defintions Macro Flashcards
trade
exchange of goods and services
international trade
exchange of money for goods and services between or amongst countries
what is the theory of absolute advantage
states that a country will produce more quantities of both goods than the other
terms of trade
represents the ratio for which the two countries will trade the two goods
what is the theory of comparative advantage
the country with the least domestic opportunity cost ratio will have the comparative advantage in the production of that good
open economy
economy involved in trade with other economies
closed economy
economy that does not trade with other economies
what are injections
addition to the circular flow of income
-(I) investment
- (G) gov spending
- (X) exports
what are leakages
withdrawals from the circular flow of income
-(T) taxes
-(S) saving
-(M) imports
aggregate demand
the sum total of all demand for all goods and services in the economy
C+I+G+(X-M)
what is the real income effect
as the price level falls, the real value of income rises and consumers can buy more of what they want or need
what is the balance of trade effect (AD)
a fall in the relative price level of country x could make foreign produced goods and services more expensive, causing a rise in exports and fall in imports
what is aggregate supply
the sum total of all supply for all goods and services in the economy
unemployment
the state of being willing and able to work but not having a job
claimant count
based on those claiming unemployment benefits
labour force
based on a survey of people who are actively seeking job
level of unemployment
the number of workers who are unemployed
unemployment rate
unemployed workers as a percentage of the labour fore
frictional unemployment
temporary unemployment that arises when workers are in-between jobs
structural unemployment
caused as a result of the changing structure of the economy
cyclical unemployment
results due to a lack of demand
inflation
sustained increase in the general price level and a fall in the value of money
deflation
sustained decrease in the general price level and an increase in the value of money
disinflation
a fall in the inflation rate
menu costs
cost to firms of having to change prices due to inflation
shoe leather costs
cost of moving money around in search of the highest interest rate
inflationary noise
confusion over relative prices caused by inflation
nominal(money) value
data values raw not adjusted for inflation
real data
data adjusted for inflation
fiscal policy
the use of taxation and government spending to influence aggregate demand
budget surplus
government revenue exceeding government spending
budget deficit
government expenditure exceeding government revenue
automatic stabilisers (fiscal)
changes in government spending and taxation that occur to reduce fluctuations in aggregate demand without any alteration in government
automatic stabilisers (fiscal)
changes in government spending and taxation that occur to reduce fluctuations in aggregate demand without any alteration in government policy
cyclical budget deficit
a budget deficit caused by a decline in economic activity
structural budget deficit
caused by an imbalance between government and taxation.
indirect tax
tax on goods and services
sin taxes
taxes on products considered harmful to consumers
specific taxes
taxes that are charged as a set amount per unit
direct tax
taxes on income and wealth
tax avoidance
legal bending of the rules of the tax system to pay less tax
tax evasion
the illegal non-payment or underpayment of a tax
marginal rate of taxation
proportion of extra income taken in tax
exhaustive gov spending
government spending which makes use of resources
non-exhaustive government spending
government spending which allows others to decide how the resources are used
monetary policy
the use of interest rates, the money supply, credit regulations to influence aggregate demand
monetary policy
the use of interest rates, the money supply, credit regulations to influence aggregate demand
central bank
government owned bank that provides services to the government and commercial banks
commercial banks
banks which aim to make a profit by providing a range of services to firms and households
credit regulation
rules affecting bank lending
interest rates
the price for borrowing money and the reward for saving
minimum reserve requirement (monetary)
least amount of money in any form that should be kept in a bank at all times
supply side policy
government tool designed to increase aggregate supply
protectionism
protecting domestic producers from foreign competition
tariff
tax imposed on imports and sometimes exports
Quota
limit on imports
export subsidies
subsidies given to exporters to cover the difference between internal market prices and world market prices
embargoes
a complete ban either on the imports of a particular product or on trade with a particular country
excessive administrative burdens (red tape)
governments seek to discourage imports by requiring importers to fil out lengthy forms that are time consuming
balance of payments accounts
a record of a countries economic transactions with the rest of the world over a year
primary income (BoP)
income in the form of profit, interest, and dividends earner from direct investment abroad
secondary income (BoP)
income generated from locals working abroad; foreign aid, loans, transfers
Exchange rates
the value of a unit of one country’s currency in terms of another country’s currency
floating exchange rate
an exchange rate that is determined by the market forces of demand and supply
appreciation (exchange rate)
an increase in the international price of a currency caused by market forces
depreciation
a decrease in the international price of a currency caused by market forces
