Macroeconomic key terms Flashcards
(185 cards)
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
2
Q
Accelerator effect
A
Where planned capital investment is linked positively to the past and expected growth of consumer demand or national income
3
Q
Aggregate supply shock
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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
4
Q
Animal spirits
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The state of confidence or pessimism held by consumers and businesses
5
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Appreciation
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A rise in the market value of one exchange rate against another
6
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Austerity
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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
7
Q
Automatic stabilisers
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Automatic fiscal changes as the economy moves through stages of the business/trade/economic cycle
8
Q
Bank run
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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
9
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Bond
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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
10
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Brain drain
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The movement of highly skilled people from their own country to another nation
11
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BRIC economies
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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
12
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Bubble
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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”)
13
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Budget deficit
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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
14
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Business confidence
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Expectations about the future of the economy -vital in influencing business decisions about how much to spend on new capital goods
15
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Capacity utilisation
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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
16
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Capital market
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A stock or bond market where firms can raise money for investment purposes
17
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Capital stock
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The value of the total stock of capital inputs in the economy
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Capital-labour substitution
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Replacing workers with machines in a bid to increase productivity and reduce the unit cost of production. This can lead to structural unemployment
19
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Claimant Count
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The number of people claiming unemployment-related benefits
20
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Closed economy
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An economy operating without imports and exports - i.e. closed to global trade
21
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Comparative advantage
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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
22
Q
Constant prices
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Constant prices tells us that the data has been inflation adjusted
23
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Consumer confidence
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Expectations about the future including interest rates, incomes and jobs
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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Consumer Price Index (CPI)
Is the government's preferred measure of inflation
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Corporation tax
A tax on the profits made by companies
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Cost push inflation
An increase in the price level caused by a sustained increase in costs of production
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Credit crunch
Where banks reduce lending due to falling confidence that loans will be repaid
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Creeping inflation
Small rises in the general price level over a long period
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Current Account
The overall balance of credits minus debits for trade in goods, trade in services, investment income and current transfers
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Current Account deficit
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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Current Account surplus
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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Cyclical trade deficit
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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Cyclical unemployment
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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Default
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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Deflation
Where inflation falls below 0%
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Depreciation
A fall in the market value of one exchange rate against another
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Depression
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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Deregulation
Reducing barriers to entry in order to make a market more competitive
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Discouraged workers
People often out of work for a long time who give up on job search
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Discretionary fiscal policy
Deliberate attempts to affect aggregate demand using changes in government spending, direct and indirect taxation and borrowing
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Disinflation
A persistent fall in the general price level of goods and services
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Disposable income
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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Double-dip recession
When an economy goes into recession twice without a full recovery in between
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Dumping
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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Economic cycle
Variations in the annual rate of growth of an economy over time
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Economic growth
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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Economic shocks
Unpredictable events such as volatile prices for oil, gas and foodstuffs
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Economic stability
When growth, prices and unemployment do not change much from year to year
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Economically active
Those who are unemployed and actively seeking a new job
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Economically inactive
Those who are of working age but are neither in work nor actively seeking work
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Emerging markets
The financial markets of developing countries
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Exchange rate
The rate at which one currency can be exchanged for another
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Expansionary monetary policy
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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Expectations
How we expect the future to unfold
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Expenditure-switching policies
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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Export revenue
Sales from selling goods and services overseas, an injection of demand
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Financial assets
For consumers, the main financial assets are property, pensions, equities, unit trusts and cash
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Fine-tuning
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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Fiscal austerity or fiscal tightening
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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Fiscal/budget deficit
