key terms

Question 1

absolute advantage

Answer 1

the ability to produce a good more efficiently

Question 2

absolute poverty

Answer 2

situation of a household whose income is insufficient to allow it to purchase the minimum bundle of goods and services regarded as necessary for survival

Question 3

appreciation

Answer 3

a rise in the exchange rate within a floating exchange rate system

Question 4

bank rate

Answer 4

the rate of interest charged by the BoE on short term loans to other banks

Question 5

BRIC countries

Answer 5

a group of countries (Brazil, Russia, India, China) who went through rapid economic growth and formed a political alliance

Question 6

buffer stock

Answer 6

a scheme intended to stabilise the price of a commodity by buying excess supply in periods when supply is high, and selling when supply is low

Question 7

capital account on the balance of payments

Answer 7

account identifying transactions in physical capital between the residents of a country and the rest of the world

Question 8

central bank

Answer 8

the banker to the government , performing roles such as regulating the financial system

Question 9

common market

Answer 9

a set of trading arrangements in which a group of countries removes barriers to trade among them, adopt a common set of barriers against external trade, establish common tax rates and laws regulating economic activity, allow free movement of factors of production between members and have common public sector procurement policies.

Question 10

comparative advantage

Answer 10

the ability to produce a good relatively more efficiently at a lower opportunity cost

Question 11

current account on the balance of payments

Answer 11

account identifying transactions in goods and services between the residents of a country and the rest of the world, together with income payments and international transfers

Question 12

customs union

Answer 12

a group of countries that agrees to trade without barriers between them, and with a common tariff barrier against the rest of the world

Question 13

deindustrialisation

Answer 13

a process whereby the structure of economic activity in a country shifts away from manufacturing activity towards the service sector

Question 14

depreciation

Answer 14

a fall in the exchange rate within a floating exchange rate system

Question 15

economic and monetary union

Answer 15

a set of trading arrangements the same as for a common market, but in addition having a common currency and a common monetary policy

Question 16

emerging economies

Answer 16

economies that have experienced rapid economic growth with some industrialisation and characteristics of developed markets

Question 17

exchange rate mechanism

Answer 17

a system that was set up by a group of European countries in 1979 with the objective of keeping member countries currencies relatively stable against each other

Question 18

export led growth

Answer 18

economic growth is achieved through the exploitation of economies of scale, made possible by focusing one exports and so reaching a wider market that would be available within the domestic economy

Question 19

fair trade schemes

Answer 19

schemes that set out to ensure that small producers in developing countries recieve a fair price for their products

Question 20

financial account on the balance of payments

Answer 20

account identifying transactions in financial assets between the residents of a country and the rest of the world

Question 21

fiscal deficit

Answer 21

occurs when government outlays exceeds government receipts

Question 22

fixed exchange rate

Answer 22

a system in which the government of a country agrees to fix the value of its currency in terms of that of another country

Question 23

floating exchange rate

Answer 23

a system in which the exchange rate is permitted to find its own level in the market

Question 24

foreign currency gap

Answer 24

a situation in which a developing country is unable to import the goods that it needs for development because of a shortage of foreign exchange

Question 25

foreign direct investment (FDI)

Answer 25

investment undertaken in one country by companies based in other countries

Question 26

free trade area

Answer 26

a group of countries that agrees to trade without barriers between themselves, but having their own individual barriers with countries outside the area.

Question 27

gini coefficient

Answer 27

a measure of the degree of inequality in a society

Question 28

globalisation

Answer 28

a process by which the worlds economies are becoming more closely integrated

Question 29

government budget deficit/surplus

Answer 29

the difference between government expenditure and government revenue

Question 30

hot money

Answer 30

stocks of funds that are moved around the world from country to country in search of the best return

Question 31

human development index

Answer 31

a composite indicator of the level of a country's development, varying between 0 and 1

Question 32

indirect tax

Answer 32

a tax on expenditure e.g. VAT

Question 33

industrialisation

Answer 33

a process of transforming an economy by expanding manufacturing and other industrial activity

Question 34

infant industry

Answer 34

an industry that needs protection from international competition in the short run so that it can learn to become competitive

Question 35

labour productivity

Answer 35

a measure of output per worker, or output per hour worked

Question 36

laffer curve

Answer 36

a curve showing the relationship between the tax rate and the amount of revenue raised as a consequence

Question 37

law of comparative advantage

Answer 37

a theory arguing that there may be gains from trade arising when countries or individuals specialise in the production of goods or services in which they have a comparative advantage

Question 38

lorenz curve

Answer 38

graph showing the distribution of income within a country

Question 39

monetary policy committee (MPC)

Answer 39

body within the bank of england responsible for the conduct of monetary policy

Question 40

monetary stability

Answer 40

a situation in which there is stability in prices relative to the governments inflation target

Question 41

monetary union

Answer 41

where countries adopt a common currency

Question 42

national debt

Answer 42

the total amount of government debt, based on accumulated previous deficits and surpluses

Question 43

non governmental organisations

Answer 43

non profit, charities etc

Question 44

non-tariff barriers

Answer 44

measures imposed by the government that have the effect of inhibiting international trade

Question 45

persistent poverty

Answer 45

where a household is currently in relative poverty and has been in this state for at least two of the last 3 years

Question 46

prebisch singer hypothesis

Answer 46

an observation that the terms of trade for primary products relative to manufacturers will tend to deteriorate in the long run

Question 47

progressive tax

Answer 47

a tax in which the marginal tax rate rises with income i.e. a tax bearing most heavily on the richer members of society

Question 48

proportional tax

Answer 48

a tax that is proportional to income, being neither regressive nor progressive

Question 49

protectionism

Answer 49

measures taken by a country to restrict international trade

Question 50

quantitative easing

Answer 50

process by which liquidity in the economy is increased when the central bank purchases assets from the commercial banks

Question 51

quota

Answer 51

a limit on exports

Question 52

real exchange rate

Answer 52

the nominal exchange rate adjusted for differences in relative inflation rates between countries

Question 53

regressive tax

Answer 53

a tax bearing more heavily on poorer people

Question 54

relative poverty

Answer 54

if household income falls below 60% of the median adjusted household disposable income

Question 55

sunset industry

Answer 55

an industry in decline that needs protection for its displaced workers

Question 56

tariff

Answer 56

a tax imposed on imported goods

Question 57

terms of trade

Answer 57

the ratio of export prices to import prices

Question 58

trade creation

Answer 58

the replacement of more expensive domestic production or imports with cheaper output from a partner within the trading bloc

Question 59

trade diversion

Answer 59

the replacement of cheaper imported goods by goods from a less efficient trading partner within a bloc

Question 60

trading bloc

Answer 60

where a group of countries in a region agrees to coooperate in international trade through some sort of free trade area of other form of association

Question 61

trading possibilities curve

Answer 61

shows the consumption possibilities under conditions of free trade

Question 62

transnational company (TNC)

Answer 62

a company whos production activities are carried out in a number of countries

Question 63

unit labour costs

Answer 63

the average cost of labour per unit of output produced

Question 64

world bank

Answer 64

multilateral organisation that provides financing for long term development projects

Question 65

world trade organisation

Answer 65

a multilateral body responsible for overseeing the conduct of international trade