Macro key terms Flashcards
rAbsolute advantage
When a country can produce goods and services at a lower unit cost than other countries.
Absolute poverty
Situation in which individuals have insufficient income to purchase the basic necessities for survival.
Accelerator
Theory by which the level of investment depends on the rate of change in national income.
Aggregate demand
Ability and willingness of all economic agents to spend in the economy.
Aggregate supply
Total supply of all goods and services produced within an economy at a given overall price at a given time.
Appreciation
Rise in the value of a currency in terms of another.
Asymmetric inflation target
When fluctuations above the inflation target are more significant than fluctuations below.
Automatic stabilisers
Changes in tax revenue and state spending arising automatically as the economy moves through different stages of the economic cycle.
Average tax rate
Tax paid divided by taxable income.
Balanced budget
Occurs when government expenditure is equal to taxation receipts.
Balance of payments
Record of the transactions conducted between residents of a country and the rest of the world.
Bilateral monopoly
Labour market that includes a trade union and a monopsony employer.
Broad money (m4)
Total amount of money held by households and companies in the economy, including all narrow money and less liquid forms.
Budget deficit
Occurs when government expenditure outweighs government taxation receipts.
Budget surplus
Occurs when government taxation receipts outweigh government expenditure.
Capital government expenditure
Government spending on capital project that leaves the government with assets, e.g schools, factories, roads.
Capital-output ratio
Amount of capital needed to produce a unit of output.
Central bank
Organisation charged with the responsibility for maintaining price stability by making monetary policy decisions.
Circular flow of income
Ways in which income, money, goods and services flow in an economy.
Claimant count
Measure of the number of people registered as unemployed and claiming Jobseeker’s Allowance.
Comparative advantage
When one country produces a a good or service at a lower (relative) opportunity cost than another.
Consumption (C)
Spending by households on goods and services.
Contractionary monetary policy
Government policy to increase the rate of interest/decrease money supply in order to reduce economic activity and the rate of inflation.
Crowding out
Government spending crowds out private sector investment by increasing the rate of interest, which increases the cost of borrowing for private firms.
Current account
Transactions in goods and services between the residents of a country and the rest of the world.
Current government expenditure
Government spending on day-to-day running costs, e.g buying raw materials, wages of public sector workers.
Customs union
Agreement between member countries to abolish tariffs and quotas and adapt a common external tariff for non-member countries.
Cyclical deficit
Budget deficit that occurs over the course of the economic cycle. It appears in a downturn and disappears during an upswing.
Cyclical unemployment
Unemployment that arises throughout the course of the economic cycle, during a downturn or recession.
Deflation
Decrease in the average price level measured by a weighted basket of goods.
Demand-deficit unemployment
Unemployment that arises because of a deficiency in aggregate demand in the economy, i.e the equilibrium level of output is below full employment.
Depreciation
Fall in the value of currency in terms of another.
Deregulation
Removal of regulations to open up the industry to competition.
Developed economy
Country that has industrialised and is reliant on the tertiary sector of production, and has high levels of average income measured by GDP per capita.
Developing economy
Country with reliance on the primary sector of production and low levels of average income measured by GDP per capita.
Discouraged workers
Those who have been unable to find employment and who are no longer looking for work.
Discretionary fiscal policy
Government planned and autonomous expenditure that involves a policy decision to alter government expenditure or taxation rates.
Discretionary income
Income remaining once tax and essential housing costs, such as mortgage payments, have been paid.
Disinflation
A fall in the rate of inflation.
Economically inactive
Working age people who are neither in employment nor unemployed and so are not part of the labour force.
Economic cycle
Fluctuation of the economy in periods of contraction and expansion around its underlying trend rate, following a regular pattern.
Economic development
Rise in people’s economic well-being and quality of life.
Economic growth
Change in national output over time as measured by GDP or GNP.
Economic integration
Process of becoming a member of a trading bloc.
Economic union
Occurs when two or more countries share a common monetary and fiscal policy.
Emerging economy
Economy that is making the transition from less developed to more developed, often categorised by rapid rates of growth and industrialisation.
Employment rate
Proportion of the working age population in work.
Exchange rate
Price of one currency in terms of another.
Expansionary / loosening monetary policy
Government policy to decrease the rate of interest/increase money supply in order to stimulate economic activity and increase the rate of inflation.
Expectations
Views that economic agents have about what will happen to the economy in the future.
Exports (X)
Goods and services that firms sell overseas.
Financial Sector
Way in which financial capital is channelled to the correct area of the economy.
Fisher equation of exchange
Estimates the relationship between nominal and real interest rates under inflation, using MV=PY.
