Macro Flashcards
The best credit rating that can be given to a corporation’s bonds, effectively indicating that the risk of default is negligible.
AAA credit rating
Where planned capital investment is linked positively to the past and expected growth of consumer demand or national income
Accelerator effect
The rate of growth of GDP over a period of time (percentage)
Actual economic growth
The relationship between the level of AD and the APL; it shows planned expenditure at any given possible APL
AD curve
The total demand for all goods and services at a given price level, over a given period of time
Aggregate demand
The total supply of goods and services that the country’s firms and government produce, at any given APL in a given time period
Aggregate supply
Either an inflation shock or a shock to potential national output
Aggregate supply shock
The state of confidence or pessimism held by consumers and businesses
Animal spirits
A rise in the market value of one exchange rate against another
Appreciation
Economic policy aimed at reducing a government’s deficit
Austerity
Automatic fiscal changes as the economy moves through stages of the business cycle
Automatic stablisers
Separate from other variables
Autonomous
The average ofcurrent pricesacross the entire spectrum of goods and services produced in the economy
Average price level
The proportion of income that households devote to consumption
Average propensity to consume
When a large number of people suspect that a bank may go bankrupt and withdraw their deposits
Bank run
Both companies and governments can issue bonds
Bond
When actual rate has been above the trend rate for a considerable period of time
Boom
The movement of highly skilled people from their own country to another nation
Brain drain
The BRIC grouping is short hand for the rise of emerging markets
BRIC economics
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
Bubble
Occurs when government spending is greater than tax revenues
Budget deficit
Expectations about the future of the economy
Business confidence
A phenomenon whereby GDP around its underlying trend following a regular pattern
Business cycle
A measure of output per unit of capital
Capacity productivity
Measures how much of the productive potential of the economy is being used
Capacity utilisation
Man-made aid to production
Capital
A stock or a bond market where firms can raise money for investment purposes
Capital market
The value of the total stock of capital inputs in the economy
Capital stock
Replacing workers with machines in a bid to increase productivity and reduce the unit cost of production
Capital-labour substitution
When countries that start off poor tend to grow more rapidly than countries that start off rich
Catch-up effect
The assumption that other factors of something remain constant, so don’t affect it
Ceteris paribus
A model of the economy which shows the movement of goods and services between households and firms and their corresponding payments in money terms
Circular flow of income
The number of people claiming unemployment-related benefits
Claimant count
They believe the long-run equilibrium is always at Yfe
Classical beliefs
An economy operating without imports and exports
Closed economy
The relative advantage that one country or producer has over another
Comparative advantage
Constant prices tells us that the data has been inflation adjusted
Constant prices
Expectations about the future including interest rates, incomes and jobs
Consumer confidence
Products that are not used up immediately when consumed
Consumer spending
The government’s preferred measure of inflation
Consumption
The relationship between consumption and disposable income (graph); it’s position depends on the other factors that affect how much households spend on consumption
Consumption function
A tax on the profits made by companies
Corporation tax
An increase in the price level caused by a sustained increase in firms’ costs of production
Cost-push inflation
The assessment given to debts and borrowers by a ratings agency according to their safety from an investment standpoint
Credit rating
Small rises in the general price level over a long period
Current account
A period of time where import tariff rates rise
Current account deficit
A trade deficit that arises purely due to changes in the economy’s cycle
Cyclical tade deficit
Unemployment caused by a lack of aggregate demand for goods and services
Cyclical unemployment
When a borrower has broken the terms of a loan or other debt, for example if a borrower misses a payment
Default
A persistent fall in the general price level of goods and services
Deflation
A decline in the share of national income from manufacturing industries
Deindustrialisation
Unemployment that arises because of a deficiency of aggregate demand in the economy, so that the equilibrium level of output is below full employment
Demand-deficit unemployment
Inflation initiated by an increase in AD
Demand-pull inflation
A fall in the market value of one exchange rate against another
Depreciation
Used to describe a severe recession which may become a prolonged downturn in the economy
Depression
Reducing barriers to entry in order to make a market more competitive
Deregulation
Countries lacking a high degree of industrialisation and/or other measures of development
Developing country
People often out of work for a long time who give up on job search
Discouraged workers
Deliberate attempts to affect aggregate demand using changes in government spending, direct and indirect taxation and borrowing
Discretionary fiscal policy
Disposable income adjusted for spending on essential bills
Discretionary income
A fall in the rate of inflation
Disinflation
