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economics > macroeconomic theory vocab > Flashcards

macroeconomic theory vocab Flashcards

1
Q

exchange rate

A

the price of one currency in terms of another

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2
Q

hot money

A

investment funds that flows regularly between different country’s financial markets as investors attempt to ensure they get the highest rate of return (interest rates) possible

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3
Q

aggregate demand

A

total spending in an economy within a particular time period AD = C + I + G + X - M

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4
Q

consumption expenditure

A

expenditure by consumers on goods and services

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5
Q

investment expenditure

A

expenditure by firms on new machinery and other capital goods

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6
Q

government expenditure

A

expenditure by the government on the provision of goods and services

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7
Q

export expenditure

A

expenditure by foreign individuals and organisations on domestic goods and services

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8
Q

import expenditure

A

expenditure by domestic individuals and organisations on foreign goods and services

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9
Q

net exports (balance of trade)

A

export expenditure - import expenditure (X-M)

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10
Q

price level

A

represents the average price of all goods and services produced in an economy within a time period - in UK we use weighted average called CPI

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11
Q

corporation tax

A

a tax paid by limited companies as a proportion of their profit

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12
Q

interest rate

A

cost of borrowing and the reward for saving expressed as a percentage

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13
Q

average propensity to consumer

A

the proportion of income that is spent APC = C/Y

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14
Q

marginal propensity to consume

A

the proportion of change income that is spent MPC = change in C/change in Y

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15
Q

average propensity to save

A

the proportion of income that is saved APS = S/Y

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16
Q

marginal propensity to save

A

the proportion of change income that is saved MPS = change in S/change in Y

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17
Q

dissaving/negative saving

A

spending income that was previously saved

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18
Q

floating exchange rate

A

a system whereby the price of one currency in terms of another is determined by the forces of demand and supply

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19
Q

fixed exchange rate

A

a system whereby the price of one currency in terms of another is set at a specific rate and this rate is maintained by the government/central bank/monetary authority

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20
Q

managed exchange rate (semi-fixed/dirty float)

A

a system whereby the exchange rate is allowed to float freely within a permitted band. intervention only occurs when the exchange rate reaches the upper or lower limits

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21
Q

balance of trade

A

value of exports - value of imports (over a time period) X-M

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22
Q

disposable income

A

income after tax has been subtracted and any benefits added

23
Q

discretionary income

A

disposable income minus all necessary expenditures e.g. mortgage, food, bills

24
Q

consumer confidence

A

refers to household optimism about their future circumstances (whether or not they’ll have a job)

25
Q

business confidence

A

how optimistic firms feel about the future e.g. do they expect profits to rise, do they expect increasing demand

26
Q

wealth effect

A

when consumption has a positive relationship with wealth

27
Q

indirect tax

A

tax paid by a firm on expenditure or output (UK-vat, duty tax)

28
Q

direct tax

A

tax on income and/or wealth (UK-income tax, NI, corporation tax, inheritance)

29
Q

saving

A

what isn’t spent

30
Q

dissaving/negative saving

A

spending income that was previously saved

31
Q

retained profit

A

the proportion of a firms profit that is kept by a firm and not given to shareholders

32
Q

full employment GDP

A

the value of national income when all resources (land, labour, capital, enterprise) are fully and efficiently utilised

33
Q

circular flow of income

A

an economic model that illustrates the flow of money/goods/services from households to firms in an economy

34
Q

AS curve

A

the relationship between the average price level and the total value of output domestic producers are planning to produce over a given period of time

35
Q

trade-off

A

occurs when one thing is given up in order to achieve another using AD/AS analysis we can identify a basic policy goal trade off

36
Q

macroeconomic equilibrium

A

occurs at the level of real GDP where the AD curve intersects the AS curve AD=AS

37
Q

positive output gap

A

occurs when GDP rises above full employment GDP

38
Q

negative output gap

A

occurs when GDP falls below full employment GDP

39
Q

injections

A

represent money that flows into the circular flow that can start a multiplier process - investment, gov expenditure, exports

40
Q

leakages/withdrawals

A

represent money that leaks out of the circular flow of income due to saving, taxation, imports

41
Q

multiplier

A

the amount by which an initial change in AD must be multiplied to find the eventual change in national income (GDP or Y)

42
Q

multiplier effect/process

A

the mechanism by which a change in AD eventually leads to an even greater change in national income (GDP)

43
Q

multiplier formulae

A

multiplier = final change in Y or GDP/initial change in AD

multiplier = 1/proportion withdrawn

44
Q

economic cycle (business cycle)

A

fluctuations in the level of GDP/economic activity over time; following a repeated pattern of booms and slumps

45
Q

recession

A

at least two consecutive quarters of declining GDP (below trend growth)

46
Q

recovery

A

when economic growth becomes positive after a recession

47
Q

slowdown

A

when the rate of economic growth begins to fall and approach 0

48
Q

boom

A

when the rate of economic growth exceeds the rate of growth of potential GDP so that the output gap is narrowed

49
Q

the budget

A

T-G
tax revenue - gov spending

50
Q

budget deficit

A

gov spending greater than tax revenue

51
Q

budget surplus

A

tax revenue greater than gov spending

52
Q

hysteresis

A

occurs when short run reductions in AD result in long run reductions in AS e.g. during long lasting recession

53
Q

demand pull inflation

A

increase in price level over time caused by increase in AD

54
Q

cost push inflation

A

increase in price level caused by an increase in firms costs e.g. cost of labour, cost of raw materials, cost of capitals that lead firms to increase prices to maintain profit

economics (4 decks)

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