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Balance of trade - The part of a nation's balance of payments that deals with
merchandise (or visible) imports or exports.
Bank, commercial - A financial institution accepts checking deposits, holds savings,
sells traveler's checks and performs other financial services.
Barter - The direct trading of goods and services without the use of money.
Benefit - The gain received from voluntary exchange.
Bond - A certificate reflecting a firm's promise to pay the holder a periodic interest
payment until the date of maturity and a fixed sum of money on the designated
maturity date.
Business (firm) - Private profit-seeking organizations that use resources to produce
goods and services.
Capital - All buildings, equipment and human skills used to produce goods and
services.
Capital resources - Goods made by people and used to produce other goods and
services. Examples include buildings, equipment, and machinery.
Change in demand - see Demand decrease and Demand increase.
Change in supply - see Supply decrease and Supply increase.
Choice - What someone must make when faced with two or more alternative uses of a
resource (also called economic choice).
Circular flow of goods and services (or Circular flow of economic activity) - A
model of an economy showing the interactions between households and business
firms as they exchange goods and services and resources in markets.
Collateral - Anything of value that is acceptable to a lender to guarantee repayment
of a loan.
Command economy - A mode of economic organization in which the key economic
functions--what, how, and for whom--are principally determined by government
directive. Sometimes called a "centrally planned economy."
Comparative advantage - The principle of comparative advantage states that a
country will specialize in the production of goods in which it has a lower opportunity
cost than other countries.
Competition - The effort of two or more parties acting independently to secure the
business of a third party by offering the most favorable terms.
Complements - Products that are used with one another such as hamburger and
hamburger buns
Consumers - People whose wants are satisfied by consuming a good or a service.
Consumption - In macroeconomics, the total spending, by individuals or a nation, on
consumer goods during a given period. Strictly speaking, consumption should apply
only to those goods totally used, enjoyed, or "eaten up" within that period. In
practice, consumption expenditures include all consumer goods bought, many of
which last well beyond the period in question --e.g., furniture, clothing, and
automobiles.
Consumer spending - The purchase of consumer goods and services.
Corporation - A legal entity owned by stockholders whose liability is limited to the
value of their stock.
Costs - See Opportunity Cost
Costs of production - All resources used in producing goods and services, for which
owners receive payments.
Craftsperson - A worker who completes all steps in the production of a good or
service.
Credit - (1) In monetary theory, the use of someone else's funds in exchange for a
promise to pay (usually with interest) at a later date. The major examples are shortterm loans from a bank, credit extended by suppliers, and commercial paper. (2) In
balance-of-payments accounting, an item such as exports that earns a country foreign
currency.
Criteria - Standards or measures of value that people use to evaluate what is most
important.
Decision making - Choosing from alternatives the one with the greatest benefit net of
costs.
Deflation - A sustained and continuous decrease in the general price level.
Demand - A schedule of how much consumers are willing and able to buy at all
possible prices during some time period.
Demand decrease - A decrease in the quantity demanded at every price; a shift to the
left of the demand curve.
Demand increase - An increase in the quantity demanded at every price; a shift to
the right of the demand curve.
Determinants of demand - Factors that influence consumer purchases of goods,
services, or resources.
Determinants of supply - Factors that influence producer decisions about goods,
services, or resources.
Distribution - The manner in which total output and income is distributed among
individuals or factors (e.g., the distribution of income between labor and capital).
Division of labor - The process whereby workers perform only a single or a very few
steps of a major production task (as when working on an assembly line.)
Durables - Consumer goods expected to last longer than three years.
Households - Individuals and family units which, as consumers, buy goods and
services from firms and, as resource owners, sell or rent productive resources to
business firms.
Human capital - The health, strength, education, training, and skills which people
bring to their jobs.
Human resources - The quantity and quality of human effort directed toward
producing goods and services (also called labor).
Incentives - Factors that motivate and influence the behavior of households and
businesses. Prices, profits, and losses act as incentives for participants to take action
in a market economy.
Imports - Goods or services bought from sellers in another nation.
Income - The payments made for the use of borrowed or loaned money.
Increase in productivity - When the same amount of an output can be produced with
fewer inputs; more output can be produced with the same amount of inputs; or a
combination of the two.
