Macroeconomics Flashcards
1
Q
Accelerator Effect
A
Relationship between the change in new investment and the rate of change in national income.
2
Q
Aggregate Demand
A
Total planned expenditure in the economy, C+I+G+(X-M)
3
Q
Aggregate Supply
A
Total value of goods and services supplied in the economy.
4
Q
Balance of Payments
A
A record of a country’s international transactions over a year.
5
Q
Balance of Trade
A
Visible exports minus Visible imports
6
Q
Balanced Budget
A
Where Government Receipts = Government Spending in a fiscal year.
7
Q
Bank rate
A
Interest rate set by the Bank of England.
8
Q
Bonds
A
Financial securities sold by companies or governments. They have a maturity date at which they are redeemed, with the borrower usually making a fixed interest payment each year (coupon) until maturity
9
Q
Boom
A
Period of above average short run economic growth.
10
Q
Broad Money
A
Money held in Banks and Building Societies that is not immediately accessible.
11
Q
Budget Deficit
A
Where Government Spending exceeds Government Receipts in a fiscal year
12
Q
Budget Surplus
A
Where Government Receipts exceed Government Spending in a fiscal year
13
Q
Central bank
A
Financial Institution typically responsible for setting short-term interest rates and issuing notes and coins.
14
Q
Circular Flow of Income
A
Model explaining the equilibrium level of national income
15
Q
Claimant Count
A
A measure of unemployment of the number of people claiming unemployment benefits.
16
Q
Consumption (C)
A
Spending by domestic households on goods and services.
17
Q
Cost-push Inflation
A
Where increased costs of production result in firms increasing prices, leading to an increase in the general price level.
18
Q
CPI
A
Consumer Price Index. Target Measure for inflation by the MPC of the Bank of England.
19
Q
Credit Crunch
A
When borrowing becomes more expensive or unavailable.
20
Q
Current Account
A
Part of the Balance of Payments which looks at the net income flows from trade in goods/services or the reward from investments located overseas.
21
Q
Current Account Deficit
A
Where flows of money from trade and other incomes out of the country are greater than the equivalent flows into the country.
22
Q
Cyclical Unemployment
A
Demand-deficient unemployment that results from a downturn in the economic cycle.
23
Q
Deflation
A
When there is a constant fall in the general price level of goods and services.
24
Q
Deindustrialisation
A
A fall in the proportion of national output due to the loss of the manufacturing sector of the economy.
25
Demand Management
Using Monetary and Fiscal Policy to control Aggregate Demand to minimise fluctuations in the economic cycle.
26
Demand-pull Inflation
Where AD exceeds AS leading to an increase in the price level
27
Demand-side Shock
Unexpected and significant changes in the level of AD
28
Deregulation
Process of removing Government controls from markets
29
Direct Tax
A tax on an individual/firm’s income or wealth
30
Disinflation
Where the rate of inflation is still positive
31
Discretionary Fiscal Policy
Deliberate manipulation of government spending and taxation to influence the economy
32
Disposable Income
Income available to spend after the payment of income tax and national insurance contributions.
33
Downturn
Period of the economic cycle where short-run economic growth falls from above average to below average.
34
Economic Cycle
Tendency for economic growth to fluctuate over time
35
Economic Growth
Increase in national income (SR). Increase in the productive capacity of the economy (LR).
36
Economic Shock
Unexpected event that significantly impacts the macroeconomy
37
Exchange Rate
Price of one currency in terms of another currency
38
Exports
Goods or services sold abroad
39
Fiscal Policy
Use of Government Spending and taxation to control the demand-side of the economy
40
Frictional Unemployment
Unemployment due to moving between jobs
41
Full employment
Level of employment where all economically active are able to find work at the current wage rate
42
GDP
Gross Domestic Product is the Total value of goods and services produced in the economy
43
Globalisation
Increasing interdependence and integration of world economies
44
Government Spending/Expenditure
Spending by the Government on current and capital items at both local and national level
45
Hot Money
Money that is liable to rapid transfer between countries
46
Human Capital
Skills, abilities, knowledge and motivation of labour
47
Imports
Goods and services purchased from abroad
48
Income
Flow of Income to a factor of production over a period of time
49
Index number
A number designed to be used to show the percentage changes in a variable over time, where 100 is the value of the base period
50
Inflation
Persistent rise in the general price level of goods and services
51
Inflation Rate
Percentage change in the price level measured over 1 year
52
Injection
Money that enters the circular flow of income and boosts national income
53
Interest rate
Cost of borrowing and the reward for saving
54
Investment
Spending by firms on capital equipment
55
Labour Force
Those of working age who are in work or actively seeking work
56
Macroeconomic equilibrium
Level of national income where there is no tendency for it to rise or fall
57
Macroeconomic Objective
A target the government aims to achieve for the economy as a whole
58
Macroeconomics
Study of the economy as a whole
59
Monetary Policy
Controlling the economy through changes in interest rates and the money supply
60
Mortgage
Loan to buy a property
61
MPC
Monetary Policy Committee of the Bank of England, made up of economists and bankers, meet monthly to decide on changing the base rate of interest
62
Money Supply
Total stock of liquid assets in an economy
63
Multiplier effect
Where a change in spending leads to a proportionately greater change in national income
64
Narrow Money
Notes, coins and balances available for current transactions
65
National Debt
Stock of all outstanding government debt that has yet to be repaid
66
National Income
Total income generated within an economy over a period of time
67
Negative equity
Situation where the value of a property is lower than the outstanding mortgage
68
Negative Output Gap
When the economy is below its trend rate of growth
69
Nominal
Not adjusted for inflation
70
Output Gap
Difference between actual growth and trend growth
71
Participation rate
Proportion of the country’s working age population that makes up the labour force
72
Policy Conflict
Where attempts to achieve one macroeconomic objective involves a trade-off with another objective
73
Positive Output Gap
