Economics Glossary: A

Below are common terms in economics beginning with A:

Above full-employment equilibrium – When real GDP equilibrium is higher than potential GDP.

Absolute advantage – When an individual or country can produce more than another individual or country with identical resources.  Or, when one person or country is more productive than another person or country in one or more activities.

Accelerator effect – The case when changes in investment are positively correlated with changes in aggregate output.  For example, an increase in aggregate output causes investment to increase while a decrease in aggregate output causes investment to decrease.  This causes accelerated growth or decline in output depending on the movement direction.

Actual investment – The actual amount of investment that occurs.  Actual investment includes investment in unplanned changes in inventory.

Adjustment costs – The costs that a firm faces when it changes its output level.  Training costs for new employees or to use new machines, and severance packages for laid off employees are three examples.

Aggregate behavior – The behavior of all households and firms taken together.  Usually calculated by assuming a representative household or firm, and then multiplying by the population or number of firms.

Aggregate demand – The aggregated (total) demand for all goods and services in a certain economy (usually one country).

Aggregate demand curve (or AD) – The negative relationship between real GDP quantity demanded and the price level ceteris paribus (everything else equal).  Each point along the AD curve represents a point where the money and goods markets are in equilibrium.

Aggregate income – The total income received by every factor of production during a given time period (most likely one year).

Aggregate output – The total amount of goods and services produced within an economy in a given time period (most likely one year).

Aggregate output or Aggregate income (represented by Y) – The variable used in certain applications in economics to represent total output or income.  Its significance shows that aggregate outcome and aggregate income are EQUAL in these applications.

Aggregate production function – The mathematical function that shows the relationship between inputs and outputs for a nation.  Outputs for a nation are commonly called gross domestic product (GDP).

Aggregate saving (represented by S) – The total amount of saving occurring in the economy, calculated by subtracting aggregate consumption from aggregate income.

Aggregate supply – The aggregated (total) supply for all goods and services in a certain economy (usually one country).

Aggregate supply curve (or AS)  -- The positive relationship between real GDP quantity supplied and the price level ceteris paribus (everything else equal). 

Allocative efficiency  -- When the goods and services that are produced are the ones that people value the most.  For example, if we attain allocative efficiency, then we cannot change the goods and services we produce without lowering society’s welfare or well being.

Animal spirits – A term introduced by Keynes to describe investor sentiment, and to summarize herd like behavior.

Appreciation (of a currency) – The increase in value of a certain currency relative to another currency.  For example, the dollar has appreciated against the pound if it now takes less dollars to buy the same amount of pounds.

Automatic destabilizers – Possible fiscal policies that work automatically to destabilize GDP.  For example, lowering taxes during an expansion, or raising taxes during a recession.
Automatic fiscal policy – a fiscal policy action that occurs during certain times of the economic cycle.  Also called automatic stabilizers. 

Automatic stabilizers – a type of fiscal policy that acts to stabilize real GDP without active involvement from the government.  For example, during a recession government expenditures go up (unemployment and welfare payments) but they go down during an expansion.  Likewise, taxes rise during an expansion (more money and higher tax brackets) and fall during a recession).

Average cost pricing rule – A rule set by the government that requires firms (most likely monopolies) to set their price equal to their average total cost (most likely where ATC crosses the demand curve).  This ensures that the regulated firm does not incur an economic loss and withdraw from the market.

Average fixed cost – The total fixed cost divided by the quantity produced: TFC/Q

Average product – The total product divided by the quantity used of the input.  For example, if labor produces tacos, the average product is the total amount of tacos produced (output or total product) divided by the amount of labor hired (quantity of input).

Average total cost—The total cost divided the quantity produced: TC/Q.

Average variable cost – The total variable cost divided by the quantity produced: TVC/Q.

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