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Economics > Macroeconomics definitions > Flashcards

Macroeconomics definitions Flashcards

1
Q

Economic Growth:

A

measures the rate of change in a country’s output. An expansion in the productive potential capacity of an economy. Increase in Real GDP

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2
Q

Short run economic growth

A

the actual annual percentage change in real national output (real GDP)

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3
Q

Long run economic growth:

A

An expansion in the potential productive capacity of the economy

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4
Q

Gross Domestic Product

A

the value of the quantity of goods and services produced in the economy over a period of time

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5
Q

Real GDP:

A

the value of the quantity of goods and services produced in the economy over a period of time, adjusted for inflation (constant price)

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6
Q

Nominal GDP:

A

the value of the quantity of goods and services produced in the economy over a period of time, NOT adjusted for inflation (current price)

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7
Q

GDP per capita: the

A

the value of total GDP divided by the population of the country

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8
Q

Total GDP

A

the combined monetary value of all goods and services produced within a country’s borders during a specific time period

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9
Q

Total national income:

A

the value of all goods and services produced in an economy

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10
Q

Per capita income:

A

the total income divided by the population

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11
Q

GDP: Volume-

A

considers the quantity of goods produced within an economy, GDP adjusted for inflation

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12
Q

GDP: Value

A

considers the monetary worth of the goods and services produced within an economy, nominal figure.

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13
Q

Gross National Product (GNP):

A

Value of all goods and services produced over a period of time through the labour or property supplied by citizens of a country both domestically and overseas

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14
Q

Gross National Income:

A

GDP + net overseas interest payments and dividends (factor incomes)

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15
Q

Purchasing power parities (PPP):

A

an exchange rate of one currency for another which compares how much a typical basket of goods in one country costs compared to that of another country.

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16
Q

Happiness Economics:

A

looks at how content individuals are with their life from a theoretical and scientific viewpoint

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17
Q

Inflation

A

a sustained rise in the general price level within an economy in a given time period.

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18
Q

Inflation rate-

A

a sustained rise in the general price level within an economy in a given time period, expressed as a percentage

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19
Q

Deflation

A

a decrease in the GPL within an economy over a given time period

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20
Q

Disinflation

A

when the inflation rate is falling but it remains positive e.g. the rate of inflation falling from 4% to 2%

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21
Q

Consumer Price Index (CPI) –

A

measures household purchasing power with the Family Expenditure Survey by the ONS. The Survey finds out what consumers spend their income on. From this, a basket of goods is created (700 items). Goods are weighted according to how much income is spent on them.

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22
Q

Retail Price Index (RPI)

A

Alternative measure of inflation- unlike CPI, RPI includes housing costs (payments on mortgage interest and council tax)

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23
Q

Index numbers

A

useful way of expressing economic data time series and comparing/ contrasting information

Index number in Year Y= (Data value in Year Y/ Base Year Value) *100

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24
Q

Demand - pull inflation

A

a sustained rise in the GPL caused by excessive total (aggregate) demand in an economy for G&S

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25
Q

Cost push inflation

A

a sustained rise in the GPL caused by firms responding to rising costs of production by increasing prices of output

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26
Q

Money Supply

A

a measure of the amount of stock of money in the economy

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27
Q

MO: Narrow money

A

includes notes and coins in circulation

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28
Q

M4: Broad money

A

includes MO (notes and coins)

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29
Q

Shoe leather costs

A

due to distorted price signals, individuals shop around. The cost of looking around to find cheaper prices/ best rate of interest.

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30
Q

Fiscal drag

A

wages rise in line with inflation and an individual is dragged into a higher tax bracket therefore increasing government tax revenueenue without altering tax brackets

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31
Q

Menu costs

A

due to fluctuating prices, firms print new labels and therefore increases their costs

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32
Q

Unemployment-

A

those who are willing and able to work but aren’t employed. They’re actively seeking work and usually looking to start within the next two weeks.

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33
Q

Structural unemployment-

A

(supply side) occurs with a long time decline in demand for the goods and services in a particular industry leading to job losses.

