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136 Cards in this Set
- Front
- Back
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Absolute advantage
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when a country can make a good with fewer resources than another country.
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Absolute poverty
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when a population is only able to meet its bare subsistence essentials of food, water, clothing and shelter.
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Aggregate demand
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total planned spending at a given price level. C+I+G+ (X-M)
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Aggregate supply
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total output firms are willing to supply at a given price level.
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Aid
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transfer of resources to LEDCs on concessional terms to promote development.
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Appreciation of a currency
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strengthening of a currency under a floating exchange rate system.
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Automatic stabiliser
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features of public finance that act to dampen economic fluctuations without government interference.
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Balance of Payments (BOP)
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a record of a country’s financial dealings with the rest of the world.
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Balance of trade
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the difference in values between visible (tangible) exports and visible imports.
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Black (hidden or informal) economy
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economic activity not declared for tax purposes.
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Broad money
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cash in circulation plus bank and building society deposits. (M4)
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Budget (or fiscal) deficit
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when government spending exceeds government revenue.
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Budget (or fiscal) surplus
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when government spending falls short of government revenue.
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Business (or trade or economic) cycle
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regular oscillations in economic activity. ‘Boom, bust.’
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Capital flight
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the withdrawal of funds from a country due to poor economic conditions, and a speculative fear of currency devaluation.
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Cash crop
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agricultural crop produced for the export market.
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Circular flow of income
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a model showing the flow of goods, services and factors and their payments around the economy.
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Closed economy
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an economy in which there is no foreign trade.
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Common External Tariff
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uniform rate of tax on goods imported into a customs union. (e.g. EU)
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Comparative advantage
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the ability to produce a good at a lower opportunity cost than other countries.
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Common Market
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a group of countries between which there is free trade in products and factors of production and which imposes a common external tariff on imports from outside the market.
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Competitiveness
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the ability of a nation to grow successfully and to maintain its share of world trade.
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Cost push inflation
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inflation caused by increases in costs of production.
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Crowding out
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when increased public expenditure (i.e. by the government) diverts money or resources away from the private sector.
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Current account of the BOP
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day-to-day transactions on the BOP
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Current account deficit
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when outflows of money on the current/day-to-day BOP account exceed inflows.
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Current account surplus
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when inflows of money on the current/day-to-day BOP account exceed outflows
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Customs Union
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a free trade area between members plus a common external tariff against imports.
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Deflation
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sustained fall in the general price level.
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Deflationary policy
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government policies which reduce aggregate demand.
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Demand management
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government use of fiscal or other policies to manipulate AD.
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Demand pull inflation
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inflation caused by excess demand in the economy.
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Depreciation of a currency
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weakening of a currency under a floating exchange rate system.
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Depression (or slump)
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a particularly deep and prolonged fall in output.
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Devaluation
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reduction by government in the value of its currency against another in a fixed exchange rate system.
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Disinflation
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falling rate of inflation.
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Direct tax
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tax levied on income, wealth or profits.
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Discretionary fiscal policy
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deliberate changes to fiscal policy to influence aggregate demand.
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Disposable income
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household income minus income tax and National Insurance Contributions.
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Dumping
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the sale of goods at less than cost price by foreign producers in the domestic market.
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Economic growth
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growth in an economy’s productive potential.
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Effective exchange rate or Trade Weighted Index
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the exchange rate of a currency against a basket of other currencies, weighted according to the value of trade done with those countries.
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European Monetary Union
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adoption of the European single currency and the centralisation of monetary policy for the eurozone.
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Exchange controls
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restrictions on the buying and selling of foreign currency (e.g. in Cyprus now).
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Exchange rate
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the price of one currency in terms of another.
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Expansionary fiscal policy
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the use of tax and/or government spending to increase AD.
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Expenditure dampening (reducing) policy
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government policies to reduce AD.
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Expenditure switching policy
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government policies aimed at switching demand from imports to domestic production.
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Financial account of the BOP
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the section of the BOP recording flows of money into and out of a country for the purposes of savings, investment, speculation or currency stabilisation.
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Fine tuning
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the use of demand management policies to smooth out fluctuations in the economy.
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Fiscal drag
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the effect of inflation on effective tax rates.
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Fiscal policy
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government policy towards taxation, government spending and borrowing.
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Fiscal stance
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whether government is trying to raise or lower aggregate demand through fiscal policies.
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Fixed exchange rate
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an exchange rate pegged at a given rate, maintained by government intervention.
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Flexible labour market
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the degree to which demand and supply in a labour market respond to external changes to return the market to equilibrium.
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Foreign (jnternational or overseas) aid
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a voluntary transfer of resources from one country to another, given at least partly to help the recipient country.
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Foreign direct investment (FDI)
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spending by firms on productive capacity in other countries.
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Foreign exchange market
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the markets where currencies are bought and sold.
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Forward exchange market
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a market in which promises to buy or sell currency at a future date at an agreed price are traded.
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Floating exchange rate
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an exchange rate determined by market forces.
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Free Trade Area
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a group of countries which coordinate a reduction of trade barriers between themselves but pursue independent policies as regards external tariffs.
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Frictional (search) unemployment
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when workers are unemployed for short periods between jobs.
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Full capacity
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the output level at which no extra production can take place in the long run with existing resources.
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Gini coefficient
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a statistical measure of income or wealth inequality.
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Globalisation
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the increased integration and interdependence of economies throughout the world.
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Gross domestic product
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the value of output produced within an economy in a time period.
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Gross national income
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GDP plus net property income from abroad.
