Aggregate Demand (AD)

Total demand for all goods and services produced within an economy at various price levels. AD is made up of C + I + G + (X − M) and directly determines GDP.

Aggregate Supply (AS)

The total supply of all goods and services produced in an economy at various price levels. In the long run, AS becomes perfectly inelastic due to limited resources.

Automatic Stabilizers

Economic mechanisms already built into the economy that automatically adjust government spending or taxation to stabilize aggregate demand without new government decisions.

Bank Deposit Money

Money that exists as numbers in bank accounts rather than physical cash; makes up the majority of a country’s money supply.

Bank of Canada

Canada’s central bank, responsible for monetary policy, issuing currency, acting as banker to the government and chartered banks, and maintaining financial stability.

Bank Rate

The interest rate the Bank of Canada charges chartered banks; forms the top of the operating band.

Bear Market

A market situation where a large group of investors believe prices will fall, causing widespread selling that actually leads to falling prices. This is a self-fulfilling prophecy because share prices are based on demand, and mass selling reduces demand and price.

Bonds

A financial instrument where a business borrows money and agrees to repay the principal plus interest, without giving ownership to the bondholder.

Brain Drain

The movement of highly skilled workers, students, and professionals from one country to another, usually for higher wages and better opportunities.

Branch Plant Economy

An economy dominated by foreign-owned companies operating local branches rather than domestic headquarters.

Bull Market

A market situation where a large group of investors believe prices will rise, causing widespread buying that actually leads to rising prices. This is a self-fulfilling prophecy because share prices are based on demand, and mass buying increases demand and price.

Business Cycle

The recurring stages of economic expansion and contraction that all economies experience. Stages occur in the same order, but differ in intensity and duration.

Capital Intensive / Factory System

A production method that relies heavily on machinery and capital goods, resulting in lower costs but often lower quality.

Closed Shop

A workplace where only union members can be hired.

COLA (Cost of Living Adjustment)

An increase in wages that matches inflation to preserve purchasing power.

Consumer Price Index (CPI)

A weighted basket of over 600 goods and services used to calculate inflation. Weights are based on average household spending.

Consumer Surplus

The difference between what consumers are willing to pay for a good and what they actually pay. It explains why consumers usually gain value from market transactions.

Contractionary Fiscal Policy

Government policy that decreases aggregate demand by increasing taxes or decreasing government spending.

Cyclical Deficit

A government deficit that occurs as a result of expansionary fiscal policy during economic downturns.

Deficit Budget

A government budget where spending exceeds tax revenue.

Deflation

A sustained decrease in the general price level.

Deregulation

The government decision to remove regulations or sell publicly owned businesses.

Demand

The quantity of goods or services consumers are willing and able to purchase at various prices.

Elasticity

A measure of how responsive quantity demanded or supplied is to a change in price. Elasticity greater than 1 is elastic, less than 1 is inelastic, and equal to 1 is unitary.

Equilibrium

The point where quantity demanded equals quantity supplied. This is the price the market naturally returns to if disrupted.

Expansionary Fiscal Policy

Government policy aimed at increasing aggregate demand through increased spending or reduced taxes.

Externalities

Costs or benefits affecting third parties who are not part of a transaction. These are also known as social or third-party costs.

Fiat Money

Money declared legal tender by the government with value not backed by physical commodities.

Fiscal Policy

Government use of taxation and spending to influence aggregate demand and economic conditions.

Full Employment

The lowest unemployment rate an economy can sustain, excluding frictional and structural unemployment.

GDP (Gross Domestic Product)

The total value of all final goods and services produced within a country in one year. GDP is linked to standard of living and economic growth but has limitations.

Genuine Progress Indicator (GPI)

An alternative to GDP that accounts for social and environmental costs.

Holding Company

A company that owns controlling shares in other companies but produces no goods or services itself.

Human Capital

The skills, education, training, and abilities possessed by workers.

Hyperinflation

Extremely rapid and uncontrolled inflation.

Income Effect

The change in quantity demanded caused by a change in consumers’ purchasing power due to price changes.

Inflation

A sustained increase in the general price level measured by CPI. Moderate inflation is desirable, but high inflation reduces purchasing power.

Labour Force

People who are employed or actively seeking employment.

Law of Demand

An inverse relationship between price and quantity demanded, ceteris paribus. This occurs due to the substitution effect and income effect.

Law of Supply

A direct relationship between price and quantity supplied, ceteris paribus. Higher prices motivate producers to supply more to increase profit.

Marginal Cost (MC)

The additional cost of producing one more unit of output.

Marginal Revenue (MR)

The additional revenue earned from selling one more unit of output.

Marginal Utility (MU)

The additional satisfaction gained from consuming one more unit of a good or service. MU decreases with each additional unit consumed, known as the law of diminishing marginal utility.

Monetary Policy

Government control of the money supply and interest rates to influence GDP, unemployment, and inflation. Executed through changes in interest rates.

Monopoly

A market structure with a single producer and no close substitutes.

Natural Monopoly

A monopoly allowed by government due to high infrastructure costs or efficiency reasons.

Non‑Price Factors

Factors other than price that cause shifts in demand or supply curves.

Okun’s Law

The inverse relationship between unemployment and GDP. For every 1% increase in unemployment, GDP falls by approximately 2%, and vice versa.

Oligopoly

A market structure dominated by a small number of large firms.

Operating Band

The range around the overnight rate target within which interest rates fluctuate.

Overnight Rate Target (ORT)

The interest rate set by the Bank of Canada to guide monetary policy.

Paradox of Value

The concept explaining why necessities are cheap while luxuries are expensive based on marginal utility.

Perfect Competition

A market structure with many sellers, identical products, and no market power.

Price Ceiling

A government-imposed maximum price intended to help consumers. Causes shortages, long lineups, black markets, and reduced quality.

Price Floor

A government-imposed minimum price intended to help producers. Causes surpluses and higher prices for consumers.

Privatization

The sale of government‑owned businesses to the private sector.

Productivity

Output per worker.

Real GDP

GDP adjusted for inflation.

Recessionary Gap

Occurs when aggregate demand is below full employment output. GDP is low, unemployment is high, and expansionary policy is required.

Reserve Ratio

The percentage of deposits banks must keep as reserves.

Shares

Units of ownership in a corporation.

Structural Unemployment

Unemployment caused by changes in technology or relocation of industries.

Subsidies

Government payments to businesses to lower costs or stabilize prices.

Substitution Effect

The tendency of consumers to replace expensive goods with cheaper alternatives.

Supply

The quantity of goods or services producers are willing to sell at various prices.

Surplus Budget

A government budget where tax revenue exceeds spending.

Unemployment Rate

The percentage of the labour force that is unemployed.

Utility

The satisfaction gained from consuming goods and services.

Vertical Integration

When a firm acquires businesses at different stages of production.

Wage Rate

The price of labour determined by labour demand and supply.

Welfare State

A system where the government plays a significant role in ensuring economic well-being through healthcare, social services, and income support. Reduces inequality but may reduce incentives to work.