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34
Q

Frictional unemployment (supply side

A

transitional unemployment that occurs as workers move between jobs, mainly through career changes or geographical change

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35
Q

Cyclical (demand- deficient) unemployment

A

caused by a lack of demand for goods and services- usually occurs during periods of economic decline or recessions (when there is negative output gap)

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36
Q

Seasonal unemployment

A

occurs when workers are unemployed at different times of the year

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37
Q

Real Wage Flexibility

A

(voluntary unemployment, classical unemployment) occurs when real wage rates are above the equilibrium wage rate causing the supply of labour to be greater than the demand of labour

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38
Q

The Claimant Count

A

measures the number of people claiming unemployment related benefits from the government, job seekers allowance, universal credit and small groups of additional claimants

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39
Q

The labour Force Survey-

A

It uses a sample of the population (44,000). It asks people who aren’t working if they’re actively seeking work. The number of people who answer yes are added up to produce the ILO unemployment count

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40
Q

Underemployment

A

occurs when workers cannot find a job that is suitable for their qualification and experience or who cannot find enough hours to work

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41
Q

Economically Inactive

A

people who are of working age who are not seeking work for whatever reason e.g. wealth, disability, discouragement

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42
Q

Full Employment-

A

when the number of job vacancies equals the number of people actively seeking work

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43
Q

Unemployment level

A

the number of people who are unemployed

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44
Q

Unemployment rate-

A

the number of people who are unemployed expressed as a % of the labour force

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45
Q

Formula for unemployment

A

unemployed workers/ total labour force * 100

 Economically inactive people aren’t included in total labour force

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46
Q

Hidden Unemployment

A

people who are not in work and not seeking work. If they were offered a job they’d take it.

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47
Q

Long term unemployment

A

when someone is unemployed for more than one year

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48
Q

Net Migration

A

the difference between emigration (those leaving the UK) and immigration (those entering the UK)

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49
Q

Balance of Payments

A

A record of a country’s transactions with the rest of the world

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50
Q

Exports

A

Goods and services sold to foreign countries- positive on the balance of payments as they are an INFLOW of money. Added to Real GDP

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51
Q

Imports

A

Goods and services bought from foreign countries- negative on the BOP as they are an OUTFLOW of money. Subtracted from Real GDP

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52
Q

Current account:

A

consists of trade in goods, trade in services, investment income, current transfers

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53
Q

Current account surplus:

A

When the sum of exports, goods, services, investment income and transfers is greater than imports

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54
Q

Current account deficit:

A

When the sum of exports, goods, services, investment income and transfers is less than imports

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55
Q

Financial account

A

consists of FDI, portfolio investment, gold reserves, hot money flows

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56
Q

Investment income:

A

The reward for investments in other countries. Comprises of interest, profit and dividends

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57
Q

Aggregate demand-

A

the total level of planned real expenditure on goods and services procedures within a country in a given time period

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58
Q

Consumption

A

how much consumers spend on goods and services. Consumer income may come from wages, savings, pension, benefit, and investments such a dividend payments

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59
Q

Disposable income

A

the amount of income consumers has left over after taxes and social security charges have been removed, i.e. what consumer can choose to spend

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60
Q

The savings ratio

A

gives an idea of the average extent of saving for all households in an economy. It is calculated as the % of disposable income that is saved

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61
Q

The Pigou effect

A

occurs when consumers increase consumption due to an increase in the value of assets such as house prices, shares etc. This would lead to higher output and increased employment

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62
Q

Marginal propensity to consume-

A

refers to how likely an individual is to consume an extra £1 of income they receive. A proportion of a change in income (margin) that will be spent on consumption rather than being saved.

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63
Q

Marginal propensity to save (MPS

A

refers to the proportion of any extra income that is saved by consumers

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64
Q

Marginal propensity to withdraw (MPW)

A

a measure of how much of any extra pound earned is saved, taxed or spent outside the economy on imports

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65
Q

Investment

A

expenditure undertaken by firms to add to the capital stock in the economy

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66
Q

Gross investment-

A

the total amount the economy spends on new capital. Spending on capital assets such as buildings, machinery and equipment= increases the productive capacity of the economy leading to economic growth.

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67
Q

Net investment

A

net investment = gross investment – capital depreciation. If gross investment is higher than depreciation, then net investment will be positive. Thus meaning businesses will have a higher productive capacity and can meet rising demand in the future.

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68
Q

Animal Spirits

A

John Maynard Keynes coined this term to refer to the collective mood of investors. When this is strong AD increases leading to greater capital investment

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69
Q

The accelerator effect-

A

this happens when an increase in national income (GDP) results in a proportionately larger rise in capital investment spending. Often see a surge in capital spending by businesses when an economy is growing quite strongly.