Fixed exchange rate system
When the exchange rate is determined by a central body, either the government or a central bank.
Floating exchange rate system
When the exchange rate is determined by the market forces of demand and supply.
Foreign direct investment (FDI)
Investment undertaken in one country by companies based on other countries.
Free trade area (FTA)
Occurs when countries agree to remove import tariffs and other barriers to promote trade in goods and services.
Frictional unemployment
Unemployment associated with job search, i.e those who are between jobs.
Full employment
When all those who are economically active and are willing and able to work (at the going wage rate) have a job.
GDP per capita
Gross domestic product per head.
Geographical immobility
Barriers to the movement of workers between different regions.
Gini coefficient (index)
Ratio of the area between the Lorenz curve and the line of equality, and the area underneath the line of equality.
Globalisation
The increasing economic integration of national economies into the global economy.
GNI per capita
Dollar value of a country’s final income in a year, divided by its population.
Government budget
Balance between government receipts and expenditure.
Government expenditure (G)
Spending by the government on goods and services, such as the NHS.
Harrod-Domar model
Economic model which suggests that economic growth relies on two things: the level of savings and capital-output ratio.
Hot money
Short term capital flow that responds to changes in relative interest rates.
Human Capital
The quality and skills base of labour.
Human Development Index (HDI)
Composite indicator of economic development made up of three parts: GNI per capita, life expectancy at birth, and mean and expected years of schooling. HDI values range from 0 to 1.
Hyperinflation
Excessively high rate of inflation.
Imports (M)
Goods and services that households and firms buy from overseas firms.
Income
Flow of money over a period of time.
Income inequality
Unequal distribution of income.
Inflation
Increase in the average price level measured by a weighted basket of goods.
Injections
Routes for money to enter the circular flow of income including through investment, government expenditure and exports.
Interest rate
The price of money, the cost of borrowing and the reward for saving.
International competitiveness
Ability of a country to compete with other nations, determined by the price and non-price factors.
International Monetary Fund (IMF)
International organisation of 189 countries that encourages global monetary cooperation and financial stability, and facilitates international trade.
International trade
Process of exchanging goods and services between countries.
Inter-regional trade
Trade between one region and another.
Interventionist policies
Policies by which the government intervenes to stimulate aggregate supply.
Intra-regional trade
Trade within a region.
Investment (I)
Spending by firms on goods and services to be used in future production.
Involuntary unemployment
When an individual would like to accept a job at the going wage rate but is unable to find employment.
J-curve effect
Situation following a devaluation in which the current account deficit moves further into deficit before improving.
Keynesian approach to aggregate supply
Approach to aggregate supply in which there is no distinction between SRAS and LRAS. One AS curve can show both the short and the long run.
Kinked demand curve
Illustrates an elastic response to an increase
Labour Force Survey
Measure of the percentage of the workforce who are without jobs
Labour market participation rate
Proportion of working age people who are economically active (in employment or actively seeking employment).
Labour productivity
Measure of output per worker or output per hour.
Laffer curve
Illustrates the optimal rate of tax.
Leakages
Routes for money to leave the circular flow of income including through savings, taxation and imports.
Liquidity
How easily an asset can be turned into cash without a financial loss.
Liquidity trap
When a reduction in the interest rate no longer stimulates economic activity because there is too much liquidity in the system.
Long run aggregate supply (LRAS)
The maximum that can be produced with all the factors of production in an economy.
Lorenz curve
Illustrates income and wealth distribution, making it an effective way of showing inequality of income within and between countries.
Macroeconomic equilibrium
Point at which aggregate demand equals aggregate supply.
Macroeconomic indicators
Used by policy makers to monitor the performance of an economy. They are associated with the targets of macroeconomic policy: economic growth, rates of inflation, unemployment and the balance of payments.
Marginal efficiency of capital theory
Negative relationship between interest rates and the rate of private sector investment - the higher the rate of interest, the lower the return on investment.
Marginal tax rate
Change in tax paid divided by change in taxable income.
Market based policies
Policies that allow markets to operate more freely and provide incentives for enterprise and initiatives.
Marshall-Lerner condition
States that currency devaluation will only be beneficial if the combined price elasticity of demand for both exports and imports is greater than 1.
Microfinance
Banking service for those who are prohibited from accessing traditional financial services.
Monetary policy
Manipulation of the money supply, interest rate, exchange rate and the amount of credit available.
Monetary transmission mechanism
Process by which a change in interest rates affects aggregate demand and inflation.
Monetary union
Occurs when two or more countries share a common currency and a common interest rate set by a common central bank.
