Economics A2 Flashcards
Inflation
The sustained increase in the general price level.
Real GDP growth
A measure of the total output expenditure or income of an economy after adjusting for changes in the price level.
Unemployment
Arises when someone is out of work and actively seeking employment. A measure of the total number of people unemployed.
Balance of payments
Records money flows into and out of a country over a period of time
Current Account
The trade balance, includes money flows due to trade in goods and services and investment income.
Short-run economic growth
The actual annual % increase in an economy’s output.
Long-run economic growth
The rate at which the economy’s potential output could grow as a result of changes in the economy’s capacity.
Output Gap
The difference between the actual and potential output of an economy.
Short-run aggregate supply
Shows the level of production for the economy at a given price level.
Economic cycle
Fluctuations in the level of economic activity as measured by GDP.
Marginal propensity to save (MPS)
The proportion of additional national income that is saved.
Marginal propensity to tax (MPT)
The proportion of additional national income that is taxed.
Marginal propensity to import (MPM)
The proportion of additional national income that is spent on imports.
Accelerator
The theory of investment that states that the level of investment depends on the rate of change of national income
Capital output ratio
The amount of capital needed to generate each unit of output.
Capital account of the balance of payments
The section of the balance of payments that records long-term flow of capital into and out of an economy.
Long-term capital flows
Flows of money used for investment in assets.
Short-term capital flows
Flows of money that occur to take advantage of differences in countries’ interest rates & changes in exchange rates; sometimes referred to as hot money.
Automatic stabilisers
Changes in Gov. expenditure & taxation receipts that take place automatically in response to the economic cycle.
Economic stability
The avoidance of volatility in economic growth rates, inflation, employment & unemployment & exchange rates.
Crowding out
When government borrowing reduces the funds available for private sector investment or raises the cost of investment by raising market interest rates.
Stability & Growth Pact (SGP)
An agreement by members of the EU about the way in which fiscal policy should be conducted to support Europe’s single currency. It requires those countries adopting Europe’s single currency to abide by the following rules A budget deficit of 3% of GDP or less A Gov. debt of 60% of GDP or less
Signalling function
Changes in demand & supply of goods & services are signalled to producers & consumers through changes in absolute & relative price levels.
Symmetric inflation target
When deviations above & below the target are given equal weight in the inflation target.
Asymmetric inflation target
When deviations below the inflation target are seen to be less important that deviations above the target.
Unit labour costs
The average cost of labour per unit of output or the total labour/total output
UCL = wage costs + non-wage costs
Output per worker (labour productivity)
Absolute advantage
Where one country is able to produce more of a good or service with the same amount of resources, such that the unit cost of production is lower.
Comparative advantage
Where 1 country produces a good or service at a lower relative opportunity cost than others.
Terms of trade
The price of a country’s exports relative to the price of its imports. The terms of trade can be measured using the formula:
Terms of trade=
Index of average export prices
Index of average import prices *100
Factor endowments
The mix of land, labour & capital that a country possesses.
Dynamic efficiencies
Efficiencies that occur over time. Int. trade can lead to changes in behaviour over a period of time that can increase productive and allocative efficiencies.
Regional trading bloc
Countries in a region that have formed an ‘economic club’ based on abolishing tariffs and non-tarrif barriers.
Developed economies
Countries with a high level of income per capita and diversified industrial and tertiary sectors of the economy.
Developing economies
Countries with relatively low income per capita, an economy in which the industrial sector is small or undeveloped and where primary sector production is a relatively large part of total.
Freely floating exchange rate
A system whereby the price of one currency expressed in terms of another is determined by the forces of demand and supply.
Fixed exchange rate
An exchange rate system in which the value of one currency has a fixed value against other currencies. This is often set by the government.
Semi-fixed/semi-floating exchange rate
Exchange rate system that allows a currency’s value to fluctuate within a permitted band of fluctuation.
Purchasing power parity (PPP)
The PPP is an attempt to measure the true value of a currency in terms of the goods and services it will buy.
Marshall-Lerner condition
States that for a depreciation of the currency to improve the balance of trade the sum of the price elasticities of demand (PEDs) for imports and exports must be greater than 1.
Expenditure-switching policies
Policies that increase the price of imports and/or reduce the price of exports to correct a current account deficit on the balance of payments.
Expenditure-reducing policies
Policies that reduce the overall level of national income in order to reduce the demand for imports.