Inflation - A sustained and continuous increase in the general price level.
Interdependence - Dependence on others for goods and services; occurs as a result of
specialization.
Interest rates - The price paid for borrowing money for a period of time, usually
expressed as a percentage of the principal per year.
Investment in capital goods - Occurs when savings are used to increase the
economy's productive capacity by financing the construction of new factories,
Labor force - That group of people 16 years of age and older who are either
employed or unemployed.
Labor market - A setting in which workers sell their human resources and employers
buy human resources.
Labor union - A group of employees who join together to improve their terms of
employment.
Land - Natural resources or gifts of nature that are used to produce goods and
services.
Law of demand - The principle that price and quantity demanded are inversely
related.
Law of supply - The principle that price and quantity supplied are directly related.
Loss - Business situation in which total cost of production exceeds total revenue;
negative profit.
Market - A setting where buyers and sellers establish prices for identical or very
similar products, and exchange goods and/or services.
Market economy - An economic system where most goods and services are
exchanged through transactions by private households and businesses. Prices are
determined by buyers and sellers making exchanges in private markets.
Medium of exchange - One of the functions of money whereby people exchange
goods and services for money and in turn use money to obtain other goods and
services.
Mixed economy - The dominant form of economic organization in noncommunist
countries. Mixed economies rely primarily on the price system for their economic
organization but use a variety of government interventions (such as taxes, spending,
and regulation) to handle macroeconomic instability and market failures.
Monetary policy - The objectives of the central bank in exercising its control over
money, interest rates, and credit conditions. The instruments of monetary policy are
primarily open-market operations, reserve requirements, and the discount rate.
Money - Anything that is generally accepted as a medium of exchange with which to
buy goods and services, a good that can be used to buy all other goods and services,
Opportunity cost - The next best alternative that must be given up when a choice is
made.
Productivity - The ratio of output (goods and services) produced per unit of input
(productive resources) over some period of time.
Profit - The difference between total revenues and the full costs involved in
producing or selling a good or service; it is a return for risk taking.
Property tax - Taxes paid by households and businesses on land and buildings.
Public goods - A commodity whose benefits are indivisibly spread among the entire
community, whether or not particular individuals desire to consume the public good.
For example, a public-health measure that eradicates smallpox protects all, not just
those paying for the vaccinations. These goods are often provided by the
government. To be contrasted with private goods.
Resources - All natural, human, and human-made aids to production of goods and
services (also called productive resources).
Revenue - Payments received by businesses from selling goods and services.
Sales tax - Taxes paid on the goods and services people buy.
Save - Set aside earnings (income) for a future use.
Saving - Occurs when individuals, businesses, and the economy as a whole do not
consume all of current income (or output).
Scarcity - The condition that results from the imbalance between relatively unlimited
wants and the relatively limited resources available for satisfying those wants.
Services - Activities that can satisfy people's wants.
Shortage - The situation resulting when the quantity demanded exceeds the quantity
supplied of a good or service, usually because the price is for some reason below the
equilibrium price in the market.
Specialists - People who produce a narrower range of goods and services than they
consume (also called specialized workers).
Specialization - The situation in which people produce a narrower range of goods and
services than they consume.
Unemployment - The situation in which people are willing and able to work at
current wage rates, but do not have jobs.
