The Economy - Section 2 - Chapter 4,5

Front 1

balance of payments

Back 1

canadas interactions with the rest of the world which are captured here in the current account and capital account.

Front 2

business cycle

Back 2

the recurrence of periods of expansion and recession in economic activity. each cycle is expected to move through five phases - the trough, recovery, expansion, peak, and contraction.

Front 3

capital and financial account

Back 3

account which reflects the transactions occurring between canada and foreign countries with respect to the acquisition of assets, such as land or currency.

Front 4

coincident indicators

Back 4

statistical data that, on average, change at approximately the same time and in the same direction as the economy as a whole.

Front 5

consumer price index

Back 5

price index which measures the cost of living by measuring the prices of a given basket of goods. the CPI is often used as an indicator of inflation

Front 6

cost-push inflation

Back 6

a type of inflation that develops due to an increase in the costs of production. for example, an increase in the price of oil may contribute to higher input costs for a company and could lead to higher inflation.

Front 7

current account

Back 7

account that reflects all payments between canadians and foreigners for goods, services, interest and dividends. it is a component of the balance of payments.

Front 8

cyclical unemployment

Back 8

the amount of unemployment that rises when the economy softens, firms' demand for labour moderates, and some firms lay off workers in response to lower sales. it drops when the economy strengthens again.

Front 9

deflation

Back 9

a sustained fall in prices where the annual change in the CPI is negative year after year.

Front 10

demand-pull inflation

Back 10

a type of inflation that develops when continued consumer demand pushes prices higher.

Front 11

discouraged workers

Back 11

individuals that are available and willing to work but cannot find jobs and have not made specific efforts to find a job within the previous month.

Front 12

disinflation

Back 12

a decline in the rate at which prices rise - i.e. a decrease in the rate of inflation. prices are still rising, but at a slower rate.

Front 13

economic indicators

Back 13

statistics or data series that are used to analyze business conditions and current economic activity.

Front 14

equilibrium price

Back 14

the price at which the quantity demanded equals the quantity supplied.

Front 15

exchange rate

Back 15

the price at which one currency exchanges for another

Front 16

final good

Back 16

a finished product, one that is purchased by the ultimate end user.

Front 17

fixed exchange rate

Back 17

a country whose central bank maintains the domestic currency at a fixed level against another currency or a composite of other currencies.

Front 18

floating exchange rate

Back 18

a country whose central bank allows market forces alone to determine the value of its currency, but will intervene if it thinks the move in the exchange rate is excessive or disorderly.

Front 19

frictional unemployment

Back 19

unemployment that results from normal labour turnover, from people entering and leaving the workforce and from the ongoing creation and destruction of jobs.

Front 20

gross domestic product

Back 20

the value of all goods and services produced in a country in a year.

Front 21

labour force

Back 21

the sum of the population aged 15 years and over who are either employed or unemployed

Front 22

lagging indicators

Back 22

a selection of statistical data, that on average, indicate highs and lows in the business cycle behind the economy as a whole. these relate to business expenditures for new plant and equipment, consumers' installment credit, short term business loans, the overall value of manufacturing and trade inventories

Front 23

leading indicators

Back 23

a selection of statistical data that, on average, indicate highs and lows in the business cycle ahead of the economy as a whole. these relate to employment, capital investment, business starts and failures, profits, stock prices, inventory adjustment, housing starts and certain commodity prices.

Front 24

macroeconomics

Back 24

focuses on the performance of the economy as a whole. it looks at the broader picture and to the challenges facing society as a result of the limited amounts of natural resources, human effort and skills, and technology.

Front 25

market

Back 25

any arrangement whereby products and services are bought and sold, either directly or through intermediaries.

Front 26

microeconomics

Back 26

analyzes the market behaviour of individual consumers and firms, how prices are determined, and how prices determine the production, distribution, and use of goods and services.

Front 27

monetary aggregates

Back 27

an aggregate that measures the quantity of money held by a country's households, firms and governments. it includes various forms of money or payment instruments grouped according to their degrees of liquidity.

Front 28

natural unemployment rate

Back 28

at this level of unemployment, the economy is thought to be operating at close to its full potential or capacity.

Front 29

nominal gdp

Back 29

gross domestic product based on prices prevailing in the same year not corrected for inflation. also referred to as current dollar or chained dollar GDP.

Front 30

nominal interest rate

Back 30

the quoted or stated rate on an investment or a loan. this rate allows for comparisons but does not take into account the effects of inflation.

