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A level AQA Economics > Macroeconomic key terms > Flashcards

Macroeconomic key terms Flashcards

1
Q

AAA credit rating

A

The best credit rating that can be given to a corporation’s or a government’s bonds, effectively indicating that the risk of default is negligible

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2
Q

Accelerator effect

A

Where planned capital investment is linked positively to the past and expected growth of consumer demand or national income

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3
Q

Aggregate supply shock

A

Either an inflation shock or a shock to potential national output; adverse aggregate supply shocks of both types reduce output and can increase the rate of inflation

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4
Q

Animal spirits

A

The state of confidence or pessimism held by consumers and businesses

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5
Q

Appreciation

A

A rise in the market value of one exchange rate against another

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6
Q

Austerity

A

Economic policy aimed at reducing a government’s deficit (or borrowing). Austerity can be achieved through increases in government spending - primarily via tax rises and/or a reduction in government spending or future spending commitments

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7
Q

Automatic stabilisers

A

Automatic fiscal changes as the economy moves through stages of the business/trade/economic cycle

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8
Q

Bank run

A

When a large number of people suspect that a bank may go bankrupt and withdraw their deposits. Bank runs are rare, one happened with the Northern Rock in 2007

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9
Q

Bond

A

Both companies and governments can issue bonds. The issue of new government debt is done by the central bank and involves selling debt to capital markets

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10
Q

Brain drain

A

The movement of highly skilled people from their own country to another nation

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11
Q

BRIC economies

A

The BRIC grouping - Brazil, Russia, India, China - shorthand for the rise of emerging markets. The BRICs have a bigger share of world trade than the USA

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12
Q

Bubble

A

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 (at which point the bubble “bursts”)

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13
Q

Budget deficit

A

Occurs when government spending is greater than tax revenues. Reducing the deficit can be achieved by tax increases or cuts in government spending or a period of economic growth which brings about a rise in direct and indirect tax revenues

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14
Q

Business confidence

A

Expectations about the future of the economy -vital in influencing business decisions about how much to spend on new capital goods

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15
Q

Capacity utilisation

A

Measures how much of the productive potential of the economy is being used. Utilisation falls during a recession leading to a rise in spare capacity

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16
Q

Capital market

A

A stock or bond market where firms can raise money for investment purposes

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17
Q

Capital stock

A

The value of the total stock of capital inputs in the economy

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18
Q

Capital-labour substitution

A

Replacing workers with machines in a bid to increase productivity and reduce the unit cost of production. This can lead to structural unemployment

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19
Q

Claimant Count

A

The number of people claiming unemployment-related benefits

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20
Q

Closed economy

A

An economy operating without imports and exports - i.e. closed to global trade

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21
Q

Comparative advantage

A

Refers to the relative advantage that one country or producer has over another. Countries can benefit from specialising in and exporting the product(s) for which it has the lowest opportunity cost of supply

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22
Q

Constant prices

A

Constant prices tells us that the data has been inflation adjusted

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23
Q

Consumer confidence

A

Expectations about the future including interest rates, incomes and jobs

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24
Q

Consumer durables

A

Products such as washing machines that are not used up immediately when consumed and which provide a flow of services over time

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25
Q

Consumer Price Index (CPI)

A

Is the government’s preferred measure of inflation

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26
Q

Corporation tax

A

A tax on the profits made by companies

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27
Q

Cost push inflation

A

An increase in the price level caused by a sustained increase in costs of production

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28
Q

Credit crunch

A

Where banks reduce lending due to falling confidence that loans will be repaid

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29
Q

Creeping inflation

A

Small rises in the general price level over a long period

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30
Q

Current Account

A

The overall balance of credits minus debits for trade in goods, trade in services, investment income and current transfers

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31
Q

Current Account deficit

A

The amount by which money relating to trade, investment etc. going out of a country is more than the amount coming in. A current account defict implies a net fall of demand in a country’s circular flow

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32
Q

Current Account surplus

A

The amount by which money relating to trade, investment etc. going into a country is more than the amount leaving. A current account surplus implies a net increase of demand in a country’s circular flow

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33
Q

Cyclical trade deficit

A

A trade deficit that arises purely due to changes in the economy’s cycle, for example, many countries run a trade deficit when their economy is growing strongly

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34
Q

Cyclical unemployment

A

Unemployment caused by a lack of aggregate demand for goods and services, where national output < potential output leading to a negative output gap

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35
Q

Default

A

Occurs when a borrower has broken the terms of a loan or other debt, for example, if a borrower misses a payment