a summary of all transactions between Canadians and foreigners that involve exchanging
Canadian dollars for other currencies
Capital resources
the processed materials, equipment, and buildings used in production; also known as
capital
Ceteris paribus
Command economy
Consumer sovereignty
Dependent variable
Direct relationship
a relationship in which a change in the independent variable causes a change in the same
direction of the dependent variable
Economic efficiency
Economic growth
Economic models
Economic problem
the problem of having unlimited wants, but limited resources with which to satisfy them
Economic resources
basic items that are used in all types of production, including natural, capital, and human
resources
Economics
Economic system
the organization of an economy, which represents a country's distinct set of social customs,
political institutions, and economic practices
Entrepreneurship
Independent variable
Inflation
Inverse relationship
Labour
Law of increasing
opportunity costs
the concept that as more of one item is produced by an economy, the opportunity cost of
additional units of that product rises
Macroeconomics
the branch of economics that takes a wide-ranging view of the economy, studying the
behaviour of economic sectors
Market
Market economy
an economic system based on private ownership and the use of markets in economic
decision-making
Microeconomics
the branch of economics that focuses on the behaviour of individual participants in various
markets
Natural resources
the resources from nature that are used in production, including land, raw materials, and
natural processes
Normative economics
Opportunity cost
the utility that could have been gained by choosing an action's best alternative
Positive economics
the study of economic facts and how the economy operates as it does
Production possibilities
curve
Production possibilities
schedule
Product markets
Resource markets
Self-interest motive
Traditional economy
an economic system in which economic decisions are made on the basis of custom
Traditional mixed
economies
Unemployment rate
Utility
Variables
Change in quantity
demanded
Change in quantity
supplied
Complementary
products
Decrease in
demand
Decrease in supply
Demand
Demand curve
Demand
determinants
Demand schedule
Inferior products
Law of demand
Law of supply
Market demand
price
Market equilibrium
Market supply
Normal products
Quantity demanded the amount of a product consumers are willing to purchase at each
price
Quantity supplied
Shortage
Supply curve
Supply
determinants
Supply schedule
Surplus
Constant-cost
industry
Cross-price
elasticity
Elastic demand
Elastic supply
Immediate run
Income elasticity
Increasing-cost
industry
Inelastic demand
Inelastic supply
Long run
industry
Perfectly elastic
demand
Perfectly elastic
supply
Perfectly inelastic
demand
Perfectly inelastic
supply
Price ceiling
Price elasticity of
demand
Price elasticity of
supply
Price floor
Public good
Short run
Spillover benefits
Spillover costs
Spillover effects
Total revenue
Unit-elastic
demand
Average cost the sum of average fixed cost and average variable cost at each quantity of output
Average fixed cost the fixed cost per unit of output
Average product the quantity of output produced per worker
Average variable cost the variable cost per unit of output
Business an enterprise that brings individuals, financial resources, and economic resources together to
produce a good or service for economic gain
Capital-intensive process a production process that employs more capital and less labour
Constant returns to scale a situation in which a percentage increase in all inputs results in an equal
percentage increase in output
Corporation a company that has a legal status independent of its owners
Decreasing returns to scale a situation in which a percentage increase in all inputs causes a smaller
percentage increase in output
Economic costs a business's total explicit and implicit costs
Economic profit the excess of a business's total revenue over its economic costs
Explicit costs payments made by a business to businesses or people outside of it
Fixed costs economic costs for inputs that remain fixed at all quantities of output
Fixed inputs inputs whose quantities cannot be adjusted in the short run
Implicit costs the owner's opportunity costs of being involved with a business
Increasing returns to scale a situation in which a percentage increase in all inputs causes a larger
percentage increase in output
Inputs the resources used in production
Labour-intensive process a production process that employs more labour and less capital
Law of diminishing marginal returns at some point, as more units of a variable input are added to a
fixed input, the marginal product will start to decrease
Long-run average cost the minimum short-run average cost at each possible level of output
Marginal cost the extra cost of producing an additional unit of output
Marginal product the extra output produced by an additional worker
Normal profit the minimum return necessary for owners to keep funds and their entrepreneurial skills
in their business
Output the quantity of a good or service that results from production
Partnership an unincorporated business that is owned by two or more people
Production the process of transforming a set of resources into a good or service that has economic
value
Productive efficiency making a given quantity of output at the lowest cost