Front 31

output gap

Back 31

the difference between the actual level of output and the potential level of output when the economy is using all available resources of capital and labour.

Front 32

participation rate

Back 32

the share of the working-age population (15 or older) that is in the labour market, either working or looking for work.

Front 33

philips curve

Back 33

a graph showing the relationship between inflation and unemployment. the theory states that unemployment can be reduced in the short run by increasing the price level (inflation) at a faster rate. Conversely, inflation can be lowered at the cost of possibly increased unemployment and slower economic growth.

Front 34

potential gdp

Back 34

the maximum amount of output the economy is capable of producing during a given period when all of its available resources are employed to their most efficient use.

Front 35

real gdp

Back 35

gross domestic product adjusted for changes in the price level. also referred to as constant dollar gdp.

Front 36

real interest rate

Back 36

the nominal rate of interest minus the percentage change in the consumer price index.

Front 37

sacrifice ratio

Back 37

describes the extent to which gross domestic product must be reduced with increased unemployment to achieve a 1% decrease in the inflation rate.

Front 38

soft landing

Back 38

describes a business cycle phase when economic growth slows sharply but does not turn negative, while inflation falls or remains low.

Front 39

structural unemployment

Back 39

amount of unemployment that remains in an economy even when the economy is strong. also known as the natural unemployment rate, the full unemployment rate.

Front 40

unemployment rate

Back 40

the percentage of the work force that is looking for work but unable to find jobs.

Front 41

bank rate

Back 41

the minimum rate at which the bank of canada makes short term advances to the chartered banks, other members of the canadian payments association and investment dealers who trade in the money market.

Front 42

basis point

Back 42

one-hundredth of a percentage point of bond yields. thus, 1% represents 100 of these types of points.

Front 43

budget deficit

Back 43

occurs when total spending by the government for the year is higher than revenue collected.

Front 44

budget surplus

Back 44

occurs when government revenue for the year exceeds expenditures.

Front 45

canadian payments association

Back 45

established in the 1980 revision of the bank act, this association operates a highly automated national clearing system for interbank payments. members include chartered banks, trust and loan companies and some credit unions. also known as the CPA

Front 46

drawdown

Back 46

a cash management open-market operation pursued by the bank of canada to influence interest rates. this refers to the transfer of deposits to the bank of canada from the direct clearers, effectively draining the supply of available cash balances.

Front 47

fiscal agent

Back 47

an investment dealer appointed by a company or government to advise it in financial matters and to manage the underwriting of its securities.

Front 48

fiscal policy

Back 48

the policy pursued by the federal government to influence economic growth through the use of taxation and government spending to smooth out the fluctuations of the business cycle.

Front 49

keynesian economics

Back 49

economic policy developed by british economist john maynard keynes who proposed that active government intervention in the market was the only method of ensuring economic growth and prosperity.

Front 50

large value transfer system

Back 50

a canadian payments association electronic system for the transfer of large value payments between participating financial institutions. also known as LVTS

Front 51

monetarist theory

Back 51

school of economic theory which states that the level of prices as well as economic output is determined by an economys money supply. this school of thought believes that control of the money supply is more vital to economic prosperity than the level of government spending.

Front 52

monetary policy

Back 52

economic policy designed to improve the performance of the economy by regulating money supply and credit. the bank of canada achieves this through its influence over short term interest rates.

Front 53

national debt

Back 53

the accumulation of total government borrowing over time. it is the sum of past deficits minus the sum of past surpluses.

Front 54

overnight rate

Back 54

the interest rate set in the overnight market - a marketplace where major canadian financial institutions lend each other money on an overnight basis.

Front 55

rational expectations theory

Back 55

school of economic theory which argues that investors are rational thinkers and can make intelligent economic decisions after evaluating all available information.

Front 56

redeposit

Back 56

an open-market cash management policy pursued by the bank of canada. this refers to the transfer of funds from the bank to the direct clearers that will increase available funds.

Front 57

sales and repurchase agreements

Back 57

an open-market operation by the bank of canada to offset undesired downward pressure on overnight financing costs. also known as SRA's

Front 58

special purchase and resale agreements

Back 58

an open-market operation used by the bank of canada to relieve undesired upward pressure on overnight financing rates. also known as SPRA's

Front 59

supply side economics

Back 59

an economic theory whereby changes in tax rates exert important effects over supply and spending decisions in the economy. according to this theory, reducing both government spending and taxes provides the stimulus for economic expansion.