Marginal Revenue

Marginal Revenue (MR) is the increase in the Total Revenue (TR) that is gained when the firm sells one additional (marginal) unit of that product. In other words, MR is the revenue obtained from the last unit sold.

Marginal Propensity to Consume

The marginal propensity to consume (MPC) is the increase in consumer spending due to an increase in income. This can be expressed as ∆C/∆Y, which is a change in consumption over the change in income.

Deflation

Deflation is defined as the decrease in the average price level of goods and services. It means a general decrease in consumer prices and assets, but the increase in the value of money. If the inflation rate is negative, i.e., below 0%, then the economy is experiencing deflation.

Demand Pull Inflation

Demand Pull Inflation involves inflation rising as real Gross Domestic Product rises and unemployment falls, as the economy moves along the Phillips Curve. Demand Pull Inflation is commonly described as “too much money chasing too few goods”.

Liquidity Preference Theory

The Liquidity Preference Theory says that the demand for money is not to borrow money but the desire to remain liquid. In other words, the interest rate is the ‘price’ for money.

5 Macroeconomic Goals

Every country has macroeconomic goals that it wants to achieve; these goals or objectives are key to ensuring long-term stable economic success. These are the five main macroeconomic goals that most central banks aim to achieve.

Bimetallism

Bimetallism is a monetary standard in which the value of the monetary unit is equivalent to a certain quantity of gold and to a certain quantity of silver. Such a system establishes a fixed rate of exchange between the two metals.

Monetary Policy

Monetary Policy involves the country’s central bank controlling the interest rate and money supply. Monetary policy affects Aggregate Demand (AD), and an expansionary monetary policy increases AD, while a contractionary monetary policy decreases AD.

The Natural Rate of Unemployment

The Natural Rate of Unemployment (NRU) is the rate of unemployment after the labor market is in equilibrium, when real wages have found their free-market level and when the aggregate supply of labor balanced with the aggregate demand for labor.

The Pigou Effect

The Pigou effect is an economics term that refers to the stimulation of output and employment. Increasing consumption causes this because of a rise in real balances of wealth, particularly during deflation.

The Phillips Curve

The Phillips Curve showed that there was a trade-off between the inflation rate and the unemployment rate. Alban Phillips based the original work on data from the UK from 1861-1957.