Macroeconomics definitions Flashcards
1
Q
Absolute advantage
A
When one country is able to produce more of a good or service for the same amount of resources (lower cost per unit)
2
Q
Accelerator effect
A
A rise in national income can lead to a proportionately greater final rise in investment
3
Q
Actual labour force
A
The employed workforce plus those who are unemployed and actively seeking work
4
Q
Adjustable peg systems
A
A fixed exchange rate in the short-run which is adjusted upwards or downwards to avoid under/over valuation
5
Q
Aggregate demand
A
The total demand for a country’s goods and services at a given price level and in a given time period
6
Q
Aggregate supply
A
The total amount that producers in an economy are willing and able to supply at a given price level in a given time period
7
Q
Animal spirits
A
The state of confidence or pessimism held by consumers and businesses (Keynesian concept)
8
Q
Asymmetric inflation target
A
Deviations below the inflation target are less important than those above the target
9
Q
Automatic stabilisers
A
The existence of progressive taxation and a welfare system automatically kick in to help reduce fluctuations in the economic cycle
10
Q
Average propensity to consume (APC)
A
The proportion of disposable income spent in an economy. Consumer expenditure / disposable income
11
Q
Average propensity to save (APS)
A
The proportion of disposable income saved in an economy. Savings / disposable income
12
Q
Balance of payments
A
A record of money flows in and out of a country in a year
13
Q
Balanced budget
A
Total government spending = Total tax revenue in a given time
14
Q
Benign deflation
A
Deflation caused by improvements in the supply side (rightwards shift in LRAS)
15
Q
Budget deficit
A
A budget deficit means that total government spending > total government tax revenue in a given fiscal year
16
Q
Budget surplus
A
A budget surplus means that total government tax revenue > total government spending in a given fiscal year
17
Q
Capital account
A
A small account on the balance of payments that includes debt forgiveness, patents, copyrights, franchises, leases and land ownership
18
Q
Capital expenditure
A
Expenditure on physical assets such as roads, bridges, hospital buildings and equipment. Capital expenditure is long-term spending that does not necessarily have to be renewed every year
19
Q
Certainty (canon of taxation)
A
Both the individual and the state should know exactly how much tax should be paid, how and when
20
Q
Circular flow of income
A
A model of the movements of spending and income throughout the economy, which shows the impact of injections and leakages on GDP
21
Q
Claimant count
A
A monthly count on people claiming unemployment related benefits e.g. JSA in the UK
22
Q
Comparative advantage
A
Where one country produces a good or service at a lower relative opportunity cost than others
23
Q
Consumer expenditure
A
Spending by households own domestically produced goods and services
24
Q
Consumer price index (CPI)
A
A measure of the changes in the price of a representative basket of consumer goods and services. Differs from RPI in methodology and coverage
25
Convenience (Canon of taxation)
The time and method for paying the tax should be suitable
26
Cost-push inflation
Increases in the price level caused by increases in the cost of production and decreases in SRAS
27
Crawling peg systems
Where the exchange rate is fixed but large revaluations or devaluations are avoided by frequent but small changes to the fixed exchange rate
28
Current account
Trade in goods, trade in services, income flows and transfers on the balance of payments
29
Current account deficit
When a country's expenditure abroad exceeds its revenue from trade, income and transfers
30
Current account surplus
When a country's revenue from abroad exceeds its expenditure on trade, income and transfers
31
Current expenditure
Expenditure on goods and services, wages, welfare payments and raw materials consumed within the current year. Current expenditure is short-term spending that has to be renewed each year
32
Cyclical budget deficit
A cyclical budget deficit takes into account fluctuations in tax revenue and spending due to the economic cycle
33
Cyclical unemployment
Involuntary unemployment due to a lack of demand for goods and services
34
Deflation
A situation in which the average level of prices is falling (negative inflation)
35
Degrowth
Political, economic and social ideas in favour of abolishing economic growth as a macroeconomic objective
36
Demand-pull inflation
Increases in the price level caused by increases in AD
37
Development
A process that leads an improvement in people's economic well-being and an increase in quality of life factors
38
Direct taxation
A tax paid directly to the government by the person it's imposed on. Examples include income tax and corporation tax
39
Discretionary fiscal policy
The deliberate use of government spending and taxation as tools to try and achieve macroeconomic objectives
40
Disinflation
A decrease in the rate of inflation
41
Disposable income
Total personal income minus total personal taxes
42
Economic cycle
The tendency for economic activity to fluctuate around a trend growth rate
43
Economic development
