International Economics I Flashcards
Definitions
Define Absolute Advantage
If a country using the same factors of production can produce more of a product, then it has an absolute advantage.
Define Absolute Poverty
When people are unable to afford sufficient necessities to maintain
life; those on less than $1.90 a day
Define currency appreciation
An increase in the value of the currency using floating exchange rates
Define Automatic Stabilisers
Automatic stabilisers are automatic fiscal changes as the economy moves through stages of the business cycle – e.g. a fall in tax revenues from the circular flow during a recession or an increase in state welfare benefits when unemployment is rising
Define Balance of Payments
A record of all financial dealings over a period of time between
economic agents of one country and another
Define Capital Account
A part of the balance of payments; records debt forgiveness,
inheritance taxes, transfers of financial assets and sales of assets
Define Capital Expenditure
Government spending on investment goods such as new roads,
schools and hospitals, which will be consumed in over a year
What is a central bank?
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
Define a common market
Members trade freely in all economic resources and impose a
common external tariff
Define Comparative Advantage
When a country is able to produce a good more cheaply relative to
other goods produced; it has a lower opportunity cost
Define the Current Account
A part of the balance of payments; records payments for the purchase
and sale of goods and services, as well as incomes and transfers
Define currency depreciation
A fall in the value of a currency under floating exchange rates
Define currency devaluation
When the currency is decreased against another under a fixed system
Define a Developed Country
A country with a high GDP Per Capita and high standards of living
Define a Developing Country
A coutnry with a low GDP Per Capita and low standard of living
Define discretionary fiscal policy
Deliberate manipulation of government expenditure and taxes to
influence the economy; expansionary and deflationary fiscal policy
Define exhange rates
The rate at which one currency is traded against another.
Define the Financial Account
A part of the balance of payments; records FDI, portfolio investment
and the transfer of gold and currency reserves
Define Financial Markets
A financial market is any exchange that facilitates the trading of financial instruments, such as stocks, bonds, foreign exchange, or primary commodities such as oil and gas.
Define a fixed/pegged exhange rate system
The value of the currency is set against the value of another and that
exchange rate does not change unless the government manipulates it
What is a Foreign Currency Gap
When a country does not export enough to finance the purchase of
goods from overseas
What is Foreign Direct Investment
Investment by one private sector company in one country into another
private sector company in another
Define the Gini Coefficient
A measure of income inequality; the ratio of the area between the
degree line (the line of perfect equality) and the Lorenz curve and the
whole area under the 45 degree line
What is the Harrod-Domar Model
Savings provide the funds that are used for investment, and growth
rates depend on the level of saving and the productivity of investment.
Therefore, growth in developing countries is limited by the lack of
investment
Define HDI
Measures an economy’s development based on income, health and
education
What is the Laffer Curve
Shows that a rise in tax rates does not necessarily lead to a rise in tax
revenue, due to the impact on incentives and work
Define International Competitiveness
The ability of a country to compete effectively and become attractive in
international markets
Define Market Bubble
When the price of an asset rises massively and greatly exceeds the
value of the asset itself
Define Market Rigging
A group of individuals or institutions collude to fix prices or exchange
information that will lead to gains for themselves at the expense of
other participants in the market
Marshall Lerner Condition
The sum of the price elasticities of imports and exports must be more
than one if a currency depreciation is to have a positive impact on the
trade balance
Define a Monetary Union
Two or more countries with a single currency
Define Moral Hazards
When individuals act in their own best interests knowing there are
potential risks- another cause of financial market failure
Define Primary Product Dependancy
When a country relies heavily on primary products, such as
agricultural goods or mining.
Define National Debt
The sum of government debts built up over many years
Define Protectionism
When government enact policies to restrict the free entry of imports
into their country, such as tariffs and quotas
Define a Quota
Limits placed on the level of imports allowed into a country
Define Relative Poverty
When income falls below an average income threshold. In the UK, this
is those on less than 60% of median household income
Define Revaluation
When the currency is increased against the value of another under a
fixed system
Define Terms of Trade
The ratio of an index of a country’s export prices to an index of its
import prices.
average export price index x100
average import price index
Define Trade Creation
domestic consumers in countries import more goods and services as import prices fall from a removal of import tariffs and import quotas; production will shift to a lower cost producer.
Define Trade Liberalisation
Reduction or removal of protectionist policies
Define Trading blocs
A group of countries that reduce or remove trade barriers between
them
Define Unit labour costs
The cost of employing workers for each unit of a good
total wages / real output
Define Terms of Trade
measures the rate of exchange of one product for another when two countries trade
Define Market failure
When the market fails to allocate scarce resources with maximum efficiency.
When the market fails to maximise to social welfare.