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36
Q

Deflation

A

Where inflation falls below 0%

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37
Q

Depreciation

A

A fall in the market value of one exchange rate against another

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38
Q

Depression

A

Used to describe a severe recession which may become a prolonged downturn in the economy and where a nation’s GDP falls by at least 10 per cent

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39
Q

Deregulation

A

Reducing barriers to entry in order to make a market more competitive

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40
Q

Discouraged workers

A

People often out of work for a long time who give up on job search

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41
Q

Discretionary fiscal policy

A

Deliberate attempts to affect aggregate demand using changes in government spending, direct and indirect taxation and borrowing

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42
Q

Disinflation

A

A persistent fall in the general price level of goods and services

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43
Q

Disposable income

A

Gross income less income tax and national insurance contributions plus cash welfare benefits. Disposable income is the money that comes into a household from various sources, including welfare benefits but after taxes on income

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44
Q

Double-dip recession

A

When an economy goes into recession twice without a full recovery in between

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45
Q

Dumping

A

When a producer in one country exports a product to another at a price below the price that it charges in its home market or below the costs of supply

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46
Q

Economic cycle

A

Variations in the annual rate of growth of an economy over time

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47
Q

Economic growth

A

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. Also a long-run increase in a country’s productive capacity

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48
Q

Economic shocks

A

Unpredictable events such as volatile prices for oil, gas and foodstuffs

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49
Q

Economic stability

A

When growth, prices and unemployment do not change much from year to year

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50
Q

Economically active

A

Those who are unemployed and actively seeking a new job

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51
Q

Economically inactive

A

Those who are of working age but are neither in work nor actively seeking work

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52
Q

Emerging markets

A

The financial markets of developing countries

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53
Q

Exchange rate

A

The rate at which one currency can be exchanged for another

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54
Q

Expansionary monetary policy

A

A relaxation of monetary policy means an attempt to use an expansionary monetary policy to boost aggregate demand, output and jobs - includes lower interest rates

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55
Q

Expectations

A

How we expect the future to unfold

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56
Q

Expenditure-switching policies

A

Policies that are designed to ‘switch’ expenditure from imports to domestically produced goods in order to improve the balance of payments and stimulate GDP

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57
Q

Export revenue

A

Sales from selling goods and services overseas, an injection of demand

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58
Q

Financial assets

A

For consumers, the main financial assets are property, pensions, equities, unit trusts and cash

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59
Q

Fine-tuning

A

Changes in monetary policy or fiscal policy designed to gradually manage the level of aggregate demand and prices e.g. small changes in policy interest rates/taxation

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60
Q

Fiscal austerity or fiscal tightening

A

Fiscal austerity refers to decisions by a government to reduce the amount of government borrowing (i.e. cut the size of a fiscal deficit) over a period of years

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61
Q

Fiscal/budget deficit

A

When government expenditure is higher than tax revenue

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62
Q

Fiscal policy

A

A government’s policy regarding taxation and public spending. It can be expansionary/loose (with the emphasis on increased spending and lower tax revenue to boost economic activity, with the acceptance of a wider fiscal deficit) or contractionary/tight (with the emphasis on cutting spending and boosting tax revenue, resulting in slower economic activity)

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63
Q

Fiscal stability

A

Many governments seek to maintain a degree of balance between tax revenues and public sector spending. A balanced budget is one in which spending and revenue are equal

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64
Q

Fiscal stimulus

A

Government measures, normally involving increased public spending and lower direct and/or indirect taxation, aimed at giving a positive jolt to economic activity

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65
Q

Forecast

A

A prediction made about the likely future performance of an economy

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66
Q

Foreign Direct Investment (FDI)

A

Is investment from one country into another (normally by companies rather than governments) that involves establishing operations or acquiring tangible assets, including stakes in other businesses

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67
Q

Free trade

A

When trade is allowed without any form of restriction such as a tariff

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68
Q

Full capacity output

A

A level of national output where all available factor inputs are fully employed - this is a factor influencing the underlying growth rate (LRAS)

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69
Q

Full employment

A

When there are enough job vacancies for all the unemployed to take work

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70
Q

Gross Domestic Product (GDP)

A

Is the total value of output in the UK and is used to measure changes in economic activity

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71
Q

Gini coefficient

A

A measure of the extent to which groups of households, from the bottom of the income distribution upwards, receive less than an equal share of income