A process that leads to an improvement in people's economic well-being and an increase in the quality of life factors
44
Economic growth
In the short-run, an increase in real GDP. In the long-run, an increase in productive capacity
45
Economically inactive
People without a job who have not actively sought after work in the last four weeks and/or are not available to start work in the next two weeks
46
Economy (canon of taxation)
The cost of collection should be as small as possible
47
Employment rate
The percentage of people aged 16 to 64 who work for 1 hour or more per week
48
Endogenous money
A Post-Keynesian observation that the quantity of money is not fixed and is not determined by the central bank. Commercial banks have permission to create loans which is money that may be spent into existence in the real economy
49
Exogenous money
A Neoclassical and Monetarist theory that the central bank determines the money supply
50
Equity (canon of taxation)
The burden of taxation should involve equal 'sacrifice' , i.e. be progressive
51
Exchange rate
The value of one currency in terms of another currency
52
Exchange rate band systems
Where the exchange rate floats freely within a permitted band of fluctuation. intervention only occurs when the exchange rate reaches its upper or lower limit (ceiling and floor)
53
Expenditure method measure of GDP
Add up all the spending on goods and services in a year
54
Expenditure reducing policies
Policies that reduce the overall level of national income in order to reduce the demand for imports and correct a current account deficit on the balance of payments
55
Expenditure switching policies
Policies that increase the price of imports and/or reduce the price of exports in order to reduce the demand for imports and increase demand for exports
56
Exports
The value of goods and services sold abroad
57
Financial account
Direct capital investment (FDI), financial investment (portfolio investment) and banking flows and reserves
58
Financial instability hypothesis
Minsky argued that stability breeds instability and financial crashes are inevitable in a capitalist society as high borrowing leads to asset price inflation which leads to further borrowing and asset bubbles
59
Fiscal drag
Fiscal drag is a concept where inflation and earnings growth may push more taxpayers into higher tax brackets. Therefore, fiscal drag has the effect of raising government tax revenue without explicitly raising tax rates
60
Fiscal policy
Decisions made by the government on its expenditure, taxation and borrowing
61
Fixed exchange rate
An exchange rate system in which the value of one currency has a fixed value against other countries. This fixed rate is often set by the government
62
Flat rate income tax
A system of taxation where one tax rate is applied to all personal income with no deductions
63
Freely floating exchange rate
A system whereby the price of one currency expressed in terms of another is determined by the forces of demand and supply
64
Frictional unemployment
Transitional unemployment due to people moving between jobs
65
Full employment (Keynesian)
Full employment is achieved when there is no cyclical unemployment (demand-deficient unemployment) and therefore only frictional and voluntary unemployment in the economy, i.e. no involuntary unemployment (waste of human potential)
66
Full employment (Monetarist)
Full employment or the 'non-accelerating inflation rate of unemployment' NAIRU is the level of involuntary unemployment that a central bank judges to be acceptable or necessary to keep inflation low (2% B of E target)
67
GDP
The value of output produced in a country in a year
68
GDP per capita
The total value of output produced domestically in a country in a year divided by the population
69
GDP per capita PPP
Per capita GDP adjusted to an exchange rate which equalises the price of a basket of identical traded goods and services in two different countries
70
GNI
GDP plus factor incomes earned by foreign residents, minus income earned in the domestic economy by non-residents
71
Government spending
Current and capital expenditure on goods and services by the central government
72
Heckscher-Ohlin theory of trade
A theory that a country will export products produced using factors of production that are abundant and import products whose production requires the scarce resources
73
Hyperinflation
Occurs when a country experiences very high and often accelerating rates of inflation, rapidly eroding the real value of the currency
74
Hysteresis (Keynesian)
Unemployment caused by long-term unemployment
75
Imports
The value of goods and services bought from abroad
76
Income (balance of payments)
Profit, interest and dividends on investments abroad/sent aboard
77
Income method measure of GDP
Add up all the factor incomes earned in the country in a year
78
Income redistribution
The transfer of income from rich to poor to ensure greater access to necessities
79
Index numbers
An index number is an economic data figure reflecting price or quantity compared with a standard or base vaue
80
Indirect taxation
An indirect tax is a tax levied upon goods and services. It is placed upon the transaction, e.g. Value added tax (VAT) and excise duty
81
Inflation
A sustained rise in the general price level
82
