← Macro-economic influences on the New Zealand economy
Reading the notation
Macro papers reuse the same handful of variables and abbreviations every year. Learn these once and every paper reads the same way.📖 Terms and symbols used in macro-economics
11 termsCover the right column and check you can say what each one means.
- AD
- Aggregate demand: AD = C + I + G + (X − M) — total planned spending on NZ output at each price level.
- AS / SRAS / LRAS
- Aggregate supply. SRAS shifts with production COSTS (wages, oil, exchange rate). LRAS shifts with the economy’s productive CAPACITY (labour, capital, technology).
- Y / Yf
- Y is actual real GDP. Yf is potential/full-employment output — where the economy would sit with no spare capacity and no overheating.
- PL
- The price level — read up the vertical axis of every AS/AD graph in this standard.
- Recessionary gap
- Y below Yf: the economy is producing BELOW potential, and unemployment is above its natural rate.
- MPC, MPS
- Marginal propensity to consume/save — the fraction of an extra dollar of income that is spent or saved. MPC + MPS = 1.
- k (the multiplier)
- k = 1/(1 − MPC) = 1/MPS. Multiplies the initial change in spending into the final change in real GDP.
- OCR
- The Official Cash Rate, the RBNZ’s policy interest rate — its main lever for monetary policy.
- PTA
- The Policy Targets Agreement: the RBNZ’s inflation target, 1–3% on average over the medium term.
- BOP
- The balance of payments: the current account (trade + income flows) plus the capital/financial account (investment flows). Always balances overall.
- Terms of trade
- Export prices ÷ import prices. Falls when import prices rise faster than export prices.