Free trade area
An agreement between 2 or more countries to abolish tariffs on trade between them.
Customs union
An agreement between 2 or more countries to abolish tariffs on trade between them and to place a common external tariff on trade with non members.
Single market
Deepens economic integration from a customs union by eliminating non-tariff barriers to trade, promoting the free movement of labour and capital and agreeing common policies in a number of areas.
Economic union
Deepens integration in a single market, centralising economic policy at the macroeconomic level.
Monetary union
The deepest form of integration in which countries share the same currency and have a common monetary policy as a result.
Optimal currency area
Refers to conditions that need to be met to avoid the costs of monetary union. These conditions include: a high degree of labour market flexibility, mechanisms for fiscal transfers, & the absence of external shocks that impact differently on different economies (asymmetric shocks)
Economic development
The process of improving people’s economic well-being and quality of life.
Human development index (HDI)
A measure that, recognising limitations of GDP per capita as a measure, combines outcomes that might be valued in the development process: life expectancy at birth; adult literacy & percentage of the relevant population enrolled in primary, secondary and tertiary education; and GDP per capita in US$ at PPP
Foreign direct investment (FDI)
The establishment of branches and productive processes abroad, or the purchase of foreign firms; investment made by a multinational corporation in a country other than where its operations originate.
Absolute advantage
Where one country is able to produce more of a good or service with the same amount of resources, such that the unit cost of production is lower.
Comparative advantage
Where 1 country produces a good or service at a lower relative opportunity cost than others.
Terms of trade
The price of a country’s exports relative to the price of its imports. The terms of trade can be measured using the formula:
Terms of trade=
Index of average export prices
Index of average import prices *100
Factor endowments
The mix of land, labour & capital that a country possesses.
Dynamic efficiencies
Efficiencies that occur over time. Int. trade can lead to changes in behaviour over a period of time that can increase productive and allocative efficiencies.
Regional trading bloc
Countries in a region that have formed an ‘economic club’ based on abolishing tariffs and non-tarrif barriers.
Developed economies
Countries with a high level of income per capita and diversified industrial and tertiary sectors of the economy.
Developing economies
Countries with relatively low income per capita, an economy in which the industrial sector is small or undeveloped and where primary sector production is a relatively large part of total.
Freely floating exchange rate
A system whereby the price of one currency expressed in terms of another is determined by the forces of demand and supply.
Fixed exchange rate
An exchange rate system in which the value of one currency has a fixed value against other currencies. This is often set by the government.
Semi-fixed/semi-floating exchange rate
Exchange rate system that allows a currency’s value to fluctuate within a permitted band of fluctuation.
Purchasing power parity (PPP)
The PPP is an attempt to measure the true value of a currency in terms of the goods and services it will buy.
Marshall-Lerner condition
States that for a depreciation of the currency to improve the balance of trade the sum of the price elasticities of demand (PEDs) for imports and exports must be greater than 1.
Expenditure-switching policies
Policies that increase the price of imports and/or reduce the price of exports to correct a current account deficit on the balance of payments.
Expenditure-reducing policies
Policies that reduce the overall level of national income in order to reduce the demand for imports.
Free trade area
An agreement between 2 or more countries to abolish tariffs on trade between them.
Customs union
An agreement between 2 or more countries to abolish tariffs on trade between them and to place a common external tariff on trade with non members.
Single market
Deepens economic integration from a customs union by eliminating non-tariff barriers to trade, promoting the free movement of labour and capital and agreeing common policies in a number of areas.
Economic union
Deepens integration in a single market, centralising economic policy at the macroeconomic level.
Monetary union
The deepest form of integration in which countries share the same currency and have a common monetary policy as a result.
Optimal currency area
Refers to conditions that need to be met to avoid the costs of monetary union. These conditions include: a high degree of labour market flexibility, mechanisms for fiscal transfers, & the absence of external shocks that impact differently on different economies (asymmetric shocks)
Economic development
The process of improving people’s economic well-being and quality of life.
Human development index (HDI)
A measure that, recognising limitations of GDP per capita as a measure, combines outcomes that might be valued in the development process: life expectancy at birth; adult literacy & percentage of the relevant population enrolled in primary, secondary and tertiary education; and GDP per capita in US$ at PPP
Foreign direct investment (FDI)
The establishment of branches and productive processes abroad, or the purchase of foreign firms; investment made by a multinational corporation in a country other than where its operations originate.
