Economics Definitions Flashcards
absolute advantage
absolute advantage Refers to the ability of a country to produce a good using fewer resources than another country in other words the ability of a certain amount of resources in a country to produce more than the same resources can produce in another country.
aggregate demand
aggregate demand The total quantity of goods and services that all buyers in an economy (consumers firms the government and foreigners) want to buy over a particular time period at different possible price levels ceteris paribus.
aggregate supply
aggregate supply The total quantity of goods and services produced in an economy over a particular time period at different price levels ceteris paribus.
appreciation (of a currency)
appreciation (of a currency) An increase in the value of a currency in the context of a floating exchange rate system or managed exchange rate system (compare with revaluation which refers to an increase in currency value in the context of a fixed or pegged exchange rate system).
balance of payments
balance of payments A record (usually for a year) of all transactions between the residents of a country and the residents of all other countries showing all payments received from other countries (credits) and all payments made to other countries (debits).
budget deficit
budget deficit Referring usually to the government’s budget it is the situation where government tax revenues are less than government expenditures over a specific period of time (usually a year).
business cycle
business cycle Fluctuations in the growth of real output or real GDP consisting of alternating periods of expansion (increasing real output) and contraction (decreasing real output).
circular flow of income model
circular flow of income model A model showing the flow of resources from consumers (households) to firms and the flow of products from firms to consumers as well as money flows consisting of consumers” income arising from the sale of their resources and firms” revenues arising from the sale of their products.
comparative advantage
comparative advantage Arises when a country has a lower relative cost or opportunity cost in the production of a good than another country. Forms the basis of the theory of comparative advantage.
consumer confidence
consumer confidence A measure of the degree of optimism of consumers about their future income and the future of the economy it is measured on the basis of surveys of consumers. Is an important determinant of the consumption component of aggregate demand.
consumer price index
consumer price index A measure of the cost of living for the typical household it compares the value of a basket of goods and services in one year with the value of the same basket in a base year. Inflation (and deflation) are measured as a percentage change in the value of the basket from one year to another.
consumer surplus
consumer surplus Refers to the difference between the highest prices consumers are willing to pay for a good and the price actually paid. In a diagram it is shown by the area under the demand curve and above the price paid by consumers up to quantity purchased.
contractionary fiscal policy
contractionary fiscal policy Refers to fiscal policy usually pursued in an inflation involving a decrease in government spending or an increase in taxes (or both). May be contrasted with expansionary fiscal policy. See also fiscal policy.
contractionary monetary policy
contractionary monetary policy Refers to monetary policy usually pursued in an inflation involving an increase in interest rates intended to lower investment and consumption spending. May be contrasted with expansionary monetary policy. See also monetary policy.
cost-push inflation
cost-push inflation A type of inflation caused by a fall in aggregate supply usually resulting from increases in costs of production (for example wages or prices of other inputs) shown in the AD-AS model as a leftward shifts of the AS curve.
cyclical unemployment
cyclical unemployment A type of unemployment that occurs during the downturns of the business cycle when the economy is in a recessionary gap the downturn is seen as arising from declining or low aggregate demand and therefore is also known as ‘demand-deficient’ unemployment.
debt servicing
debt servicing The payments that must be made in order to repay the principal (the amount of a loan) plus interest.
deficit
deficit In general this is the deficiency of something compared with something else. (i) In the balance of payments a ‘deficit’ in an account occurs when the credits (inflows of money from abroad) are smaller than the debits (outflows of money to other countries) for example a deficit in the balance of trade means that the value of exports (credits) is smaller than the value of imports (debits). (ii) In the case of the government budget a ‘deficit’ occurs when government revenues are smaller than government expenditures.
deflation
deflation A continuing (or sustained) decrease in the general price level.
demand
demand Indicates the various quantities of a good that consumers (or a consumer) are willing and able to buy at different possible prices during a particular time period ceteris paribus (all other things being equal).