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72
Q

Globalisation

A

The deepening of relationships between countries of the world reflected in an increasing level of overseas trade and investment

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73
Q

Gross National Income (GNI)

A

Income generated from the resources owned by inhabitants and businesses of a given country

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74
Q

Government debt

A

The total stock of unpaid debt issued by a government. A government will normally borrow money by issuing bonds or other securities

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75
Q

Gross Domestic Product per Capita (GDP per capita)

A

National income per head of population, a baseline measure of living standards

76
Q

Hard landing

A

A full-scale recession shown by a decline in real national output

77
Q

Hot Money

A

Money that flows freely and quickly around the world looking to earn the best rate of return. It might be invested in any asset whose value is expected to rise (e.g. property or shares) or placed in an account offering the best real rate of interest

78
Q

Household wealth

A

The value of assets - including property, shares, savings and pension fund assets

79
Q

Human capital

A

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

80
Q

Human Development Index

A

An index to assess comparative levels of development in countries, quantified in terms of literacy, life expectancy and purchasing power

81
Q

Hysteresis

A

When a sustained period of low aggregate demand can lead to permanent damage to the supply side of the economy

82
Q

Immobility of labour

A

Barriers to the movement of people between areas and between jobs

83
Q

Inflation

A

A sustained increase in the general price level for goods and services

84
Q

Inflation expectations

A

The rate of increase of consumer prices expected by consumers. Expectations can influence spending and saving decisions

85
Q

Inflation target

A

The Bank of England has a CPI inflation target, which is currently 2%

86
Q

Inflationary pressures

A

Demand and supply-side pressures that can cause a rise in the general price level.
Demand-pull inflationary pressure is greatest when actual GDP exceeds potential GDP causing a positive output gap.
Cost-push inflationary pressure can arise from increases in unit wage costs, rising import prices and an increase in the prices of raw materials, fuel and components used in production

87
Q

Infrastructure

A

The transport links, communications networks, sewage systems, energy plants and other facilities essential for the efficient functioning of a country and its economy

88
Q

Innovation

A

Changes to products or production processes - innovation is important in delivering improvements in dynamic efficiency and generating better goods and services

89
Q

International Monetary Fund (IMF)

A

An organisation of over 180 countries, promoting global monetary cooperation, financial stability, international trade, employment and sustainable economic growth. It has provided help for several nations in the wake of the 2007-09 financial crises

90
Q

International reserves

A

A nation’s stock of foreign currency and gold

91
Q

Inventories

A

These consist of materials and supplies which are stored for use in production, work-in-progress, finished goods and goods for resale

92
Q

Investment

A

Spending on capital goods including plant & machinery and infrastructure

93
Q

Investment income

A

Interest, profits and dividends from assets owned and located overseas

94
Q

Job search

A

The process by which workers find appropriate jobs given their tastes and skills

95
Q

Keynesian economics

A

The economics of John Maynard Keynes. The belief that the state can directly stimulate demand in a stagnating economy. For instance, by borrowing money to fund public works projects like new roads, housing, schools and hospitals

96
Q

Keynesian unemployment

A

Unemployment caused by a lack of aggregate demand in the economy - a deficiency of private-sector spending causes output and employment to contract

97
Q

Labour shedding

A

Cut-backs in employment often seen in a slowdown or a recession

98
Q

Labour shortages

A

When business find it difficult to recruit the workers they need

99
Q

Labour supply

A

The number of people able, available and willing to work at prevailing wage rates

100
Q

Lagging indicators

A

Indicators which tend to follow economic cycles e.g. unemployment

101
Q

Leading indicators

A

Indicators which predict future economic trends e.g. consumer confidence

102
Q

Leveraging

A

The use of borrowed funds to increase your capacity to spend or invest

103
Q

Lidiquity

A

The ease with which something can be converted to cash with little loss of value

104
Q

Liquidity trap

A

When very low-interest rates cease to have a strong effect on aggregate demand

105
Q

Macroeconomic performance

A

The overall performance in terms of output, prices, jobs, trade and living standards

106
Q

Propensity to consume

A

The proportion of any change in income that is spent rather than saved

107
Q

Propensity to save

A

The change in total saving as a result of a change in income

108
Q

Marginal rate of tax

A

The rate of tax on the next unit (£1) of income earned

109
Q

Monetary Policy Committee (MPC)

A

Bank of England committee of 9 people meets every month to set interest rates

110
Q

Monetary stimulus

A

Changes in monetary policy designed to increase aggregate demand including lower policy interest rates and measures to increase the supply of credit

