Identity – A statement or equation that is always true.
Implementation lag – The time that it takes to put a policy into effect once policy makers realize that the economy is in a recession or expansion. Generally it takes 3 months or more to collect the data, 3 months or more to analyze it, and 3 months or more to navigate the process to implement the change. In this example, it would take 9 months from the time of the incident to enact the desired policy.
Implicit cost – An opportunity cost to a firm when it uses a factor of production and does not pay explicitly for its use. For example, using an oven already owned is an implicit cost because it could have been sold. Also, managing your own restaurant is an implicit cost because you could be working somewhere else.
Import quota – A restriction on the maximum quantity of a good or service that can be imported over a set period of time (typically one year).
Import substitution – A trade policy that favors infant local industries to help them produce goods to replace imports. Many developing countries place tariffs on imports, or subsidize local businesses to promote domestic production.
Imports – The goods and services that are purchased in one country, but produced in another country.
Incentive – A reward or penalty. Typically, a “carrot” is a positive incentive trying to motivate certain behavior, while a “stick” is a negative incentive or penalty to motivate certain behavior.
Income – The sum of a household’s rents, interest payments, profits, wages, and other forms of earnings during a set period of time (typically one year).
Income approach – One way to calculate GDP, the income approach measures the income received by all factors of production (wages, rents, interest payments and profits) when producing final goods and services.
Income elasticity of demand – The responsiveness of the quantity demanded of a good to the change in income. IEoD will be positive for normal goods, and negative for inferior goods.
Increasing marginal returns – when the marginal product of an additional input of production is higher than the marginal product of the previous input.
Indirect taxes minus subsidies – The net result of sales taxes, trade tariffs, and licensing fees minus the subsidies a government pays out.
Induced taxes – Taxes that change as real GDP changes.
Industrial revolution – The period of time in England when new manufacturing technologies motivated the factory style of production (as opposed to small specialist shops). It also caused huge migrations in population from rural to urban areas. The industrial revolution occurred in the late eighteenth and early nineteenth centuries.
Inelastic demand – When the percentage change in the quantity demanded is less than the percentage change in price.
Inelastic supply – When the percentage change in quantity supplied is less than the percentage change in price.
Infant industry – A developing industry that may need protection from international competition.
Inferior goods – Goods that see a decrease in demand as income rises (as opposed to normal goods).
Inflation – An increase in the overall price level.
Inflation rate – The percentage change in the price level.
Inflation targeting – When the Federal Reserve (or Central Bank) chooses the national interest rate with the purpose of keeping the inflation rate within some desired band over a period of time (typically one year).
Inflationary gap – A gap that is present when real GDP is higher than potential GDP and results in rising price levels (typically occurs when AD or SRAS shift right, and the temporary equilibrium real GDP is higher than LRAS real GDP).
Innovation – The use of new knowledge to produce a new good or service, or using the new knowledge to produce an existing good or service more efficiently.
Input markets (factor markets) – The markets where the resources used to produce goods and services are bought and sold.
Inputs (resources) – The goods and services that firms purchase and use to produce other goods and services. This can be anything provided by nature or other production processes that is used to produce new goods and services.
Interest – The fee that borrowers must pay lenders in order to use their money for a given period of time. Typically a percentage fee in annual terms.
Interest sensitivity of planned investment – The amount of responsiveness that planned investment spending has to changes in the interest rate. If it is interest sensitive, then planned investment spending will change a lot after a change in the interest rate. If it is interest insensitive, then planned investment spending will not change much after a change in the interest rate.
Intermediate goods – Goods that are produced with the purpose to be used as an input in the production of another good or service. Intermediate goods are NOT counted in GDP in order to prevent double counting.
International Monetary Fund (IMF) – The international agency whose goals are to stabilize international exchange rates and lend money to countries that are having financial problems.
Invention – An advance or development in the current knowledge level (could increase technology or the technology level).
Inventory investment – The change in the stock level of inventories.
Inverse relationship --- A relationship between two variables that move in opposite directions (downward sloping like demand).
Investment – Using resources to produce new capital such as tools, factories, robots or additional inventories. Typically a firm will invest part of its profits, or loan money in order to buy new physical capital.
IS curve – The curve illustrating the negative relationship between the equilibrium values of aggregate output (Y) and the interest rate (i).