plus net property income from abroad. Nominal GDP: not adjusted for inflation Real GDP: adjusted for inflation

10. Per Capita GDP: is the total money value of all final goods and services produced in an economy in one year per head of the population. Aggregate Demand: is the total spending in an economy consisting of consumption, investment, government expenditure and net exports Consumption: is spending by households on consumer goods and services over a period of time. Real world example: eating dinner outside everyday

11. Inflationary Gap: is the situation where total spending is greater than the full employment level of output, thus causing inflation

12. Deflationary Gap: is the situation where total spending is less than the full employment level of output, thus causing unemployment.

13. Demand-side policies: are any government policies designed to influence AD in the economy, thus affecting the average price level and real national output. Real World Example: Tax on income Fiscal Policy: is a policy using changes in government spending and/or direct taxation to achieve economic objectives. (Increase spending on education) Monetary Policy: is a policy using changes in money supply or interest rates to achieve economic objectives. (raising borrowing cost)

14. Aggregate Supply: is the total amount of domestic goods and services supplied by business and the government, including both consumer goods and capital goods. Supply-side policies: are government policies designed to shift the LRAS curve to the right, thus increasing potential output in the economy. Real World Example: increasing subsidies

15. Multiplier: is the ratio of a change in the level of national income to an initial change in one or more of the injections into the circular flow of income Accelerator: is the relationship between the level of induced investment and the rate of change of national income Crowding out: is the situation where the government spends more than it receives in revenue (Greece)

16. Unemployment: is a situation that exists when people who are willing and able to work cannot get a job. Full Employment: exists when the number of jobs available in an economy is equal to or greater than the number of the people actively seeking work. Underemployment: exists when workers are carrying out jobs for which they are over-qualified, not using their full skills or part time

17. Unemployment Rate: is the number of unemployed workers expressed as a percentage of the total workforce. Real World Example: Korea has 3.4% Structural Unemployment: is when in the long term, the pattern of demand and production methods change and there is a permanent fall in the demand for a particular type of labor. Frictional Unemployment: is unemployment that exists when people have left a job and are in the process of searching

18. Seasonal Unemployment: is unemployment that exists when people are out of work because their usual job is out of season Real World Example: Ski Instructor in Summer. Inflation: is a sustained increase in the general level of prices and a fall in the value of money

19. Demand-pull Inflation: is inflation that is caused by increasing AD in an economy that shifts the AD curve to the right

20. Cost-push Inflation: is inflation that is caused by an increase in the costs of production in an economy that shifts the SRAS curve to the left.

21. Deflation: is a persistent fall in the average level of prices in an economy Real World Example: Deflation in Japan slowing its economy.

22. Phillips Curve: is a curve showing the inverse relationship between the rate of unemployment and the rate of inflation, which suggests a trade-off between inflation and unemployment (short-run). In the long run, it shows the neo-classical view that there is no trade-off between inflation and unemployment in the long run and that there exists a natural rate of unemployment that can only be affected by supply-side policies.