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70
Q

Net exports

A

the export of goods and products means that money flows into the country; when the value of the money flowing out the country as imports is deducted, a figure for the net export is the result

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71
Q

Marginal propensity to import

A

the amount of additional income that households spend on imports

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72
Q

Exchange rates:

A

the price of one currency expressed in terms of another currency

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73
Q

Government Spending

A

tax revenue and borrowing spent by the government for the benefit of the country’s citizens

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74
Q

Transfer payments

A

a redistribution of income and wealth made without goods or services being received in return

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75
Q

Automatic stabilisers

A

effects which help influence the path of economic growth due to cyclical changes in tax revenue and welfare costs

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76
Q

Fiscal policy-

A

government changes to spending, taxation and borrowing to manipulate the economy

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77
Q

The multiplier effect

A

when an initial injection into the economy has a bigger final impact on real GDP. An increase in investment or other injection will lead to an even greater increase in national income.

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78
Q

Current expenditure

A

government spending on the day to day running of the country e.g. wages. An increase will see a shift in the SRAS curve to the right

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79
Q

Capital expenditure

A

government spending on physical assets will help to develop infrastructure, allowing businesses to operate effectively and efficiently. This will help shift the LRAS curve to the right and PPF outwards

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80
Q

Balanced budget

A

this occurs when government expenditure is equal to government revenue through taxations

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81
Q

Budget deficit

A

where government expenditure exceeds tax rev

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82
Q

Budget surplus

A

where taxation exceeds government expenditure

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83
Q

Aggregate supply

A

is the volume of goods and services produced within the economy at a given price level. It indicates the ability of an economy to produce goods and services and shows the relationship between the real GDP and the average price levels.

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84
Q

Short run AS

A

changes in the value of output in the short run caused by changes in the cost or production

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85
Q

Classical economists LRAS

A

the classical view of LRAS suggest that the economy will always produce the maximum that its factor resources will allow

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86
Q

Keynesian economists LRAS

A

an economy could be in equilibrium below full employment

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87
Q

Keynesian LRAS

A

The Keynesian AS curve is shaped due to the level of spare capacity available in the economy indicating that the economy can be in the long run at any level of output (Real GDP) due to the inflexibility of wages downwards. When there’s large level of spare capacity Keynesian believe that the output can increase without putting excess pressure on existing factors of production given the large amount of unemployed resources in the economy. Therefore Real GDP can increase without any demand pull inflationary pressure hence why the curve is horizontal at low levels of Real GDP.

 Only when the economy approaches full capacity, Yfe, that for Real GDP to increase, pressure is put on existing factors of production increasing the price of them and thus costs of production for businesses- resulting In higher prices filtering out through the economy, increasing the inflation rate.

 There comes a point when no spare capacity exists and thus Real GDP cannot increase without large increases in inflationary pressure, unsustainable production.

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88
Q

Circular flow of income

A

an economic model showing the flow of goods and services, the factors of production and their payments between households and firms within an economy

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89
Q

The wealth effect-

A

the effect on incomes or spending when asset value changes

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90
Q

Injections-

A

flows into the circular flow of income i.e. investment, government spending, and imports

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91
Q

Withdrawals

A

flows out of the circular flow of income i.e. savings, taxes, and imports

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92
Q

The multiplier effect

A

occurs when an initial injection into the economy, or circular flow of income causes a proportionately larger final increase in the level of real national income/ output, facilitating further rounds of spending and income generation.

K= 1/MPW
K= 1/ (1-MPC) - where MPW=MPS+MPT+MPM

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93
Q

Keynesian multiplier theory

A

the more the government spends, the more an economy will flourish

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94
Q

Marginal propensity to consume

A

the proportion of a change in income (the margin) that will be spent on consumption rather than being saved

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95
Q

Marginal propensity to withdraw-

A

measure of how much of any extra pound is saved, taxed or spent outside the economy

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96
Q

Income

A

a flow concept

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97
Q

Wealth

A

a stock concept

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98
Q

Economic growth

A

measures the rate of change in a country’s output. An expansion of the productive potential of an economy. Increase in Real GDP

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99
Q

Short run economic growth-

A

measures the rate of change in a country’s output. An expansion of the productive potential of an economy. Increase in Real GDP

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100
Q

Short run economic growth-

A

the actual annual percentage change in real national output (Real GDP)

