Key Terms Flashcards
AAA credit rating
The best credit rating that can be given to a corporation’s or a government’s bonds, effectively indicating that the risk of default is negligible
AS shock
Either an inflation shock or a shock to potential national output; adverse AS shocks of both types reduce output and can increase the rate of inflation
Austerity
Economic policy aimed at reducing a government’s deficit (or borrowing)
Automatic stabilisers
Automatic fiscal changes as the economy moves through stages of the business cycle
Bank run
When a large number of people suspect that a bank may go bankrupt and withdraw their deposits.
Bond
Both companies and governments can issue bonds. The issue of new government debt is done by the central bank and involves selling debt to capital markets.
Bubble
When the prices of securities or other assets rise so sharply and at such a sustained rate that they exceed valuations justified by fundamentals, making a sudden collapse likely
What is capacity utilisation
It measures how much of the productive potential of the economy is being used. Utilisation fails during a recession leading to a rise in spare capacity.
Capital market
A stock of a bond market where firms can raise money for investment purposes
Capital stock
The value of the total stock of capital inputs in the economy
Closed economy
An economy operating without imports and exports - closed to global trade
Credit crunch
Where banks reduce lending due to falling confidence that loans will be repaid
Current account
The overall balance of credits minus debits for trade in goods, trades in services, investment income and transfers
Current account deficit
Money going out of s country is more than the amount coming in
Cyclical trade deficit
A trade deficit that arises purely due to changes in the economy’s cycle
Cyclical unemployment
Unemployment caused by a lack of AD for goods and services
Default
A default occurs when a borrower has broken the terms of a loan or other debt
Discretionary fiscal policy
Deliberate attempts to affect AD using changes in government spending, direct and indirect taxation and borrowing
Double dip recession
When an economy goes into recession twice without a full recovery in between
Economic shocks
Unpredictable events such as volatile prices for oil, gas and foodstuffs
Expenditure switching policy
Policies designed to switch expenditure from imports to domestically produced goods in order to improve the BoP and stimulate GDP
Fine-tuning
Changes in monetary policy or fiscal policy designed to gradually manage the level of AD and prices
Fiscal stimulus
Government measures, normally involving increased public spending and lower direct and/or taxation, aimed at giving a positive jolt to economic activity
Hard landing
A full scale recession shown by a decline in RNO
Hot money
Money that flows freely and quickly around the world looking to earn the best rate of return
Hysteresis
When a sustained increase in the general price level for goods and services
IMF (international monetary fund)
An organisation of over 180 countries- promoting global monetary cooperation, financial stability, international trade
International reserves
A nation’s stock of foreign currency and gold
Inventories
These consist of materials and supplies which are stored for use in production, work in progress, finished goods and good for re-sale
Labour shedding
Cut backs in employment often seen in a slowdown or a recession
Lagging indicators
Indicators which tend to follow economic cycles e.g. unemployment
Leading indicators
Indicators which predict future economic trends e.g. consumer confidence
Leveraging
The use of borrowed funds to increase your capacity to spend or invest
Liquidity trap
When very low interest rates cease to have a strong effect on AD
Propensity to consume
The proportion of any change in income that is spent rather than saved
Propensity to consume
The change in total saving as a result of a change in income
Marginal rate of tax
The rate of tax on the next unit (£1) of income earned
Monetary Policy Committee (MPC)
Bank of England committee of 9 people meets every month to set interest rates
NAFTA
North American Free Trade Agreement singed in 1994 involving US, Canada and Mexico
Nominal GDP
Monetary value of all goods and services produced expressed at current prices
Nominal wage
The annual growth of wages adjusted for inflation
Non-inflationary growth
Sustained growth of RNO whilst maintaining price stability
Risk adverse
Exhibiting a dislike of uncertainty, often seen in a recession
Stagflation
A combination of slow growth and rising inflation
Structural budget deficit
The size of a fiscal (budget) deficit adjusted to take account of the effects of changes in the economic cycle
Tight labour market
When demand for labour is high and there are shortages of labour
Transmission mechanism
How a change in interest rates affects the various sectors of the economy
Wage price spiral
Where workers bid for higher wages because they have seen their real income eroded by rising prices (lead to further burst of cost push inflation)
