Macro Key Words Flashcards
Absolute advantage
A country’s ability to produce a good using less resources than another country
Aggregate demand curve
The relationship between the level of aggregate demand and the overall price level; shows planned expenditure at any given possible overall price level
Appreciation
A rise in the exchange rate within a floating exchange rate system
Automatic stabilisers
Effects by which government expenditure adjusts to offset the effects of recession and boom without the need for active intervention
Average propensity to consume
The proportion of income that households devote to consumer expenditure
Balance of payments
A set of accounts showing the transactions conducted between residents of a country and the rest of the world
Bank rate
The interest rate that is set by the Monetary Policy Committee of the Bank of England in order to influence inflation
Canons of Taxation
Four maxims devised by Adam Smith, setting out the characteristics of a good tax
Capital account of the balance of payments
Account identifying transactions in (physical) capital between the residents of a country and the rest of the world
Capital productivity
Measure of output per unit of capital
Claimant count of unemployment
The number of people claiming the Jobseekers Allowance each month
Comparative advantage
A country’s ability to produce a good relatively more efficiently (I.e. at lower opportunity cost) than another country
Consumer price index (CPI)
A measure of the general level of prices in the UK, adopted as the government’s inflation target since December 2003
Consumption function
The relationship between consumer expenditure and disposable income; its position depends upon other factors that affect how much households spend on consumer expenditure
Cost-push inflation
Inflation initiated by an increase in the costs faced by firms, arising on the supply side of the economy
Current account of the balance of payments
Account identifying transactions in goods and services between the residents of a country and the rest of the world
Cyclical unemployment
Unemployment that arises during the downturn of the economic cycle, such as recession
Deflation
A situation in which the average level of prices is falling- this is negative inflation
Demand-deficient unemployment
Unemployment that arises because of a deficiency of aggregate demand in the economy, so that equilibrium level of output is below full employment
Demand pull inflation
Inflation initiated by an increase in aggregate demand
Depreciation
A fall in the exchange rate within a floating exchange rate system; a fall in value of physical capital equipment over time as it is subject to wear and tear
Devaluation
Process whereby a government reduces the price of its currency the price of its currency relative to an agreed rate in terms of forge in exchange
Discouraged workers
People who have been unable to find employment and who are no longer looking for work
Disposable income
The income that households have to devote to consumption and saving, taking into account payments of direct taxes and transfer payments
Economically inactive
Those people of working age who are not looking for work, for a variety of reasons
Effective exchange rate
The exchange rate for a country relative to a weighted average of currencies of its trading partners
Exchange rate
The price of one currency in terms of another
Exchange Rate Mechanism (ERM)
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
Financial account of the balance of payments
Account identifying transactions in financial assets between the residents of a country and the rest of the world
Fiscal policy
Decisions made by the government on is expenditure, taxation and borrowing
Fixed exchange rate
A system in which the government of a country agrees to fix the value of its currency in terms of that of another country
Flat rate tax system
A system of income tax in which each taxpayer pays the same rate of tax on income
Floating exchange rate
A system in which the exchange rate is permitted to find its own level in the market
Forge in exchange reserves
Stocks of forge in currency and gold owned by the central bank of a country to enable it to meet any mismatch between the demand and supply of the country’s currency
Frictional unemployment
Unemployment associated with the job search: that is, people who are between jobs
Full employment
A situation where people who are economically active in the workforce and are willing and able to work (at going wage rates) are able to find employment
GDP per capita
The average level of PDG per head of population
General Agreement on Tariffs and Trade (GATT)
The precursor of the WTO, which organised a series of ‘rounds’ of tariff reductions
Globalisation
A process by which the world’s economies are becoming more closely interpreted
Government budget deficit (surplus)
The balance between government spending and revenue
Hot money
Stocks of funds that are moved around the world from country to country in search of the best return
Human capital
The stock of skills and expertise that contribute to a worker’s productivity; can be increased through education and training
ILO unemployment rate
Measure of the percentage of the workforce who are without jobs, but are available for work, willing to work and looking for work
In employment