Sole proprietorship an unincorporated business that is owned by a single person
Total cost the sum of all fixed and variable costs at each quantity of output
Total product the overall quantity of output produced with a given workforce
Variable costs economic costs for inputs that vary at each quantity of output
Variable inputs inputs whose quantities can be adjusted in the short run
Average revenue
Breakeven point
Business's demand
curve
Business's supply
curve
Entry barriers
Marginal-cost pricing
Marginal revenue
Market power
Minimum-cost pricing
Monopolistic
competition
Monopoly
Natural monopoly
Oligopoly
Perfect competition
Predatory pricing
Profit-maximizing
output rule
Shutdown point
Accounting-profit rate
Average-cost pricing
Cartel
Collusion
Concentration ratio
Conglomerate merger
Horizontal merger
Industrial
concentration
a demand curve with two segments, one fairly flat and one steep,
that is typical of rival oligopolists
Market share
Mutual
interdependence
Nonprice competition
advertising, or both
Price leadership
Business's labour
supply curve
Collateral
Complementary
resources
Craft union
Credit risk
Human capital
Industrial union
Interest
Job discrimination
Labour market demand a graph showing the possible combinations of workers demanded
curve
in a certain labour market at each possible wage
Labour market supply
curve
Labour productivity
Marginal productivity
theory
Marginal resource cost the extra cost of each additional unit of a resource
Marginal revenue
product
Principal
Profit-maximizing
employment rule
Rent
Seniority rights
Substitute resources
Ability to pay the principle applied to taxation, whereby taxes vary in proportion to a taxpayer's
financial resources
Benefits received the principle applied to taxation, whereby taxes are geared to the benefits each
taxpayer gains from government activity
Lorenz curve a graph showing the cumulative distribution of income among a country's households
Means testing a procedure whereby transfer payments vary according to a recipient's income
Poverty a situation in which a person's income is inadequate to provide the necessities of life
Poverty line an income level below which a household is classified as poor
Progressive tax a tax that increases as a proportion of income as income increases
Proportional tax a tax that remains constant as a proportion of income for all incomes
Regressive tax a tax that decreases as a proportion of income as income increases
Universality the principle applied to transfer payments, whereby benefits are provided to all,
regardless of income
Wealth ownership of financial assets, such as stocks and bonds, or real assets, such as buildings and
land
Welfare society a society in which the government plays a major role in attempting to ensure the
economic well-being of its citizens
Capital stock
Depreciation
Disposable income
Double-counting
Durable goods
Expenditure approach
Expenditure equation
Exports
Final products
GDP identity
Government purchases
Gross Domestic Product the total dollar value at current prices of all final goods and
services produced in Canada over a given period
Gross investment
Imports
Income approach
Intermediate products
Inventories
National income
accounts
Net exports
Net investment
Nondurable goods
Nonmarket activities
Personal consumption
Personal income
Personal saving
Real GDP
Retained earnings
Transfer payments
Underground economy
Value added
Base year
Consumer price index
Cost of living
Cost-of-living
adjustment clauses
Cyclical unemployment
Deflation
Discouraged workers
Fixed incomes
Frictional
unemployment
Full employment
GDP deflator
Inflation premium
Item weights
Labour force
Labour force population the population, with specific exclusions, from which Statistics
Canada takes a random sample for the labour force survey
Natural unemployment
rate
Nominal GDP
Nominal income
Partially indexed
incomes
Participation rate
Potential output
Real income
Seasonal
unemployment
Structural
unemployment
Underemployment
Aggregate demand the relationship between the general price level and total spending in the economy
Aggregate demand curve the relationship between the general price level and total spending in the
economy expressed on a graph
Aggregate demand factors variables that cause changes in total expenditures at all price levels
Aggregate demand schedule the relationship between the general price level and total spending in the
economy expressed in a table
Aggregate supply the relationship between the general price level and real output produced in the
economy
Aggregate supply curve the relationship between the general price level and real output expressed on
a graph
Aggregate supply factors variables that change total output at all price levels
Aggregate supply schedule the relationship between the general price level and real output expressed
in a table
Business cycle the cycle of expansions and contractions in the economy
Contraction a sustained fall in real output of an economy
Decrease in aggregate demand a decrease in total expenditures at all price levels
Depression a particularly long and harsh period of reduced real output
Exchange rate the value of one nation's currency in terms of another currency
Expansion a sustained rise in real output of an economy
Foreign trade effect with changes in the price level, expenditures on imports change in the same
direction, while expenditures on exports change in the opposite direction
Increase in aggregate demand an increase in total expenditures at all price levels