111
Q

Money supply

A

The entire quantity of a country’s commercial bills, coins, loans and credit

112
Q

Multiplier effect (positive)

A

If there is an initial injection into the economy then the final increase in aggregate demand and real GDP will be greater

113
Q

Multiplier effect (negative)

A

If there is an initial withdrawal from the economy then the final decrease in aggregate demand and real GDP will be greater

114
Q

North American Free Trade Agreement (NAFTA)

A

Signed in 1994 involving US, Canada and Mexico

115
Q

National debt

A

A government’s total outstanding debt - effectively what the government still owes from the budget deficits accumulated over time

116
Q

Negative equity

A

When the value of an asset falls below the debt left to pay on that asset. Term is most commonly used in connection with property prices after a slump in prices

117
Q

Negative interest rate

A

An interest rate that is below zero. For real interest rates, this can occur when the inflation rate is higher than the nominal interest rates

118
Q

Net investment

A

Gross investment minus an estimate for capital depreciation

119
Q

Net inward migration

A

When the number of migrants coming into a country is greater than those leaving

120
Q

Net trade

A

The balance between the value of exports and imports

121
Q

Nominal GDP

A

Monetary value of all goods and services produced expressed at current prices

122
Q

Nominal wage growth

A

The annual growth of wages unadjusted for inflation

123
Q

Non-inflationary growth

A

Sustained growth of real national output whilst maintaining price stability

124
Q

Output gap

A

The difference between actual and potential national output. A negative output gap means that an economy has a large margin of spare productive capacity

125
Q

Output measure GDP

A

Value of the goods and services produced by all sectors of the economy; agriculture, manufacturing, energy, construction, the service sector and government

126
Q

Overseas assets

A

Assets such as businesses, shares, property which are owned in overseas countries and which might generate a flow of income which is a credit item on the current account

127
Q

Paradox of thrift

A

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

128
Q

Patent box

A

A reduced rate of Corporation Tax applied to profits from patents - designed to stimulate research and innovation and improve the supply-side of the economy

129
Q

Peak

A

The high point of the economic cycle beyond which a recession starts

130
Q

Pension fund

A

Fund that pool employees’ pension benefits and holds them so that they can be paid at retirement. The money is invested in stocks, bonds and other assets to boost returns and ensure that there are sufficient funds to be paid out

131
Q

Per capita incomes

A

Income per head of the population - a measure of average living standards

132
Q

Phillips curve

A

A statistical relationship between unemployment and inflation

133
Q

Precautionary saving

A

Saving because of fears of a loss of real income or unemployment

134
Q

Price stability

A

Price stability occurs when there is low inflation and the price changes that do occur have little impact on day-to-day decisions of people

135
Q

Productive potential

A

Productive capacity of the economy - boosted by high-quality investment

136
Q

Productivity

A

A measure of efficiency e.g. output per person employed or output per person-hour

137
Q

Propensity to import

A

Proportion of any change in income that is spent on overseas products

138
Q

Propensity to save

A

Proportion of any change in income that is saved rather than spent

139
Q

Protectionism

A

Restricting trade through tariffs and other forms of import controls

140
Q

Purchasing power

A

The buying power of a unit of currency. It is inversely related to the rate of inflation

141
Q

Quantitative Easing

A

The introduction of new money into the national supply by a central bank

142
Q

Quota

A

A physical limit on the quantity of a good that can be imported into a country

143
Q

Real disposable income

A

Income after taxes and welfare benefits, adjusted for the effects of inflation

144
Q

Real income

A

Nominal income adjusted for price changes, expressed at constant prices

145
Q

Real interest rate

A

Nominal rate of interest adjusted for inflation

146
Q

Real wage

A

Nominal wage adjusted for the effects of inflation

147
Q

Recession

A

A period of at least six months (two consecutive quarters) when an economy suffers a fall in output. Or a broadly-based contraction in output, employment, investment and confidence

148
Q

Recovery

A

A phase of the economic cycle, after a recession/depression, during which real GDP starts to increase and unemployment begins to fall

149
Q

Redundancy

A

Making someone redundant is to end their employment

150
Q

Relative deflation

A

An economy with an inflation rate, which is lower than comparable economies. Over time, a low relative rate of inflation can lead to improved competitiveness

151
Q

Remittances

A

Sending of money to people in another country. For many lower-income nations, remittance income is now a big contribution to Gross National Income (GNI)