People who are either working for firms or other organisations, or are self-employed
Index number
A device for comparing the value of a variable in one period or location with a base observation (e.g. The retail price index measures the average level of prices relative to a base period)
Inflation
The rate of change of the average price levels: for example, the percentage annual rate of change of the CPI
Inflation targeting
An approach to macroeconomic policy whereby that central bank is charged with meeting a target for inflation
Investment
Expenditure undertaken by firms to add to the capital stock
Invisible trade
Trade in services
Involuntary unemployment
Situation arising when an individual who would like to accept a job at the going wage rate is unable to find employment
Keynesian school
A group of economists who believed that the macroeconomy could settle at an equilibrium that was below full employment
Labour productivity
Measure of output per worker, or output per hour worked
Law of comparative advantage
A theory arguing that there may be gains from trade arising when countries specialise in the production of goods and services in which they have a comparative advantage
Long-run economic growth
The expansion of the productive capacity of an economy
Macroeconomics
The study of the interrelationships between economic variables at an aggregate (macroeconomic) level
Marginal propensity to consume
The proportion of additional income devoted to consumer expenditure
Marginal propensity to import
The proportion of additional income that is spent on imports of goods and services
Marginal propensity to save
The proportion of additional income that is saved by households
Marginal propensity to tax
The proportion of additional income that is taxes
Marginal propensity to withdraw
The proportion of additional income that is withdrawn from the circular flow- the sum of the marginal propensity to save, import and tax
Monetarist school
A group of economists who believed that the macroeconomy always adjusts rapidly to the full employment level of output
Monetary policy
The decisions made by the government regarding monetary variable ms such as the money supply and the interest rate
Monetary Policy Committee
Body within the Bank of England responsible for the conduct of monetary policy
Money stock
The quantity of money in the economy
Multinational corporation (MNC)
A company whose production activities are carried out in more than one country
Multiplier
The ratio of a change in equilibrium real income to the autonomous change that brought it about; it is defined as 1 divided by the marginal propensity to withdraw
Natural rate of output
The long-run equilibrium level of output to which monetarists believe the macroeconomy will always tend; corresponds to full employment
Net investment
Gross investment minus depreciation
Nominal value
Value of an economic variable based on current prices, taking no account for changing prices through time
Productivity
Measure of the efficiency of a factor of production
Purchasing power parity theory of exchange rates
Theory stating that in the long run exchange rates (in a floating rate system) are determined by relative inflation rates in different countries
Quantitative easing
A process by which the central bank purchases assets such as the government and corporate bonds in order to release additional money into the financial system
Real exchange rate
The nominal exchange rate adjusted for differences in relative exchange rates between countries
Real value
Value of an economic variable, taking into account changing prices through time
Recession
Occurs when GDP falls for two or more consecutive quarters
Retail price index (RPI)
A measure of the average price level in the UK
Revaluation
Process whereby a government raises the price of domestic currency in terms of forge in currency
Seasonal employment
Unemployment that arises in seasons of the year when demand is relatively low
Short-run aggregate supply curve
A curve showing how much output firms would be prepared to supply in the short run at any given overall price level
Short-run economic growth
An increase in the actual GDP
Structural unemployment
Unemployment arising because of changes in the pattern of economic activity within an economy
Supply-side policies
Range of measures intended to have a direct impact on aggregate supply- and specifically the potential capacity output of the economy
Sustainable development
Development that meets the needs of the present without compromising the ability of future generations to meet their own needs
Terms of trade
The relative prices at which exchange takes place; the ratio of export prices to import prices
Total factor productivity
The average productivity of all factors, measured as the total output divided by the total amount of outputs used
Trading possibility curve
Show the consumption possibilities under conditions of free trade
Unemployed
People who are economically active but not in employment
Visible trade
Trade in goods
Voluntary unemployment
Situation arising when an individual chooses not to accept a job at the going wage rate
Workforce
People who are economically active- either in employment or unemployment
World Trade Organisation (WTO)
A multilateral body now responsible for overseeing the conduct of international trade