When actual GDP growth exceeds the trend rate of growth, increasing inflationary pressure
74
Price level
Average level of prices of a range of goods and services at a point in time
75
Primary Income
Flows of income from investments abroad minus flows of income from foreign investments in the UK
76
Privatisation
Sale of government owned assets to the private sector
77
Progressive Tax
Where those on higher incomes pay a higher proportion of their income in tax compared to those on lower incomes
78
Proportional Tax
Where everyone pays the same proportion of their income in tax
79
Real GDP
GDP adjusted for inflation
80
Recession
2 or more consecutive quarters of negative economic growth
81
Recovery
When short-run economic growth starts to increase after a recession
82
Regressive Tax
Where those on lower incomes pay a higher proportion of their income in tax compared to those on higher incomes
83
Secondary Income
Transfers of money received in the UK from abroad
84
Structural Unemployment
Unemployment caused by a change in the pattern of demand in an economy
85
Subsidy
A payment made by the government to producers to encourage greater production of a good or service
86
Supply-side Improvements
Increase in an economy’s productive capacity due improved efficiency
87
Supply-side Policies
Range of measures designed to increase AS by increasing efficiency of markets
88
Supply-side Shock
Unexpected and significant changes in the price/availability of factors of production
89
Tariff
Tax on imports
90
Transmission Mechanism
How changes in the bank rate influence components of AD
91
Unemployment
Those of working age who are willing and able to work at the given wage rate are unable to find work
92
Unemployment rate
Percentage of the labour force that are currently unemployed
93
Benefits Trap
Where individuals receive more in benefits than from an income in employment
94
Voluntary Unemployment
Workers are not willing to take a job at the given wage rates
95
Wealth
A stock of owned assets
96
Wealth Effect
Where a rise in the value of household wealth encourages consumers to spend more and save less
97
Withdrawals
Money taken out of the circular flow of income which reduces national income
98
Absolute Advantage
A firm or country has the ability to output the largest amount of a product with its factors of production
99
Automatic Stabiliser
Feature of fiscal approach which helps minimise fluctuations in AD without deliberate action
100
Capital Ratio
Amount of capital on a bank’s balance sheet as a proportion of its loans
101
Common External Tariff
A unified tax on imports into a customs union
102
Classical Unemployment
Real wage unemployment. Due to real wages being above equilibrium level
103
Commercial Bank
Financial institution which aims to make profits by selling banking services
104
Common Market
Group of countries with no barriers to capital and labour mobility
105
Comparative Advantage
When a firm or country can produce a product at a lower opportunity cost than another firm or country
106
Convergence criteria
Macroeconomic conditions that must be met before a country can join an Economic and Monetary Union
107
Coupon
Guaranteed fixed annual interest payment to a holder of a bond
108
Credit
When a bank makes a loan (advance), it creates an asset on the bank’s balance sheet. A deposit, which is a liability of the bank
109
Customs Union
A group of countries without trade barriers between members, but a common external tariff against imports from non-members
110
Deflationary Policy
Policies to reduce AD
111
Depreciation
A fall in the value of a currency in a floating exchange rate system
112
Devaluation
A fall in the value of a currency in a fixed exchange rate system
113
Development Indicators
GDP per capita, distribution of income, mortality rates, HDI
114
Effective exchange rate
Exchange rate of a currency measured against a weighted average of the currencies of its major trading partners
115
Economic and Monetary Union
A group of countries in a common market adopt a single currency and a single monetary policy
116
Economic Development
Improvements in economic well-being and quality of life by adopting new technology and moving to an industry-based economy
117
Foreign Direct Investment
Investment in physical capital abroad by MNCs
118
Financial Account
Part of the balance of payments which records capital flows into and out of an economy
119
Financial Conduct Authority
Responsible for macropreudential regulation- ensuring financial markets work well
120
Financial Policy Committee
FPC, part of BoE that identifies, monitors and takes action to remove or reduce systemic risk
121
Fiscal drag
Effect of inflation which increases the tax burden in a progressive tax system as people are pushed into higher tax brackets
122
Fiscal boost
Effect of inflation to reduce the real burden of unit taxes over time
123
Funding for Lending Scheme
Incentives to banks and buildings societies to expand lending to firms
124
Forward Guidance
Attempts by BoE to send signals to market participants about the likely future path of interest rates to reduce uncertainty
125
Free trade area
Group of countries that coordinate a removal of trade barriers between members, but do not have a common external tariff
126
Geographical immobility
Where workers find it difficult to move to areas with employment opportunities
127
HDI
A development index based on life expectancy, education and GDP per capita
128
Indirect tax
A tax on spending
129
Infant Industry
Justification to protect newer domestic firms from foreign competition until they can achieve sufficient economies of scale to compete
130
Investment Bank
A bank that offers financial advice to clients- e.g. looking to buy a company
131
J curve effect
Devaluation of a currency worsens in the short term before long run elastic demand for exports and imports lead to an improvement
132
Laffer curve
Diagram showing the relationship between average rate of income tax and tax revenue
133
Liquidity
Ease at which an asset can be turned into spendable money without loss of value
134
Liquidity ratio
Ratio of a bank’s cash and other liquid assets to its deposits
135
Loanable funds
Determination of interest rates through demand and supply of money
136
Marginal rate of tax
Proportion of an additional £ of income that is taxed
137
Marshall-Lerner Condition
Sum of PED for exports and PED for imports must be greater than 1 for a currency devaluation to improve the balance of payments
138
Maturity
Date at which the issuer of a fixed interest security pays back the face value to the holder
139
MNC
A company with its headquarters in one country and operations in many other countries