152
Q

Risk-averse

A

Exhibiting a dislike of uncertainty, often seen in a recession

153
Q

Saving ratio

A

The percentage of disposable income that is saved rather than spent

154
Q

Slowdown

A

A fall in the rate of growth of an economy but not a full-scale recession

155
Q

Slump

A

A sustained decrease in real GDP and a persistent rise in unemployment

156
Q

Soft landing

A

A slowdown in economic activity but which does not result in a recession

157
Q

Sovereign debt

A

Debt issued by or guaranteed by a government

158
Q

Spare capacity

A

When a business is not making full use of its available capacity - there are spare factors of production including land, labour and capital. When an economy has plenty of spare capacity, short-run aggregate supply tends to be elastic

159
Q

Stagflation

A

A combination of slow growth and rising inflation. The most notable recent period of stagflation occurred during the 1970s when world oil prices rose dramatically, and UK inflation rose at one point to nearly 30%

160
Q

Sterling exchange rate index

A

External value of the sterling calculated using a weighted index of a basket of currencies - weightings are based on the value of trade with different countries

161
Q

Stimulus

A

Monetary policy and/or fiscal policy aimed at encouraging higher growth and/or inflation. This can include interest rates cuts, quantitative easing, tax cuts and government spending increases

162
Q

Structural budget deficit

A

The size of a fiscal (budget) deficit adjusted to take account of the effects of changes in the economic cycle

163
Q

Structural trade deficit

A

A trade deficit that arises due to supply-side weaknesses rather than a change in GDP or currency -caused by poor competitiveness

164
Q

Structural unemployment

A

Unemployment that results from the decline in an industry which leaves people unemployed because they do not have the skills needed by industries that are growing

165
Q

Sustainable growth

A

Growth that meets the needs of the present without compromising the ability of future generations to meet their own needs. Growth that can continue without damage to the environment, or the exhaustion of non-renewable resources

166
Q

Target

A

A target is an objective of government policy e.g. low inflation

167
Q

Tariff

A

A tax on imported products that may be ad valorem (%) or a specific tax (a set amount per unit imported)

168
Q

Tight labour market

A

When demand for labour is high and there are shortages of labour. Businesses may have to offer higher wages to attract and keep the workers they need

169
Q

Time lags

A

The time it takes for one change e.g. a change in interest rates to affect other variables e.g. consumer confidence and spending

170
Q

Trade deficit

A

A trade deficit occurs when a country imports a greater value of goods and services than it exports. A trade deficit is a net withdrawal from the circular flow of income

171
Q

Trade-off

A

A trade-off implies that choices have to be made between different objectives of economic policy, for example, a trade-off between economic growth and inflation

172
Q

Transmission mechanism

A

How a change in interest rates affects the various sectors of the economy

173
Q

Trend growth

A

The long-run average growth rate - mainly determined by changes in the stock of available factor inputs and also improvements in productivity. Trend growth is represented by a rightward shift in the LRAS (or PPF boundary)

174
Q

Trough

A

The low point of the economic cycle beyond which a recovery starts

175
Q

Twin deficits

A

Refer to a situation where an economy is running both a fiscal deficit and also a deficit on the current account of the balance of payments

176
Q

Under-employment

A

Workers are underemployed when they are willing to supply more hours of work than their employees are prepared to offer

177
Q

Unemployment trap

A

When the prospect of the loss of unemployment benefits dissuades those without work from taking a new job - creates a disincentives problem

178
Q

Unit wage costs

A

Labour costs per unit of output

179
Q

Unsecured credit

A

Credit not secured by another asset - i.e. money borrowed on credit cards

180
Q

Wage-price spiral

A

Where workers bid for higher wages because they have seen their real income eroded by rising prices. This can lead to a further burst of cost-push inflation

181
Q

Wealth effect

A

The supposed link between changes in wealth and household spending

182
Q

World Bank

A

A source of financial and technical assistance to developing countries. It can provide loans and grants for a wide array of purposes that include investments in education, health, public administration, infrastructure, financial and private sector development, agriculture and environmental and natural resource management

183
Q

World Trade Organisation

A

WTO overseas trade agreements, negotiations and disputes between member countries. The WTO is an organisation that was formed in 1995 to control trade agreements between countries and to set rules on international trade. It replaced GATT (the General Agreement on Tariffs and Trade)

184
Q

Zero Hours Contract

A

An employment contract under which the employee is not guaranteed work and is paid only for work carried out

185
Q

Zombie Companies

A

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

A level AQA Economics (2 decks)

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