demand-pull inflation
demand-pull inflation A type of inflation caused by an increase in aggregate demand shown in the AD-AS model as a rightward shift in the AD curve.
demand-side policies
demand-side policies Policies that attempt to change aggregate demand (shift the aggregate demand curve in the AD-AS model) in order to achieve the goals of price stability full employment and economic growth and minimise the severity of the business cycle. In the event of an inflationary or recessionary (deflationary) gap they try to bring aggregate demand to the full employment level of real GDP or potential GDP. They can also impact on economic growth by contributing to increases in potential GDP. Consists of fiscal and monetary policies. To be contrasted with supply-side policies.
depreciation (of a currency)
depreciation (of a currency) Refers to a decrease in the value of a currency in the context of a floating exchange rate system or managed exchange rate system (to be compared with devaluation which is a decrease in currency value in a fixed or pegged exchange rate system).
determinants of aggregate demand
determinants of aggregate demand Factors that cause shifts of the aggregate demand curve include factors that influence consumption spending (C) investment spending (1) government spending (G) and net exports (X-M).
devaluation (of a currency)
devaluation (of a currency) Refers to a decrease in the value of a currency in the context of a fixed or pegged exchange rate system (to be compared with depreciation which is a decrease in currency value in the context of a floating or managed exchange rate system).
economic development
economic development Broad-based rises in standards of living and well-being of a population particularly in developing countries. It involves increasing income levels and reducing poverty reducing income inequalities and unemployment and increasing provision of and access to basic goods and services such as food and shelter sanitation education and health care services.
economic growth
economic growth Increases in total real output produced by an economy (real GDP) over time may also refer to increases in real output (real GDP) per capita (or per person).
excess demand
excess demand In the context of demand and supply occurs when the quantity of a good demanded is greater than the quantity supplied leading to a shortage of the good see shortage.
excess supply
excess supply In the context of demand and supply occurs when the quantity of a good demanded is smaller than the quantity supplied leading to a surplus see surplus.
exchange rate
exchange rate The rate at which one currency can be exchanged for another or the number of units of foreign currency that correspond to the domestic currency can be thought of as the ‘price’ of a currency which is expressed in terms of another currency.
expansionary monetary policy
expansionary monetary policy Refers to monetary policy usually pursued in a recession involving a decrease in interest rates intended to increase investment and consumption spending. May be contrasted with contractionary monetary policy. See also monetary policy.
expenditure reducing policies
expenditure reducing policies Policies that involve reducing expenditures in the domestic economy so as to bring about a decrease in imports in order to correct a current account deficit they include contractionary fiscal and monetary policies.
fiscal policy
fiscal policy Manipulations by the government of its own expenditures and taxes in order to influence the level of aggregate demand it is a type of demand-side policy or demand management.
fixed exchange rate
fixed exchange rate Refers to an exchange rate that is fixed by the central bank of a country and is not permitted to change in response to changes in currency supply and demand requires constant intervention by the central bank or government.
floating exchange rate
floating exchange rate An exchange rate determined entirely by market forces or the forces of supply and demand. There is no government intervention in the foreign exchange market to influence the value of the exchange rate.
free entry
free entry The condition in which firms face no barriers to entering an industry characteristic of the market structures of perfect competition and monopolistic competition.
free trade
free trade The absence of government intervention of any kind in international trade so that trade takes place without any restrictions (or barriers) between individuals or firms in different countries.
free trade area
free trade area (agreement) A type of trading bloc consisting of a group of countries that agree to eliminate trade barriers between themselves it is the most common type of integration area and involves a lower degree of economic integration than a customs union or common market. Each member country retains the right to pursue its own trade policy towards non- member countries. An example is NAFTA (North American Free Trade Agreement).
frictional unemployment
frictional unemployment A type of unemployment that occurs when workers are between jobs workers may leave their job because they have been fired or because their employer went out of business or because they are in search of a better job or they may be waiting to begin a new job tends to be short term.