Gross income less income tax and national insurance contributions plus cash welfare benefits
Disposable income
When an economy goes into recession twice without having undergone a full recovery in between
Double-dip recession
When actual rate is still above the trend rate, but falling
Downturn
When a producer in one country exports a product to another at a price below the price it charges in its home market or below the costs of supply
Dumping
The concept that people’s demands have exceeded the Earth’s ability to cope with the rising consumption of its resources
Ecological debt
Variations in the annual rate of growth of an economy over time
Economic cycle
An increase in the real value of goods and services produced in a country or area as measured by the annual % change in real national output
Economic growth
Unpredictable events in the economy
Economic shocks
When indicators don’t change much from one year to another
Economic stability
Those who are unemployed and actively seeking employment
Economically active
Those who are of working age but are neither in work nor actively seeking work
Economically inactive
The financial markets of developing countries
Emerging markets
No tendency for change in real GDP or APL when at equilibrium
Equilibrium
The rate at which one currency can be exchanged for another
Exchange rate
A relaxation of monetary policy means an attempt to use an expansionary monetary policy to boost aggregate demand, output and jobs
Expansionary monetary policy
How we expect the future to unfold
Expectations
The value of the goods and services purchased by households and by government, investment in machinery and buildings
Expenditure measure of GDP
Policies that are designed to ‘switch’ expenditure from imports to domestically produced goods in order to improve the balance of payments and stimulate GDP
Expenditure-switching policies
Sales from selling goods and services overseas
Export revenue
A strategy for achieving rapid economic growth through the promotion of export activity
Export-led growth
Goods and services sold to consumers in overseas markets
Exports
For consumers the main financial assets are property, pensions, equities, unit trusts and cash
Financial assets
Changes in monetary policy or fiscal policy designed to gradually manage the level of aggregate demand and prices
Fine-tuning
Decisions by a government to reduce the amount of government borrowing
Fiscal austerity
When government expenditure is higher than the revenue from tax receipts in a particular year
Fiscal deficit
A government’s policy regarding taxation and public spending
Fiscal policy
Many governments seek to maintain a degree of balance between tax revenues and public sector spending
Fiscal stability
Government measures, normally involving increased public spending and lower direct or indirect taxation
Fiscal stimulus
A prediction made about the likely future performance of an economy
Forecast
Investment from one country into another that involves establishing operations or acquiring tangible assets
Foreign debt investment
When trade is allowed to occur without any form of restriction
Free trade
A level of national output where all available factor inputs are fully employed
Full capacity output
When there enough job vacancies for all the unemployed to take work
Full employment
A measure of the extent to which groups of households receive less than an equal share of income
Gini coefficient
The deepening of relationships between countries of the world reflected in an increasing level of overseas trade and investment
Globalisation
A rule introduced by the former Labour government which says that borrowing on state provided goods and services should be zero over the course of one economic cycle
Golden rule
The total stock of unpaid debt issued by a government
Government debt
Spending and investing carried out by the government at a national and local level; often politically motivated
Government expenditure
A measure of the economic activity carried out in the domestic economy over a period of time
Gross domestic product (GDP)
GDP plus the net income from abroad
Gross national income (GNI)
A reduction in the value of a troubled borrower’s debts
Haircut
A full-scale recession shown by a decline in real national output
Hard landing
Money that flows freely and quickly around the world looking to earn the best rate of return
Hot money
The value of assets
Household wealth
Investment in education and training to increase the quality of the labour force and to make people more flexible in a changing world of work
Human capital
An index to assess comparative levels of development in countries
Human development index
When the change in APL is excessively high (more than 20%)
Hyper inflation
When a sustained period of low aggregate demand can lead to permanent damage to the supply side of the economy
Hysteresis
Barriers to the movement of people between areas and between jobs
Immobility of labour
Goods and services bought to domestic customers and businesses overseas
Imports
People who are either working for firms or other organisations, or self-employed
In employment
A flow concept: the amount of income that is earned during a period of time
Income
Responsiveness of demand to a change in the real income of consumers
Income elasticity
A device for comparing the value of a variable in one period or location with a base observation
Index number
A sustained increase in the general price level for goods and services
Inflation
The rate of increase of consumer prices expected by consumers. Expectations can influence spending and saving decisions
Inflation expectations
The Bank of England has a CPI inflation target
Inflation target
Demand and supply-side pressures that can cause a rise in the general price level.