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Hot money
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money flowing between financial centres in search of the highest short
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Human Development Index (HDI)
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a statistic which serves as a frame of reference for both social and economic development, incorporating health, education and living standards.
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Hyper inflation
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very high inflation rate: nightmare!
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Import substitution
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restricting imports of manufactured goods and using the foreign exchange saved to build up domestic substitute industries.
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Indexation
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adjusting the value of economic variables in line with inflation.
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Indirect tax
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sales tax, e.g. VAT.
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Infant industry argument
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an argument in support of the retention of a protective import to promote the creation of a local industry.
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Inflation
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a sustained rise in the general price level.
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Infrastructure
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social overhead capital.
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Injection
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spending on domestic output derived from outside the circular flow of income (i.e. G,I,X).
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International Monetary Fund (IMF)
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an organisation set up to promote international monetary co
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Investment
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real capital formation.
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J curve
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devaluation will lead to a short
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Liquidity trap
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the absorption of any additional money supply into idle balances at very low interest rates, leaving AD unchanged.
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Lorenz curve
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a curve showing the extent of inequality of income or wealth in society.
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Marginal propensity to consume
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the proportion of extra income that is spent.
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Marginal propensity to save
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the proportion of extra income that is not spent.
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Marginal rate of tax (MRT)
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tax rate paid on each additional unit of income.
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Marshall
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Lerner condition
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Micro finance
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a type of banking service provided to unemployed or low income individuals or groups who would otherwise have no means of gaining financial services to become self sufficient.
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Monetary policy
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government policy towards monetary variables such as the interest rate, money supply and credit.
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Multinational (transnational) company (MNC)
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an enterprise operating in a number of countries and having production facilities outside its country of origin.
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Multiplier
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the number of times a rise in income exceeds the rise in injections that caused it.
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Narrow money
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cash in circulation plus banks balances at the Bank of England. (M0)
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National debt
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outstanding public sector debt. (No, not a commendation!)
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Non government organisations
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private sector organisations (e.g. charities) involved in providing financial and technical assistance to LEDCs.
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Non tariff barriers (NTBs)
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obstacles to imports other than quotas or tariffs.
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Open economy
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an economy which is open to foreign trade.
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Output gap
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the difference between the actual level of GDP and full employment output.
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Participation (activity) rate
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the proportion of any given population in the labour force.
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Phillips curve
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a curve showing the inverse relationship between inflation and unemployment between 1861 and 1957 in the UK.
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Progressive tax
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a tax that takes an increasing proportion as tax when income rises. Increasing marginal rate of tax (MRT).
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Protectionism
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the imposition of trade barriers against imports.
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Public sector
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central & local government and public corporations.
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Public Sector Net Cash Requirement
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how much the government needs to borrow per time period.
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Purchasing power parity theory
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the theory that the exchange rate will adjust so as to offset differences in countries’ inflation rates.
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Quantitative easing
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a monetary policy where the central bank increases the monetary supply/base by a deliberate amount through the open market purchase of government bonds from banks, funds and other institutions.
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Quota
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a limit on the quantity or value of imports.
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Relative poverty
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poverty defined in comparison with existing average household living standards.
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Real exchange rate
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the price of a country’s goods relative to those produced abroad when expressed in a common currency.
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Recession
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two successive quarters of negative economic growth.
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Regressive tax
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a tax that takes a decreasing proportion of tax as income rises.
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Revaluation
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an increase by government in the value of its currency against another in a fixed exchange rate system.
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Stagflation
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stagnation of the economy coexisting with high inflation. Oh so very 1970s!
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Sub
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prime debt
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Subsistence farming
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where farming families produce food for their own consumption.
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Supply side shocks
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factors which cause the AS curve to shift.
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Sustainable development
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development which meets the needs of the present generation without compromising the needs of future generations.
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Stop-go
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alternate deflationary and reflationary policies to tackle the most pressing economic problems which fluctuate with the trade cycle.
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Structural Adjustment Programme (SAP: the other SAP!)
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conditions attached to loans from the IMF designed to strengthen microeconomic performance by encouraging market friendly institutions. (N.B. SAP now known as ‘Poverty Reduction Strategy Programmes’)
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Structural unemployment
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unemployment arising from changes in the pattern of demand & supply.
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Terms of trade
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an index of a country’s export prices relative to its import prices.
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Transfer payments
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income for which there is no corresponding output (e.g. pension)
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Tariff
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tax on imported good.
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Tied aid
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aid granted on condition that the recipient country buys products from the donor country.
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Trade barriers
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a measure which artificially restricts international trade.
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Trade creation
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where joining a customs union leads to sourcing of goods & services from a lower cost producer within the union.
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Trade diversion
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where joining a customs union leads to sourcing goods & services from a higher cost producer within the union.
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Trading blocs
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groups of countries with preferential trading arrangements.
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Transfer pricing
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an accounting technique used by MNCs for reducing taxes by declaring profits where the tax rate is low.
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Underemployment
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where people who want full
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Unemployment
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the number of people who are actively looking for work, currently without a job.
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Unemployment rate
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the number of unemployed expressed as a % of the labour force.
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Unit labour costs (ULCs)
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the average costs of labour per unit of output.
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Wealth
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a stock of assets which has a money value.
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Wealth effect
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the change in consumption following a change in wealth.
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Withdrawals (or leakages)
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income which is not spent on domestic output. (i.e. T, S, M)
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World Bank
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an organisation aiming to promote economic development by providing low interest loans, free credit and grants to LEDCs for education, health, infrastructure and communications.
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World Trade Organisation
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an organisation that negotiates agreements aimed at reducing obstacles to international trade, thus contributing to economic growth and development.
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