When government expenditure is higher than tax revenue
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Fiscal policy
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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Fiscal stability
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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Fiscal stimulus
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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Forecast
A prediction made about the likely future performance of an economy
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Foreign Direct Investment (FDI)
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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Free trade
When trade is allowed without any form of restriction such as a tariff
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Full capacity output
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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Full employment
When there are enough job vacancies for all the unemployed to take work
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Gross Domestic Product (GDP)
Is the total value of output in the UK and is used to measure changes in economic activity
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Gini coefficient
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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Globalisation
The deepening of relationships between countries of the world reflected in an increasing level of overseas trade and investment
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Gross National Income (GNI)
Income generated from the resources owned by inhabitants and businesses of a given country
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Government debt
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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Gross Domestic Product per Capita (GDP per capita)
National income per head of population, a baseline measure of living standards
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Hard landing
A full-scale recession shown by a decline in real national output
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Hot Money
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
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Household wealth
The value of assets - including property, shares, savings and pension fund assets
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Human capital
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
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Human Development Index
An index to assess comparative levels of development in countries, quantified in terms of literacy, life expectancy and purchasing power
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Hysteresis
When a sustained period of low aggregate demand can lead to permanent damage to the supply side of the economy
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Immobility of labour
Barriers to the movement of people between areas and between jobs
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Inflation
A sustained increase in the general price level for goods and services
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Inflation expectations
The rate of increase of consumer prices expected by consumers. Expectations can influence spending and saving decisions
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Inflation target
The Bank of England has a CPI inflation target, which is currently 2%
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Inflationary pressures
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
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Infrastructure
The transport links, communications networks, sewage systems, energy plants and other facilities essential for the efficient functioning of a country and its economy
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Innovation
Changes to products or production processes - innovation is important in delivering improvements in dynamic efficiency and generating better goods and services
89
International Monetary Fund (IMF)
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
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International reserves
A nation's stock of foreign currency and gold
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Inventories
These consist of materials and supplies which are stored for use in production, work-in-progress, finished goods and goods for resale
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Investment
Spending on capital goods including plant & machinery and infrastructure
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Investment income
Interest, profits and dividends from assets owned and located overseas
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Job search
The process by which workers find appropriate jobs given their tastes and skills
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Keynesian economics
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
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Keynesian unemployment
Unemployment caused by a lack of aggregate demand in the economy - a deficiency of private-sector spending causes output and employment to contract
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Labour shedding
Cut-backs in employment often seen in a slowdown or a recession
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Labour shortages
When business find it difficult to recruit the workers they need
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Labour supply
The number of people able, available and willing to work at prevailing wage rates
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Lagging indicators
Indicators which tend to follow economic cycles e.g. unemployment
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Leading indicators
Indicators which predict future economic trends e.g. consumer confidence
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Leveraging
The use of borrowed funds to increase your capacity to spend or invest
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Lidiquity
The ease with which something can be converted to cash with little loss of value
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Liquidity trap
When very low-interest rates cease to have a strong effect on aggregate demand
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Macroeconomic performance
The overall performance in terms of output, prices, jobs, trade and living standards
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Propensity to consume
The proportion of any change in income that is spent rather than saved
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Propensity to save
The change in total saving as a result of a change in income
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Marginal rate of tax
The rate of tax on the next unit (£1) of income earned
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Monetary Policy Committee (MPC)
Bank of England committee of 9 people meets every month to set interest rates
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Monetary stimulus
Changes in monetary policy designed to increase aggregate demand including lower policy interest rates and measures to increase the supply of credit
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Money supply
The entire quantity of a country's commercial bills, coins, loans and credit
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Multiplier effect (positive)
If there is an initial injection into the economy then the final increase in aggregate demand and real GDP will be greater
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Multiplier effect (negative)
If there is an initial withdrawal from the economy then the final decrease in aggregate demand and real GDP will be greater
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North American Free Trade Agreement (NAFTA)
Signed in 1994 involving US, Canada and Mexico
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National debt
A government's total outstanding debt - effectively what the government still owes from the budget deficits accumulated over time
116
Negative equity
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
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Negative interest rate
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
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Net investment
Gross investment minus an estimate for capital depreciation
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Net inward migration
When the number of migrants coming into a country is greater than those leaving
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Net trade
The balance between the value of exports and imports
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Nominal GDP