Inflationary pressures
The transport links and communications networks essential for the efficient functioning of a country and its economy
Infrastructure
Where money flows into the circular flow in the form of investment, government spending and exports
Injections
Changes to products or production processes
Innovation
An organisation of 186 countries, promoting global monetary cooperation, financial stability, international trade, employment and sustainable economic growth
International Monetary Fund
A nation’s stock of foreign currency and gold
International services
These consist of materials and supplies which are stored for use in production
Inventories
Spending on capital goods carried out by firms within an economy
Investment
Interest, profits and dividends from assets owned and located overseas
Investment income
The process by which workers find appropriate jobs given their tastes and skills
Job search
The belief that the state can directly stimulate demand in a stagnating economy
Keynesian economics
Unemployment caused by a lack of aggregate demand in the economy
Keynesian unemployment
A measure of output per worker
Labour productivity
Cut backs in employment often seen in a slowdown or a recession
Labour shedding
When businesses find it difficult to recruit the workers they need
Labour shortages
The number of people able, available and willing to work at prevailing wage rates
Labour supply
Indicators which tend to follow economic cycles
Ladding indicators
Indicators which predict future economic trends
Leading indicators
The use of borrowed funds to increase your capacity to spend or invest
Leveraging
Used by banks world-wide to determine the rate at which they lend to each other
LIBOR
Used by banks world-wide to determine the rate at which they lend to each other
Life-cycle model
The ease with which something can be converted to cash with little loss of value
Liquidity
When very low interest rates cease to have a strong effect on aggregate demand
Liquidity trap
A curve showing the productive potential of the economy; it shows how much real GDP (y) can be produced over a period of time, with a given level of factor inputs.
Long-run AS curve
An increase in the productive capacity of the economy
Long-run economic growth
An increase in the productive capacity of the economy
Macroeconomic performance
Proportion of any change in income that is spent rather than saved
Marginal propensity to consume
Proportion of any change in income that is spent on overseas products
Marginal propensity to import
Proportion of any change in income that is saved rather than spent
Marginal propensity to save
Proportion of additional income that is taxed
Marginal propensity to tax
Proportion of additional income that is withdrawn from the circular flow
Marginal propensity to withdraw
The rate of tax on the next unit of income earned
Marginal rate of tax
Calculated by adding together the unemployment rate and the rate of inflation
Misery index
Decisions made by the government regarding monetary variables
Monetary policy
Bank of England committee of 9 people meets every month to set interest rates
Monetary Policy Committee
Changes in monetary policy designed to increase aggregate demand including lower policy interest rates and measures to increase the supply of credit
Monetary stimulus
The entire quantity of a country’s commercial bills, coins, loans and credit
Money supply
When an insured party decides to take higher risks because they perceive their losses will be covered
Moral hazard
If there is an initial injection into the economy then the final increase in aggregate demand and real GDP will be greater
Multiplier effect
“A free trade area agreement signed by the US,
Canada and Mexico”
NAFTA
A government’s total outstanding debt
National debt
The total amount of money that represents income within the economy
National income
Bringing a privately owned asset such as a company under state control
Nationalisation
When the value of an asset falls below the debt left to pay on that asset
Negative equity
An interest rate that is below zero
Negative interest rate
Our total exports minus our total imports
Net exports
Gross investment minus an estimate for capital depreciation
Net investment
When the number of migrants coming into a country is greater than those leaving
Net inward migration
The balance between the value of exports and imports
Net trade
Monetary value of all goods and services produced expressed at current prices
Nominal GDP
Values of economic variables based on current prices, taking no account of changing prices through time
Nominal values
The annual growth of wages unadjusted for inflation
Nominal wage growth
Sustained growth of real national output whilst maintaining price stability
Non-inflationary growth
An economy that is active in world (international) trade
Open economy
The benefit or value of the next best alternative that has been sacrificed.
