Global Flashcards
define economic stability
Economic stability refers to a environment which enhances long term macroeconomic performance by reducing uncertainty and promoting business and consumer confidence and investment. The result is a higher rate of long term economic growth. In particular economic stability relates to the avoidance of volatility in: economic growth rates; inflation; employment and unemployment; exchange rates.
define economic cycle
fluctuations in the level of economic activity
define recovery
stage in the economic cycle that is characterised by rising GDP and employment after a period of recession
define economic growth
an increase in GDP, usually expressed as an annual precentage
how is annual economic growth measured in output?
current output - previous output
What are the four sectors of the economy
Services, manufacturing, construction and agriculture
Define long-term unemployment
Willing and able to work, actively seeking employment, but without a job for than a year (note: LT unemployment is increasing in the case study)
Define employment rate
The number of people in work as a percentage of the population of working age (note: employment rate is decreasing in case study despite a decrease in unemployment)
define unemployment rate
the number of people classified as unemployed as a percentage of the population that is economically active
define austerity policy
reductions in the governments spending and/or increases in tax receipts intended to reduce a budget deficits
define real wages
pay levels adjusted for inflation (note: these are falling the case study as prices are rising by a larger percentage than nominal wages)
What is UK real GDP per head?
The total value of final goods and services produced in the UK, expressed in constant prices and divided by the size of the population
Define re-balancing (rebalancing an economy)
adjusting the relative significance of the components of aggregate demand (in the case of the UK, reducing reliance of C and promoting I and X)
Define national debt
The government’s total outstanding borrowing as ar esult of past annual budget deficits
Define net trade
- exports of goods and services minus imports of goods and services
- OR net trade in goods + net trade in services
- OR the (X-M) component of AD
note: this is persistently negative for the UK and described in the case study as ‘a drag on growth’
Define international competitiveness
the ability of a country to meet the needs of customers more effectively than other nations and boost exports to increase AD
Define comparative advantage
Comparative advantage exists where a country can produce a good or service at a lower opportunity cost than another country
Define FDI
Foreign Direct Investment: the establishment or purchase of assets overseas by a multination corporations in a country other than where its operations originate
Define terms of trade
- the price of a country’s exports relative to the price of its imports
- the ratio of export prices to import prices. It can be interpreted as the amount of import goods an economy can purchase per unit of export goods.
Define unit labour cost (ULC)
total labour cost (including wages, national insurance, pension contributions and recruitment and training costs) divided by the units of outpout
Define relative unit labour cost (RULC)
the cost of labour per unit of output of one country relative to its major trading partners
define global competitiveness index (GCI)
composite index published by the World Economic Forum to rank countries in terms of
define corporation tax
a tax on companies’ profits (currently 20% in the UK)
define economic integration
increasing co-operation and interdependence between the economic activities of separate nations (EU, ASEAN and NAFTA)
define intra-regional trade
trade between countries in the same geographical area (this is increasing - partly due to economic integration and transport costs; it is one of the key changes in the pattern of global trade featured in the case study)
what is the World Trade Organisation (the WTO)
a global organisation that seeks to promote free trade by setting rules for member countries and settling trade disputes
Define ‘widening’ (in relation to economic integration)
increasing the number of countries involved in an economically integrated area
Give an example of widening
integration within the EU has been widened to 28 countries
define ‘deepening’ (in relation to economic integration)
increasing the level of the economic integration between countries
give an example of deepening
the EU has deepened its integration from a customs union to a single market to a partial monetary union since its emergence in 1957)
define customs union
an arrangement between two or more countries to abolish tariffs on trade between them and to impose a common external tariff on imports from non-member countries
define trade creation
where high-cost domestic production is replaced by imports from a more efficient source within an economically-integrated area (usually a customs union)
define trade diversion
where low-cost production outside an economically-integrated area is switched to a less efficient source within the area
define tariff
a tax on imports that raises their prices in order to increase the competitiveness of domestic producers and protect domestic employment
define quota
a limit on the value or volume of specified imports allowed into an economy
define non-tariff barriers
restrictions on trade between countries such as differing product standards that may be genuine requirements or hidden forms of protectionism [these tend to persist within economically-integrated areas when tariffs have been removed]
examples of non-tariff barriers (4)
- Standards: packaging, labeling and marking, testing methods and standards
- Import licensing requirements
- Charges on import: administrative fees and import credit discrimination
- Quotas
define tax harmonisation
the process of bringing tax rates and allowances into line between countries [very limited progress within the EU: corporation tax rates are generally falling but VAT rates differ widely]
define tax allowance
an amount of income or profit that can be earned on which no tax has to be paid [in the case study the UK government is proposing an increase in the tax allowance on investment which has the effect of reducing the cost of investment]
what are supply-side policies
a wide-ranging collection of policies intended to increase the efficiency and competitiveness of the supply-side of the economy [many of which such as education, cutting corporation tax, deregulation make up the UK government’s Plan for Growth shown in Fig. 2.2]
define common currency
where countries use the same currency [there are currently 19 countries that use the euro as part of monetary union within the EU]
Define common monetary policy
where the countries operating a common currency are subject to the same interest rate and money supply policy operated by a single central bank [the ECB performs this role for the euro area]
define fixed exchange rate
where a country’s exchange rate is set at a specific value against another currency [e.g. Denmark has maintained has a fixed exchange rate against the euro]
define intra-industry trade
trade between countries involving the exchange of goods and services produced by the same industry [very common among the developed economies identified in Fig.4.4 which have targeted the higher value-added goods produced by other countries as a means of achieving growth and development]
define inter-industry trade
trade between countries involving the exchange of goods and services produced by different industries [this would be the predominant form of trade if countries produced in accordance with their comparative advantages]
Define inter-regional trade
trade between countries in different geographical areas
define globalisation
the process through which national economies have become increasingly integrated and interdependent
define transfer (e.g. technology, skills)
the movement of expertise across international borders
define outsourcing
transferring part of a production process to another firm (key feature of increasing global specialisation)
define offshoring
transferring part of a production process to another country (essentially the same as FDI)
define emerging economies
developing countries experiencing relatively high economic growth (e.g. the BRIC and MINT economies)
define informal economy
Unrecorded activity such as subsistence farming that contributes to the poverty cycle of low incomes -> low saving -> low investment -> low productivity
define inequality
arises from an uneven distribution of an economic variable such as income or wealth [the case study refers to the growing inequality that has arisen in some countries - mainly in SSA during the process of globalisation as the benefits of trade and FDI have failed to ‘trickle down’ to all members of society]
define industrialisation
the process of reducing reliance on primary sector activity (but not ignoring it) in order to produce higher value-added manufactured goods
Define the IMF
a global organisation that aims to promote international monetary co-operation and financial stability in order to facilitate growth in world trade, through loans to countries with balance of payments / exchange rate problems; also has a surveillance role in reporting on the economic policies and progress of member countries
prebisch-singer hypothesis: define
prebisch-singer hypothesis: since demand for primary sector goods is income inelastic, as the world economy grows over time a country exporting primary sector goods will experience declining terms of trade as a result of manufactured imports becoming more expensive.
