Macro Definitions Flashcards
Absolute Advantage
When one country is able to produce a good or service at a lower resource cost than another, thereby producing at a lower unit cost.
Accelerator Effect
The theory of investment that states that the level of investment depends on the rate of change of national income (GDP).
Asymmetric Inflation Target
When a central bank’s inflation target extends further above the ideal level than below it, or more commonly, further below than above the ideal, suggesting that central banks see lower than ideal inflation as less of an issue than higher than ideal inflation.
Automatic Stabilisers
Changes in government spending and taxation receipts which take place automatically in response to the economic cycle, thus working to stabilise fluctuations in the level of economic activity - for example, in a recession, benefits payments increase and tax revenue falls.
Balance of Payments
A measure of money flows into and out of a country over a given time period (usually a year).
Bilateral Exchange Rate
The exchange rate of one currency against another.
Capital Account of the Balance of Payments
The section of the balance of payments that records long-term flows of capital into and out of a country, in the form of purchases and sales of assets - split into two sections (short- and long-term).
Comparative Advantage
When one country can produce a good or service at a lower opportunity cost than another.
Credibility
A principle of fiscal policy, stating that the government’s commitment to economic stability is trusted and understood by the public, business, and the financial markets.
Customs Union
An agreement between two or more countries to abolish all tariffs on trade between them, whilst imposing a common external tariff on trade with non-members.
Cyclical Deficit
A government budget deficit which arises due to the effect of automatic stabilisers in a recession.
Developed Economies
Countries with a relatively high level of income per capita and diversified industrial and tertiary sectors of the economy.
Developing Economies
Countries with a relatively low level of income per capita, and an economy in which the industrial sector is small, and primary production accounts for a large proportion of GDP.
Economic Cycle
Fluctuations in the level of activity (Real DGP) in an economy. A typical economic cycle is comprised of the following sections: Boom, Slowdown, Recession, Recovery.
Economic Development
The process of improving people’s economic well-being and quality of life.
Economic Integration
The process of blurring the boundaries that separate economic activity in one nation from that in another.
Economic Stability
The avoidance of volatility in economic growth rates, inflation and employment levels.
Economic Union
Deepened integration within a single market, centralising economic policy at the macroeconomic level.
Effective Exchange Rate
A more holistic measure of the value of a particular currency, given by tracking the exchange rate of that currency against a basket of currencies of other countries, often weighted according to the amount of trade done with each country.
External Economic Shocks
Unexpected events that cause unpredictable changes in AD and/or AS - examples include fluctuations in the price of oil and recessions in other countries.
Factor Endowments
The mix of land, labour, capital and enterprise that a country possesses. A country’s factor endowment is determined by, among other things, geography, historical legacy, and socioeconomic development.
Factory Intensities
The balance between land, labour and capital required in the production of a particular good or service.
Fiscal Transfers
When tax revenue raised in one country is used to fund government spending in another. Very rare in practice, though has been proposed in the Euro area.
Fixed Exchange Rate
An exchange rate system in which the government intervenes in the forex markets to maintain a constant exchange rate for its currency against another.
Flexibility
A principle of fiscal policy, stipulating that policy should be able to react quickly to unexpected economic shocks, such as sudden changes in AD or AS.
Foreign Currency Reserves
Foreign currencies held by central banks in order to intervene in the foreign exchange markets - by buying its own currency, the central bank will artificially increase its value.
