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).