Inflationary noise
Inflationary noise refers to the distorting effect that inflation can have
83
Injections
Additions of extra spending into the circular flow of income in the form of government spending, investment and export revenue
84
Interest rates
The interest rate represents the proportion of a principal sum which is due to be paid by a borrower or to a saver. It represents a price on money
85
Investment
Business and government spending on capital goods
86
J-Curve
A theory stating a country's trade deficit will worsen initially after the depreciation of its currency but will eventually improve
87
Keynesian school
A group of economists who believe that the macroeconomy can settle at an equilibrium that is below full employment
88
Labour force
Those in employment plus the unemployed. Both groups are economically active
89
Labour Force Survey (LFS)
Uses the ILO definition of unemployment. Survey of 60,000 people done 4 times per year
90
Leakages
Withdrawals of possible spending from the circular flow of income in the form of savings, taxation and import expenditure
91
Long run (potential) growth
An increase in productive capacity in the economy i.e. An increase in LRAS
92
Long run Phillips curve
Monetarist perfectly inelastic curve that shows no permanent trade-off between inflation and unemployment in the long run
93
Macroeconomic equilibrium
A situation where aggregate demand equals aggregate supply and real GDP is unchanging
94
Malign deflation
Deflation caused by leftwards shifts in AD
95
Managed floating systems
Where the exchange rate is allowed to float but there is a central bank intervention to prevent large fluctuations in the exchange rate
96
Marginal propensity to consume (MPC)
The proportion of an increase in disposable income that households devote to consumer expenditure
97
Marginal propensity to import (MPM)
The proportion of an increase in disposable income that households spend on imported goods and services
98
Marginal propensity to save (MPS)
The proportion of an increase in disposable income that households devote to saving
99
Marginal propensity to tax (MPT)
The proportion of an increase in disposable income that households pay as tax
100
Marshall-Lerner condition
The Marshall-Lerner condition is the assumption that the value of all imports and exports has an elastic PED (>1)
101
Menu costs
Menu costs are costs associated with relisting prices as a direct consequence of inflation
102
Monetarist school
A group of economists who believe that the macroeconomy always adjusts rapidly to a full employment level of output
103
Money supply
The total amount of money or monetary assets available in an economy at a specific time
104
Multiplier effect
The process by which any change in a component of aggregate demand results in a greater final change in real GDP
105
NAIRU
A Monetarist acronym for Non-Accelerating Inflation Rate of Unemployment and refers to a level of employment where the rate of wage inflation is stable. There is a satisfactory level of involuntary unemployment
106
National debt (MMT)
Total money spent into existence by the government that is yet to be returned in taxes
107
National debt (Neoclassical)
The accumulation of budget deficits (the total stock of debt)
108
Negative output gap
Occurs when a country's actual output is below its potential output
109
Net errors and omissions
A balancing item that takes into account any discrepancies that arise in calculating the balance of payments
110
Net exports
The value of exports minus the value of imports
111
Nominal GDP formula
Real GDP / (100/ price index)
112
Output gap
A measure of the difference between actual and potential output
113
Output method measure of GDP
Add up the total value added or final value of goods and services produced in a year
114
Positive output gap
Occurs when an economy's actual output is temporarily above its potential output
115
Potential labour force
The employed workforce plus those who are unemployed and actively seeking work plus people who are economically inactive
116
PPP
Purchasing Power Parity. The exchange rate which equalises the value of an identical basket of traded goods and services in two different countries
117
Prebisch-Singer hypothesis
The Prebisch-Singer hypothesis argues that the price of primary commodities declines relative to the price of manufactured goods over the long term, which causes the terms of trade of primary-product-based economies to deteriorate
118
Price index formula
100 X (Nominal GDP/Real GDP)
119
Price level
The average of each of the prices of all the products produced in an economy
120
Production possibility curve/frontier
A curve showing the maximum combinations of goods and services that can be produced in a set period of time given available resources and the state of technology (if all resources are efficiently employed)
121
Progressive taxation
Taxation for which the tax rate raises from low to high so that the taxpayer's average rate is less than their marginal tax rate (even though both are rising). These take a larger proportion of richer households' income
122
Proportional taxation
Taxation for which the same tax rate is charged for each taxpayer, irrespective of income
123
Quantitative easing