Opportunity cost
Difference between actual and potential national output
Output gap
Value of the goods and services produced by all sectors of the economy
Output measure GDP
Assets which are owned in overseas countries and
which might generate a flow of income
Overseas assets
If people save more in a recession, it will reduce consumption and thus AD will fall, impeding economic growth and eventually lowering the general level of savings
Paradox of thrift
A reduced rate of Corporation Tax applied to profits from patents
Patent box
The high point of the economic cycle beyond which a recession starts
Peak
Fund that pools employees’ pension benefits and holds them so that they can be paid at retirement
Pension fund
Income per head of the population
Per capita incomes
A statistical relationship between unemployment and inflation
Phillips curve
When a given change in interest rates affects different groups or different countries to a lesser or greater degree
Policy asymmetry
An expansion in the productive capacity of the economy
Potential economic growth
Saving because of fears of a loss of real income or employment
Precautionary saving
When there is low inflation and the price changes that do occur have little impact on day-to-day decisions of people
Price stability
Productive capacity of the economy
Productive potential
A measure of efficiency
Productivity
Restricting trade through tariffs and other forms of import controls
Protectionism
The buying power of a unit of currency. It is inversely related to the rate of inflation
Purchasing power
The introduction of new money into the national supply by a central bank
Quantitative easing
A physical limit on the quantity of a good that can be imported into a country
Quota
Income after taxes and welfare benefits, adjusted for the effects of inflation
Real disposable income
A macroeconomics measure of the economic output changed for inflation or deflation
Real GDP
Nominal income adjusted for price changes, expressed at constant prices
Real income
The nominal rate of interest adjusted for inflation
Real interest rate
Values of economic variables, taking account of changing prices through time
Real values
The nominal wage adjusted for the effects of inflation
Real wage
Two consecutive quarters of negative economic growth
Recession
A phase after a recession when real GDP starts to increase and unemployment begins to fall
Recovery
Making someone redundant is to end their employment
Redundancy
An economy with an inflation rate, which is lower than comparable economies
Relative deflation
Sending of money to people in another country
Remittances
The official ‘base’ rate of interest that is set by the Monetary Policy Committee
Repo type
Similar to the CPI but includes mortgage repayments and some taxes, and excludes the top 4 per cent of earners
Retail price index
Exhibiting a dislike of uncertainty, often seen in a recession
Risk averse
Deferred spending; disposable income that is not spent
Saving
The percentage of disposable income that is saved rather than spent
Saving ratio
Unemployment that arises in seasons of the year when demand is relatively low
Seasonal unemployment
A curve showing how much output firms would be prepared to supply in the short run at any given APL
Short-run AS curve
An increase in real GDP
Short-run economic growth
A fall in the rate of growth of an economy but not a full-scale recession
Slowdown
A sustained decrease in real GDP and a persistent rise in unemployment
Slump
A slowdown in economic activity but which does not result in a recession
Soft landing
Debt issued by or guaranteed by a government
Sovereign debt
When a business is not making full use of its available capacity
Spare capacity
A combination of slow growth and rising inflation
Stagflation
External value of sterling calculated using a weighted index of a basket of currencies
Sterling exchange rate index
Monetary policy or fiscal policy aimed at encouraging higher growth and inflation
Stimulus
The size of a fiscal (budget) deficit adjusted to take account of the effects of changes in the economic cycle
Structural budget deficit
A trade deficit that arises due to supply-side weaknesses rather than a change in GDP or currency
Structural trade deficit
When people are unemployed as they do not have the skills needed by the industries that are currently growing in the economy
Structural unemployment
Growth that meets the needs of the present without compromising the ability of future generations to meet their own needs
Sustainable growth
A target is an objective of government policy
Target
A tax on imported products
Tariff
Compulsory payments to the government
Taxation
When demand for labour is high and there are shortages of labour
Tight labour market
The time it takes for one change
Time lags
The average productivity of all factors, measured as the total output divided by the total amount of inputs used
Total factor productivity
Loans that may not be repaid
Toxic debt
When a country imports a greater value of goods and services than it exports
Trade deficit
Implies that choices have to be made between different objectives of economic policy
Trade-off
A conflict over finite resources between individual interests and the common good which can lead to irreversible damage to the stock of natural resources available to current and future generations
Tragedy of the Commons
How a change in interest rates affects the various sectors of the economy
Transmission mechanism
The long run average growth rate
Trend growth
The low point of the economic cycle beyond which a recovery starts
Trough
A situation where an economy is running both a fiscal deficit and also a deficit on the current account of the balance of payments
Twin deficits
When workers are willing to supply more hours of work than their employers are prepared to offer
Under-employment
The state of being economically active but not in employment
Unemployment
When the prospect of the loss of unemployment benefits dissuades those without work from taking a new job
Unemployment trap
Labour costs per unit of output
Unit wage costs
Credit not secured by another asset
Unsecured credit
Situation arising when an individual chooses not to accept a job at the going wage rate
Voluntary unemployment
Where workers bid for higher wages because they have seen their real income eroded by rising prices
Wage price spiral
A stock concept: the accumulation of assets, such as property or shares
Wealth
The supposed link between changes in wealth and household spending
Wealth effect
Where money flows out of the circular flow in the form of savings, taxation and imports
Withdrawals
People who are economically active - either in employment or unemployed
Workforce
A source of financial and technical assistance to developing countries
World bank
Oversees trade agreements, negotiations and disputes between member countries
World Trade Organisation
An employment contract under which the employee is not guaranteed work and is paid only for work carried out
Zero-hours contract
Weak and inefficient companies which are able to survive thanks to low interest rates and a supposedly more tolerant attitude to corporate borrowers by banks
Zombie companies