Money demand
Amount of money people are willing to hold.
Money supply
Amount of money in the economy.
Multinational corporations (MNCs)
Companies whose production activities are carried out in more than one country.
Narrow money (MO)
All physical currency, such as coins, notes and other money equivalents, in circulation.
National debt
Total amount of government debt based upon accumulated budget deficits.
National expenditure
All the spending by households, firms and government over a period of time.
National income
All the incomes that flow to households over a period of time.
Natural rate of unemployment
Proportion of workers who are voluntarily unemployed when the labour market is in equilibrium.
Neoclassical approach to aggregate supply
Approach to aggregate supply in which there is a short run curve (where output changes with price level) and a long run curve (where output does not change with price level).
Net exports
Exports minus imports.
Nominal GDP
Gross domestic product at current prices, inflation is not taken into account.
Nominal values
Values not adjusted for inflation, at current prices.
Non-accelerating inflation rate of unemployment (NAIRU)
Rate of unemployment consistent with a constant rate of inflation.
Occupational immobility
Barriers to workers changing occupations.
Output gap
Difference between the actual level of real GDP and the full employment level (YFE).
Phillips curve
Economic model that demonstrates the trade-off between inflation and unemployment.
Prebisch-Singer hypothesis
States that the terms of trade of developing countries reliant on primary sector production will decline over time as the price of primary goods relative to manufactured good falls.
Primary income
Income generated from UK nationals employed abroad and UK firms that invested overseas.
Primary sector
Any industry that is involved in the production of or extraction of raw materials, such as farming, logging, fishing and mining.
Privatisation
Transfer of an industry from public to private ownership and control.
Productive capacity
Supply capacity of the economy.
Productivity rate
Level of output produced by a factor of production (largely labour or capital) over a given time period.
Progressive taxation
Proportion of income paid in tax increases as incomes rise.
Proportional taxation
Proportion of income paid in tax stays the same as incomes rise.
Purchasing power parity
Long run equilibrium value of one currency in terms of another.
Quantitative easing
Process by which liquidity in the economy is increased when the central bank purchases assets from commercial banks.
Quota
An agreement by a country to limit its exports to another country to an agreed quantity.
Rate of interest
The cost of borrowing and the reward for savings/ the price of holding money.
Real GDP
Gross domestic product at constant prices. Inflation is taken into account.
Real values
Values adjusted for inflation, at constant prices.
Regressive taxation
Proportion of income paid in tax falls as incomes rise.
Relative poverty
Situation in which individuals have insufficient income to participate in the normal social life of a country defined as having an income level below 60% of median adjusted household disposable income.
Seasonal unemployment
Unemployment that arises during certain seasons of the year.
Secondary income
Transactions between governments, such as bilateral aid or transfers to an international institution, together with remittances and government transfers of social security payments.
Secondary sector
Any industry that is involved in processing the raw materials of the primary sector to create end-products, e.g manufacturing, construction, assembly.
Short run aggregate supply (SRAS)
Goods and services that firms are willing and able to produce at a given price level in the short run.
Stagflation
Simultaneously rising rates of inflation and unemployment.
Structural deficit
Budget deficit that persists even when the economy is at full employment.
Structural unemployment
Unemployment that arises due to changes in the pattern of economic activity within a country.
Supply-side policies
A government’s attempts to increase productivity and efficiency in the economy.
Sustainable development
Economic development that meets the needs of the present without compromising the ability of future generations to meet their own needs.
Symmetric inflation target
When fluctuations above and below the inflation target are equally weighted.
Tariff
Tax levied on imports.
Terms of trade
Average price of a country’s exports relative to the average price of its imports.
Tertiary sector
Production that includes the provision of services, not end-products, e.g commerce, real estate, finance, administration, education.
Trade barriers
Government policies such as tariffs that reduce the flow of exports and/or imports.
Trade creation
Occurs when economic integration results in high-cost domestic production being replaced by imports from a more efficient source within the economically integrated area.
Trade diversion
Occurs where economic integration results in trade switching from a low-cost supplier outside the economically integrated area to a less efficient source within the area.
Trade in goods
Exports and imports and imports of physical/visible products.
Trade in services
Exports and imports of invisible/intangible products.
Unemployment rate
Proportion of the working age population seeking work (economically active) but that do not have a job.
Voluntary unemployment
When an individual chooses not to accept a job at the going wage rate.
Wealth
Stock, as measurable at a date in time.
World bank
International organisation whose main aim is to fight poverty through the provision of financing, advice and research to developing nations.
World trade organisation
International organisation that seeks to promote free trade.