Central bank asset purchase (usually government and corporate bonds) with money it has 'printed' or more accurately, created electronically. This increases reserves and therefore lowering interest rates and increasing the money supply
124
Quantity theory of money (Monetarist)
Based on the Fisher equation the quantity theory of money argues it is possible to increase the money supply and there is a positive causal relationship between the money supply and price level
125
Real GDP
The country's output measured in constant prices and so adjusted to inflation
126
Real GDP formula
Nominal GDP X (100 / price index )
127
Recession
A period of negative economic growth that lasts for 6 months (two consecutive quarters) or more
128
Regional unemployment
Usually arises from structural unemployment. There is a mismatch between skills demanded and skills available in the labour market
129
Regressive taxation
Taxation for which the tax rate falls from high to low so that the taxpayers' average tax rate becomes greater than their marginal tax rate (even though both are falling). These take a larger proportion of poorer households' income
130
Retail price index (RPI)
A measure of inflation that is used for adjusting pensions and other benefits to take account of changes in inflation and frequently used in wage negotiations. Differs from CPI at methodology and coverage
131
Risk
Decision making situations in which all potential outcomes and their likelihood of occurrences are known to the decision maker
132
Seasonal unemployment
Unemployment at certain times of the year because work in some industries is not needed all year round
133
Semi-fixed / Semi-floating exchange rate
An exchange rate system that allows a country's currency to fluctuate within a permitted band of fluctuation
134
Shock
A shock is an unexpected or unpredictable event that affects an economy, either positively or negatively
135
Shoe leather costs
Shoe leather costs relate to the costs involved in reducing holdings of cash and money in current accounts and seeking the highest rate of interest
136
Short run (actual) growth
An increase in real GDP
137
Short run Phillips curve
New Keynesian curve that shows a trade-off between inflation and unemployment
138
Stagflation
Occurs when an economy simultaneously experiences stagnant economic growth, high unemployment and high price inflation
139
Structural budget deficit
This is the level of the deficit that exists when the economy is operating at full employment
140
Structural unemployment
Occurs when there is a long-run decline in an industry
141
Supply-side policies (free market)
Free-market supply-side policies involve policies to increase competitiveness and competition. For example, privatisation, deregulation, lower income tax rates, and reduced power of trade unions
142
Supply-side policies (Interventionist)
Interventionist supply-side policies involve government intervention to overcome market failure. For example, higher government spending on education, housing and transport infrastructure
143
Sustainable economic growth
Economic growth that allows increases in output to be achieved today without compromising the ability of future generations to meet their needs
144
Symmetric inflation target
When deviations above and below the target are given equal weight in the inflation target
145
Terms of trade
Terms of trade measure the rate of exchange of one good or service for another when two countries trade with each other
146
The golden rule (1997)
Over the economic cycle, the government will only borrow for capital spending and not to fund current spending
147
The money illusion
The tendency of other people to think of currency in nominal, rather than real, terms
148
The normal times rule (2015)
By 2020, the government must run budget surpluses during 'normal times' when GDP growth is 1% or more
149
The sustainable investment rule (EU)
Public sector net debt should not exceed 40% of GDP
150
Transfers (balance of payments)
Money sent and received between workers in the UK and abroad
151
Uncertainty
Decision making situations in which the outcomes and/or their probabilities of occurring are unknown to the decision-maker
152
Unemployment
Describes people without a job, who have been actively seeking work in the past 4 weeks and are available to start work in the next 2 weeks (ILO)
153
Unemployment rate
The percentage of he labour force without a job, who have been actively seeking work in the past 4 weeks and are available to start work in the next 2 weeks (ILO)
154
Unit labour costs
The total cost of labour per unit of output
155
Universal basic income (UBI)
A sum of money, sufficient to support a decent standard of living, given to every person in society, regardless of their need or existing wealth
156
Universal job guarantee (UJG)
A public sector option for employment paid at a living wage for anyone willing and able to contribute time to public purpose
157
Universal basic services (UBS)
A guarantee that all citizens receive unconditional access to a range of free, basic public services such as shelter, healthcare, education and public transport
158
Tariff
A tariff is a tax placed on the value of imports
159
crowding-in
Increase in government spending incentivises firms to invest in a country due to profit incentives
