definitions theme 4 Flashcards
what is absolute advantage
when a country can produce a good note cheaply in absolute terms than another country
what’s absolute poverty
when people are unable to afford sufficient necessities to maintain life: those on <$1.90 a day
what is aid
when a country voluntarily transfers resources to another or gives loans on a concessionary basis
what’re automatic stabilisers
mechanisms which reduce the impact of changes in the economy on national income
what’re balance of payments
a record of all financial dealings over a period of time between economic agents of one country and another
what is the capital account
a part of the balance of payments; records debt forgiveness, inheritance taxes, transfers of financial assets and sales of assets
what’s capital expenditure
government spending on investment goods such as new roads, schools and hospitals, which will be consumed in over a year
what is capital flight
when large amounts of money are taken out of the country, rather than being left there for people to borrow and invest
what’re central banks
a financial institution that has direct responsibility to control the money supply and monetary policy, to manage gold reserves and foreign currency and to issue government debt
what is the common market
members trade freely in all economic resources and impose a common external tariff
what is comparative advantage
when a country is able to produce a good more cheaply relative to other goods produced; it has a lower opportunity cost
what is the current account
a part of the BoP; records payments for the purchase and sale of goods/services, as well as incomes and transfers
what is the customs union
the removal of all tariff barriers between members and the introduction of a common external tariff
what is current expenditure
general government final consumption plus transfer payments plus interest payments
what is the cyclical deficit
the part of the deficit that occurs because government spending fluctuates around the trade cycle
what is the difference between depreciation and devaluation
depreciation is the fall in value of the currency using floating exchange rates; devaluation is against another under a fixed system
what is a developed country
countries with high GDP/capita and high living standards
what is a developing country
countries with a low GDP/capita and a low standard of living
what is discretionary fiscal policy
deliberate manipulation of government expenditure and taxes to influence the economy; expansionary and deflationary policies
what is economic development
improvements in living standards
what’re emerging economies
a country growing quickly and has some characteristics of a developed country but is not fully there yet
what is the exchange rate
the purchasing power of a currency in terms of what it can buy of other currencies
what is the financial account
a part of the BoP; records FDI, portfolio investment and the transfer of gold and currency reserves
what’re financial markets
where buyers and sellers can buy and trade a range of services or assets that are fundamentally monetary in nature
what is the fiscal deficit
when the government spends more than it receives in a year
what is the fiscal deficit
when the government spends more than it receives in a year
what is the fixed exchange rate
the value of the currency is set against the value of another and that exchange rate doesn’t change
what is a foreign currency gap
when a country doesn’t export enough to finance the purchase of goods from overseas
what is free trade
trade with no barriers or restrictions
what is the free floating exchange rate
the value of the currency is determined purely by market demand and supply of currency
what is general government final consumption
spending on goods and services which will be consumed within the next year
what is the gini coefficient
a measure of income inequality; the ratio of the area below the 45° line and the Lorenz curve and the whole area under the 45° line
what is globalisation
the growing interdependence of countries and the rapid rate of change it brings about; movement towards free trade of goods/services, free movement of labour and capital and tree interchange of technology and intellectual capital
what is the Harrod-Domar model
savings -> funds used for investment, and growth rates depend on the level of saving and the productivity of investment.
growth in developing countries is limited by the lack of investment
what is human capital
the economic value of an individual’s skills, experience, training etc
what is the HDI
measures an economy’s development based on income, health and eduxation
what is international competitiveness
the ability of a country to compete effectively and become attractive in international markets; measures the costs of producing goods/services
what is the Lewis model
suggests that countries develop through industrialisation as labour is moved from the unproductive agriculture sector to the more productive urban sector. this increases wages and leads to more savings and investmebt
what is the Lorenz curve
cum. % of the population (x) plotted against the cum. % of income (y) that those people have
what’re market bubbles
when the price of an asset rises massively and greatly exceeds the value of the asset itsekf
what is market rigging
a group of individuals/institutions collide to fix prices or exchange info leading to gains for themselves at the expense of others in the market
what’re micro finance schemes
schemes which aim to give poor and near-poor households permanent access to a range of financial services
what is a managed floating exchange rate
value of the currency is determined by demand and supply but the CB intervened to prevent large changes
what is the Marshall-Lerner condition
the sun of the price elasticities of imports and exports must be >1 if a currency depreciation is to have a positive impact on the trade balancr
what’re monetary unions
2 or more countries with a single currency
what is moral hazard
individuals acting in their own best interests knowing there are potential risks - another cause of financial market failure
what is primary product dependency
when a country relies heavily on primary products, such as agricultural goods or mining
what is progressive/proportional taxation
progressive: those on higher incomes pay a higher marginal rate of tax; those in higher incomes pay a higher % of their income on tax
proportional: proportion of income paid on the tax remains constant whilst the taxpayer income changes; everyone pays the same percentage of their income on tax
what is protectionism
when the government enacts policies to restrict the free entry of imports into their country, such as tariffs and quotas
what is regressive taxation
where the proportion of income paid in tax falls whilst the income of the taxpayer increases; those on lower incomes pay a higher % of their income on tax
what is relative poverty
when income falls below an average income threshold, <60% of median household income in the UK
what is revaluation
when the currency is increased against the value of another under a fixed system
what is speculation
trading financial assets in hope of significant returns
what is structural deficit
the deficit which occurs when the cyclical deficit is 0
what’re tariffs
taxes placed on imported goods in an attempt to prevent people from buying them
what’re terms of trade
ratio of an index of a country’s export prices to an index of its import prices
(average export price index /
average import price index) x100
what is the theory of comparative advantage
countries will find specialisation mutually advantageous if the opportunity costs of production are different
what is trade creation
when a country moves from buying goods from a high cost to a lower cost producer
what is trade diversion
when a country moves from buying goods from a low cost producer to a higher cost one
what is trade liberalisation
reduction/removal of protectionist polciies
what’s a trading bloc
a group of countries that reduce or remove trade barriers between them
what’re transfer payments
government spending for which there is no corresponding output, where money is taken from one group and given to another
what is transfer pricing
where firms manipulate the price of their good so that profit is increased in areas of low tax
what are unit labour costs
the cost of employing workers for each unit of a hood
total wages/real output
what is the poverty trap/cycle
low incomes
low savings
low investment
low economic growth
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what is the development trap/cycle
low incomes
low access to education and healthcare
low human capital
low productivity
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