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101
Q

Long run economic growth

A

an expansion in the potential productive capacity of the economy

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102
Q

Actual economic growth-

A

short run growth caused by increased real GDP

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103
Q

Potential economic growth

A

long run growth caused by increased productive potential

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104
Q

Migration

A

the movement of people from one country to another

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105
Q

Export led growth

A

economic growth caused by rises in net exports

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106
Q

Output gap

A

the output gap is the difference between the trend rate and actual rate of economic growth

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107
Q

Trend rate

A

the trend rate of economic growth is the average rate of growth of GDP is over time. It shows the potential output of an economy

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108
Q

Potential output

A

potential output occurs when the economy is working at full capacity over the long term. This occurs when all factors of production are working efficiently

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109
Q

Positive output gap

A

occurs when the actual rate of economic growth is above the long run trend rate. This happens during periods of high economic growth and is associated with inflationary pressure and low unemployment

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110
Q

Negative output gap-

A

occurs when the actual trend rate of economic growth is below the long run trend rate. This happens during periods of low or negative economic growth and is associated with deflationary pressure and high unemployment

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111
Q

Trade cycle

A

variations in the level of productive capacity of an economy over time

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112
Q

Productive capacity/ productive potential-

A

the maximum amount of goods and services that we can produce with the resources we have available

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113
Q

GDP

A

the value of goods and services produced in the economy over a period of time

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114
Q

Boom

A

a period of high levels of economic activity

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115
Q

Recession

A

the rate of economic growth starts to fall in a downturn. Two consecutive quarters of negative real GDP

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116
Q

Slump

A

the bottom of the business cycle which represents a period of serious economic decline. Low or negative economic growth.

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117
Q

Recovery

A

when there are often signs that economic growth is starting to rise often referred to as the green shoots of recovery

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118
Q

Demand side policies

A

a deliberate manipulation by the government of aggregate demand in order to achieve macroeconomic objectives

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119
Q

Monetary policy

A

involves the monetary instruments such as interest rates and the money supply (quantitative easing) to influence one or more of the components of aggregate demand

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120
Q

Contractionary monetary policy-

A

reduces the size of the money supply or raises the interest rate in order to reduce AD

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121
Q

Expansionary monetary policy-

A

increases the size of the money supply, decreases the interest rate in order to increase AD

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122
Q

Interest rate

A

the cost of borrowing, reward for saving, return for lending

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123
Q

Base rate

A

set by the BOE. The rate at which the BOE will lend to the financial system and Influences the structure of all other interest rates

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124
Q

Commercial bank rate

A

set by individual banks for their own products e.g. mortgages, loans. Vary from institution to institution and are monitored for competitiveness with other banks in order to attract customers.

125
Q

Inflation targeting

A

monetary policy regime in which a central bank has an explicit target inflation rate for the medium term and announces this inflation target to the public

126
Q

Symmetric inflation targeting-

A

deviations of inflation below the target are to be treated with the same importance as deviations above it

127
Q

Interest rate transmission mechanism

A

changing the rate of interest sets off a chain of reactions in the economy, many of which mean AD will shift- these processes are called transmission mechanisms

128
Q

Quantitative easing

A

purchase of gilts and other illiquid assets as a means of making credit easier to access. A monetary policy in which a central bank purchases government securities or other securities from the market in order to increase the money supply

129
Q

Fiscal policy

A

involves changes in the level or structure of government spending, borrowing and taxation aimed at influencing one or more components of AD. Controlled by the UK government through the budget

130
Q

Current government spending

A

government expenditure on day- to day running of public sector activities

131
Q

Capital government spending

A

government expenditure on improving the productive capacity of the economy

132
Q

Discretionary fiscal policy

A

involves deliberate one off changes in government spending and taxation with the intention of influencing AD

133
Q

Expansionary fiscal policy-

A

the use of fiscal policy to stimulate AD, increasing levels of government spending, increasing government borrowing and decreasing taxes- lower tax revenue

134
Q

Contractionary fiscal policy

A

the use of fiscal policy to stimulate AD which involves decreasing government spending, decreasing government borrowing and increasing taxes- higher tax rev

135
Q

Moral hazard

A

taking excessive risk as you are insured or protective form failure. 3rd party bares the benefit of the cost of someone else

136
Q

Regulatory capture

A

when regulators of different industries act in favour of producers not consumers

137
Q

Government budget-

A

comprised of government spending and tax revenue

138
Q

Balanced budget

A

where government tax rev is = to government expenditure during a financial year

139
Q

Budget surplus

A

where tax rev exceeds government spending in a financial year

140
Q

Budget deficit

A

where government spending exceeds tax rev in a financial year

141
Q

Cyclical budget deficit

A

temporary budget position, related to business cycle. Deficit may occur during a recession, tax rev fall and expenditure of unemployment benefits increases- government increase sending to stimulate the economy