Inflationary gap the amount by which equilibrium output exceeds potential output
Injections additions to an economy's income-spending stream
Investment demand the relationship between interest rates and investment
Investment demand curve the relationship between interest rates and investment expressed on a
graph
Investment demand schedule the relationship between interest rates and investment expressed in a
table
Long-run decrease in aggregate supply a decrease in total and potential output at all price levels
Long-run increase in aggregate supply an increase in total and potential output at all price levels
Negative unplanned investment an unintended decrease in inventories; a shortage
Peak the point in the business cycle at which real output is at its highest
Automatic stabilizers
Balanced budget
Budget deficit
Budget surplus
Contractionary fiscal
policy
Contractionary
policies
Cyclically balanced
budget
Decision lag
Discretionary policy
Expansionary fiscal
policy
Expansionary policies
Fiscal policy
Fiscal year
Functional finance
Impact lag
Multiplier effect
Public debt
Recognition lag
Spending multiplier
Stabilization policy
Asset demand the demand for money that is related to its use as a store of purchasing power
Barter a system of trading one product for another
Cash reserves funds kept on hand by deposit-takers to meet the needs of depositors withdrawing
funds
Chartered banks deposit-takers allowed by federal charter to offer a wide range of financial services
Coincidence of wants the situation where someone purchasing an item finds a seller who wants what
the purchaser is offering in return
Credit card a means of payment that provides instantly borrowed funds
Currency paper money and coins
Debit card a means of payment that instantaneously transfers funds from buyer to seller
Demand deposits accounts of funds to which depositors have immediate access
Deposit-takers institutions or businesses that accept funds provided by savers and lend these funds to
borrowers
Desired reserves minimum cash reserves that deposit-takers hold to satisfy anticipated withdrawal
demands
the interest rate CPA members are charged on advances from the Bank of
Canada
federal government bonds that have a set value throughout their term
Contractionary
monetary policy
Cost-push inflation
Demand-pull inflation
Expansionary monetary a policy of increasing the money supply and reducing interest rates to
policy
stimulate the economy
Long-run aggregate
supply curve
Open market
operations
Overnight rate
the interest rate on overnight loans between chartered banks and other
financial institutions
Phillips curve
Prime rate
Stagflation
Treasury bills
short-term federal government bonds that provide no interest but are sold
at a discount
to increase, as when a currency's price rises in comparison to the price of
another currency
Appreciate
Capital account
Capital account
deficit
Capital account
surplus
Change in official
reserves
Current account
Current account
deficit
Current account
surplus
Demand for Canadian the relationship between the price of a Canadian dollar and the
dollars
quantity demanded in exchange for another currency
Depreciate
Devaluation
Direct investment
Fixed exchange
rates
Flexible exchange
rates
Foreign exchange
market
Managed float
a flexible exchange rate system that sometimes involves shortterm government intervention
Speculators
Supply of Canadian
dollars
Absolute advantage
Auto Pact
the 1965 agreement establishing free trade in autos and auto parts
between Canada and the United States; formerly known as the CanadaUS
Automotive Products Agreement
Common market
a group of countries with not only a free trade area and common trade
barriers with outside countries, but also free movement of labour and
capital
Comparative
advantage
the benefit enjoyed by a producer who can supply a certain item with a
lower opportunity cost than can other producers
Customs union
Export subsidies
the 1988 pact between Canada and the United States to form a free trade
area
General Agreement on
Tariffs and Trade
(GATT)
Globalization
the trend of growing foreign trade and investment and the spread of
international businesses and markets
Import quota
a set limit on the quantity of a good that can be imported in a given year
Infant industry
Law of comparative
advantage
National Policy
Non-tariff barriers
(NTBs)
trade barriers other than tariffs that are used to restrict imports; include
import quotas, voluntary export restraints, and domestic regulations
the 1993 pact among Canada, the United States, and Mexico to form a free
trade area
Tariff
Terms of trade
Trading bloc
Voluntary export
restraints (VERs)
import quotas that are voluntarily put in place by the exporting country
World Trade
a multilateral tra
Organization (WTO)
Economic development an increase in a country's per capita income that is accompanied by a
general rise in living standards
Exponential growth
High-income countries
Industrially advanced
countries (IACs)
Less-developed
countries (LDCs)
countries with traditional mixed economies and low per capita incomes
Low-income countries
Middle-income
countries
Newly industrializing
countries that recently have exhibited strong economic growth and rapid
countries (NICs)
industrialization
Research and
development (R&D)
expenditures
Rule of 72
a cycle whereby low standards of living result in slow growth, thus keeping
standards of living low in the future
World Bank