Monetary value of all goods and services produced expressed at current prices
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Nominal wage growth
The annual growth of wages unadjusted for inflation
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Non-inflationary growth
Sustained growth of real national output whilst maintaining price stability
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Output gap
The difference between actual and potential national output. A negative output gap means that an economy has a large margin of spare productive capacity
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Output measure GDP
Value of the goods and services produced by all sectors of the economy; agriculture, manufacturing, energy, construction, the service sector and government
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Overseas assets
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
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Paradox of thrift
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
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Patent box
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
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Peak
The high point of the economic cycle beyond which a recession starts
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Pension fund
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
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Per capita incomes
Income per head of the population - a measure of average living standards
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Phillips curve
A statistical relationship between unemployment and inflation
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Precautionary saving
Saving because of fears of a loss of real income or unemployment
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Price stability
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
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Productive potential
Productive capacity of the economy - boosted by high-quality investment
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Productivity
A measure of efficiency e.g. output per person employed or output per person-hour
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Propensity to import
Proportion of any change in income that is spent on overseas products
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Propensity to save
Proportion of any change in income that is saved rather than spent
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Protectionism
Restricting trade through tariffs and other forms of import controls
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Purchasing power
The buying power of a unit of currency. It is inversely related to the rate of inflation
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Quantitative Easing
The introduction of new money into the national supply by a central bank
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Quota
A physical limit on the quantity of a good that can be imported into a country
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Real disposable income
Income after taxes and welfare benefits, adjusted for the effects of inflation
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Real income
Nominal income adjusted for price changes, expressed at constant prices
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Real interest rate
Nominal rate of interest adjusted for inflation
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Real wage
Nominal wage adjusted for the effects of inflation
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Recession
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
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Recovery
A phase of the economic cycle, after a recession/depression, during which real GDP starts to increase and unemployment begins to fall
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Redundancy
Making someone redundant is to end their employment
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Relative deflation
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
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Remittances
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)
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Risk-averse
Exhibiting a dislike of uncertainty, often seen in a recession
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Saving ratio
The percentage of disposable income that is saved rather than spent
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Slowdown
A fall in the rate of growth of an economy but not a full-scale recession
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Slump
A sustained decrease in real GDP and a persistent rise in unemployment
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Soft landing
A slowdown in economic activity but which does not result in a recession
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Sovereign debt
Debt issued by or guaranteed by a government
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Spare capacity
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
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Stagflation
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%
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Sterling exchange rate index
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
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Stimulus
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
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Structural budget deficit
The size of a fiscal (budget) deficit adjusted to take account of the effects of changes in the economic cycle
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Structural trade deficit
A trade deficit that arises due to supply-side weaknesses rather than a change in GDP or currency -caused by poor competitiveness
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Structural unemployment
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
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Sustainable growth
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
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Target
A target is an objective of government policy e.g. low inflation
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Tariff
A tax on imported products that may be ad valorem (%) or a specific tax (a set amount per unit imported)
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Tight labour market
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
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Time lags
The time it takes for one change e.g. a change in interest rates to affect other variables e.g. consumer confidence and spending
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Trade deficit
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
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Trade-off
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
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Transmission mechanism
How a change in interest rates affects the various sectors of the economy
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Trend growth
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)
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Trough
The low point of the economic cycle beyond which a recovery starts
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Twin deficits
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
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Under-employment
Workers are underemployed when they are willing to supply more hours of work than their employees are prepared to offer
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Unemployment trap
When the prospect of the loss of unemployment benefits dissuades those without work from taking a new job - creates a disincentives problem
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Unit wage costs
Labour costs per unit of output
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Unsecured credit
Credit not secured by another asset - i.e. money borrowed on credit cards
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Wage-price spiral
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
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Wealth effect
The supposed link between changes in wealth and household spending
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World Bank
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
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World Trade Organisation
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)
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Zero Hours Contract
An employment contract under which the employee is not guaranteed work and is paid only for work carried out
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Zombie Companies
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