142
Q

Structural budget deficit

A

a budget which is either in a deficit or surplus due to an imbalance in the revenue and expenditure of the government, it exists at every point in the business cycle. Doesn’t matter if a county is in a boom or recession, country would still run a deficit

143
Q

Direct taxes-

A

a tax that is paid directly to the government by the individual tax payer. The tax liability cannot be passed onto someone else e.g. income tax, corporation tax

144
Q

Indirect taxes

A

a tax imposed on expenditure on goods and services. Paid by the retailer on behalf of the consumer although can be transferred onto the consumer. E.g. VAT and excess duties

145
Q

The Laffer curve

A

representation of the relationship between rates of taxation and the hypothetical resulting levels of government revenue. Up until the point T, as tax rates increase, government tax rev increases. After point T people do not think it’s worthwhile working and the lack of incentive to work leads to falling revenue. T is the optimum tax rate where the government can maximise revenue

146
Q

Globalisation

A

the process by which economies have become increasingly integrated and independent, increasing level of cross border trade, investment, and migration

147
Q

Containerisation

A

a system of freight transport for use in sea shipping that has reduced the transport costs of shipping 1000s of goods across the globe

148
Q

Multinational companies

A

has facilities and other assets in at least one country other than its home country

149
Q

Transnational companies

A

TNC’s base their manufacturing, assembly, research and retail operation in a number of countries

150
Q

Trading bloc

A

a group of countries within a geographical region protecting themselves from imports and non-members.

151
Q

Trade liberalisation-

A

reductions in import tariffs and non- tariff barriers to enhance trade between one or more countries

152
Q

FDI

A

the acquisition of a controlling interest in productive operations abroad by business resident in the home economy

153
Q

Absolute advantage

A

occurs in the production of a good or service if it can produce it using fewer resources and at a lower cost than another country.

154
Q

Comparative advantage

A
  • occurs when a country can produce a good or service at a lower opportunity cost than another country. This means they have to give up producing less of another good than another country, using the same resources.
155
Q

Specialisation

A

when individuals, regions or countries concentrate on making one product to create a surplus

156
Q

Terms of trade

A

an index that shows the value of a country’s average export prices relative to their average import prices.

= Index of average export prices/ index of average import prices *100

157
Q

The prebisch – Singer hypothesis

A

observation states terms of trade between primary goods and manufactured products deteriorates over time. Over the L/R the prices of primary goods decline in proportion to prices of manufactured goods

158
Q

Closed economy

A

an economy operating without imports and exports

159
Q

Free trade

A

where trade occurs between countries without restrictions or barriers

160
Q

Free trade agreements

A

when two or more countries in a region agree to reduce/eliminate trade barriers on all goods from member countries

161
Q

Customs union

A

a group of countries that abolish tariffs and quotas between member nations encouraging free movement of G&S- adopt a common external tariff on imports from non-member countries.

162
Q

Common market

A

single market for participating countries free trade in goods & services and free movement of labour /capital. EU= single market

163
Q

Monetary union

A

an intergovernmental agreement that involves 2 or more states sharing the same currency

164
Q

Trade Creation

A

when trade is created by the joining of a trade union. Consumption shifts from a high cost domestic producer to a low cost partner producer

165
Q

Trade diversion

A

consumption shifts from a lower cost producer outside the trading bloc to a higher cost producer within e.g. New Zealand butter vs European butter

166
Q

WTO

A

policies FTA decides on trade disputes between countries. Arranges negotiation to liberalise trade for member countries by mutually agreed reductions in T & Q, opening domestic markets to foreign competition

167
Q

Quota Limits

A

placed on the level of imports allowed into a country

168
Q

Tariffs Taxes

A

placed on imported goods in an attempt to prevent people from buying them

169
Q

Non-tariff barriers

A

trade barriers such as import quotas, embargoes, and export subsidies

170
Q

Ad valorem tariffs

A

an import tariff rate charged as percentage of the price

171
Q

Subsidy

A

payments by government to domestic suppliers that reduce their costs- domestic output cheaper than imported goods

172
Q

Dumping

A

where you export a good lower than the cost of production in the domestic country too

173
Q

Protectionism

A

tariff and non- tariff restriction on imports to protect domestic producers

174
Q

Expenditure reducing policies

A

policies designed to lower real incomes and AD and thereby cut demand for imports e.g. higher direct taxes or increased I/R

175
Q

Expenditure switching policies

A

policies designed to change relative prices of exports and imports. Depreciation

176
Q

Financial account

A

transactions that results in change of ownership of financial assets/liabilities between residents of different countries- net flows of money into equities, bonds, property

177
Q

Financial flows

A

flows of capital across national borders including debt and equity

178
Q

Portfolio investment

A

people/ businesses buy shares or other securities such as bonds in other nations.

