Macroeconomic Booklet Five - Y13 Flashcards
- globalisation - theories of international trade - free trade and protectionism - exchange rates - currency unions - current account - correcting trade deficits/surpluses - economic growth and development
1
Q
Absolute Advantage
A
- when a country can produce a good at lower cost than another country due to being more technically / productively efficient
2
Q
Adjustable peg system
A
- in the short-term the value of the currency is fixed (probably with two narrow boundaries) but this can be adjusted as circumstances dictate
3
Q
Capital account
A
- section of the balance of payments where foreign aid, grants and gifts are accounted for
4
Q
Closed economy
A
- economy that does not participate in international trade
5
Q
Comparative advantage
A
- when a country can produce a good at lower opportunity cost than another country
6
Q
Currency union
A
- agreement between countries to use a single currency
7
Q
Currency account
A
- section of the balance of payment where the imports and exports of goods and services, as well as income investment in assets abroad owned by country’s residents (primary income) and government transfers to and from overseas organisations ( secondary income)
8
Q
Current account deficit
A
- the currency outflows in the current account exceed the currency inflows
9
Q
Current account surplus
A
- the currency inflows in the current account exceed the currency outflows
10
Q
Customs union
A
- partial economic union between countries with free trade between members and a common external tariff on imports from non-members
11
Q
Direct overseas investment (foreign direct investment)
A
- the acquisition of real productive assets located in other countries
12
Q
Diversity
A
- an economy produces a varied range of output to avoid being affected by adverse changes in an individual market
13
Q
Dumping
A
- selling excess supply if a good off in international markets at artificially low prices, (possibly even below the cost of production)
14
Q
Economic development
A
- broader measure of societal welfare based on quality of life measures rather than simply average incomes
15
Q
Embargoes
A
- complete ban on trade with a particular country
16
Q
European single market
A
- single market across the European Union based in freedom of movement for goods and services, people/labour and capital
17
Q
Expenditure-reducing policies
A
- policies designed to reduce a trade deficit by simply reducing the demand for imports (usually lowering real incomes)
18
Q
Export subsidies
A
- subsidy given to firms producing goods for export
19
Q
Financial account
A
- the section of the balance of payments where overseas investment is accounted for
20
Q
Fixed exchange rates
A
- when governments seek to maintain a fixed exchange rate either through a common value (i.e the gold standard) or through intensive government intervention (e.g. open market transactions)
21
Q
Free Trade Area
A
- no trade restrictions between member countries, but each member is free to determine its own restrictions on trade with non-member countries
22
Q
(Freely-) floating exchange rates
A
- exchange rates that are determined entirely by the interaction of market forces (i.e. without intervention from the government or central bank
23
Q
Globalisation
A
- the process by which the world is becoming increasing economically interdependent
24
Q
Human Capital
A
- workers’ stock of knowledge and skills which contribute to their productivity
25
Q
Human Development Index (HDI)
A
- composite statistic compiled by the United Nations to measure countries’ development based on average incomes, life expectancy and education
26
Q
Import quotas
A
- physical restriction on the quantity of a good that can be imported
27
Q
Infant industries
A
- new industries, early in their development
28
Q
Index of sustainable economic welfare
A
- alternative to GDP that accounts (positively) for domestic labour and negatively for resource depletion and environmental degradation
29
Q
International competitiveness
A
- relative attractiveness of a country’s goods and services in international markets, whether based on price or other factors
30
Q
Trade diversion
A
- when countries switch to buying from a low-cost producer to a high-cost country - e.g. from the imposition of tariffs or other protectionist measures
31
Q
Managed float system
A
- most part exchange rates are determined through market forces, but governments can/do intervene as a macroeconomics policy tool
32
Q
Marshall-Lerner condition
A
- rule that in order for a devaluation to be effective in tackling a current account deficit the sum of the magnitude of the price elasticity of demand for imports and the price elasticity of demand for exports must be greater than one
33
Q
Multi-national corporation
A
- firm that operates (i.e with factories, shops, offices etc., rather than suppliers) in more than one country
34
Q
Open economy
A
- an economy that does participate in international trade, the more free trade is, the more open the economy is considered to be
35
Q
Portfolio overseas investment
A
- acquisition of foreign financial assets by residents or financial institutions
36
Q
Purchasing Power Parity (PPP)
A
- modified exchange rate that compares the value of currencies based on the rate required in order to be able tp buy the same basket of goods in different countries rather than the rate at which the currencies themselves trade
37
Q
Protectionism
A
- use of trade barriers to protect domestic industry and employment
38
Q
Self-sufficiency
A
- ability to produce all of the goods and services required within an economy without the need for international trade
39
Q
Strategic trade theory
A
- when the government choose industries of special strategic importance and protect them while they build comparative/competitive advantages
40
Q
Sunset industries
A
- older, declining (and often heavy) industries
41
Q
Tariffs
A
- an indirect tac placed on imports to undermine their price competitiveness
42
Q
terms of trade
A
- the ratio of a country’s export prices to import prices
43
Q
The J-curve
A
- diagram showing that following a devaluation of the currency a current account deficit will initially deteriorate before showing an improvement
44
Q
Tied Aid
A
- loan or grant that has to be used buying the exports of the donor country
45
Q
Trade creation
A
- when a country moves from buying from a high-cost country to buying from a low-cost country
46
Q
Trade diversion
A
- when a country moves from buying from a low-cost country to a high-cost country
47
Q
World trade organisation
A
- an organisation that governs the rules of international trade between member nations (representing 98% of world trade) and promotes free trade