179
Q

Depreciation

A

a fall in the external value of one currency against another

180
Q

Devaluation of currency-

A

fall in the external value of a currency inside a fixed exchange rate system

181
Q

Revaluation of currency

A

an increase in the external value of currency inside a fixed e/r system

182
Q

Fixed E/R

A

E/R fixed against other major currencies through action by gov/ central banks, within small margins of fluctuate around central rate. Periodic intervention in foreign exchange market by 1/ more CB– buy, sell currency if moves below/ above margins

183
Q

Floating exchange rate

A

external value of a currency depends on market forces of S&D. Only those currencies where central bank interventions are limited to no more than 3 instances in the preceding 6 months

184
Q

Managed floating-

A

the value of the currency is determined by demand and supply but the Central Bank will try to prevent large changes in the exchange rate on a day to day basis

185
Q

Real E/R-

A

the product of the nominal E/R and the ratio of prices between 2 countries

186
Q

J curve effect-

A

effect of a currency depreciation on the trade deficit depends on PED for exports and imports. The J curve effect says a trade deficit can worsen after depreciation but improve in the medium term if the Marshall Lerner condition holds

187
Q

Marshall Lerner condition-

A

predicts the circumstances in which a fall in E/R improves C.A on BOP. Devaluation improves BoP ONLY if PEDX + PEDM > 1

188
Q

Income inequality

A

when the distribution of income isn’t equal i.e. when a large share of the income is held by a small proportion of the population

189
Q

Poverty

A

when incomes are not high enough to meet basic human needs

190
Q

Absolute poverty

A

those people who do not have adequate nutritional intake per day, or don’t have adequate shelter or clothing in order to survive. World bank reports number of people in countries below a $1.90 a day

191
Q

Relative poverty-

A

the relative position of one economic unit compared to another economic unit. A person can be relatively poor but not absolutely poor- distribution of income in a country. when income is below 60% of median household income

192
Q

Lorenz curve

A

degree of income inequality in a given economy or population. Further away Lorenz curve is from line of absolute equality- greater degree of income inequality

193
Q

Gini coefficient

A

measures extent to which distribution of income among individuals within an economy deviates from a perfectly equal distribution. 0-1

194
Q

Poverty line

A

minimum level of income deemed necessary to achieve an adequate standard of living in a given country.

195
Q

Poverty trap

A

a situation in which there’s little incentive for workers in low paid jobs to earn extra income- result in having to either pay higher taxes or losing welfare benefit

196
Q

Economically inactive

A

those who are of working age but not seeking work for whatever reason

197
Q

Earnings

A

made up of wage plus overtime pay, bonuses and commission

198
Q

Wealth

A

stock concept value of assets owned by a household, property, shares, saving

199
Q

Wealth inequality-

A

the degree to which wealth is distributed unequally across a population

200
Q

Capitalism

A

economic and political system in which a country’s trades and industry are controlled by private owners for a profit

201
Q

Dependency ration

A

ratio of dependents to the working population

202
Q

Gini coefficient

A

A/(A+B)- the ratio of the area between the 45-degree line and the Lorenz curve divided by the whole triangle under the 45-degree curve. It is measured between 1 and 0 and the bigger the coefficient, the more unequal the country.

203
Q

Lorenz curve

A

shows the cumulative percentage of the population plotted against the cumulative percentage of income that those people have. A perfectly equal society would have a straight line from corner to corner; the degree of the bend away from that straight line indicates the degree of inequality

204
Q

Wage differentials-

A

the difference in wages between workers. Differences in wages between differently skilled workers in same industry, or similar skilled workers in diff industries.

205
Q

Minimum wage

A

wage set above the equilibrium

206
Q

Maximum wage

A

wage set below the equilibrium price

207
Q

Economic development

A

process of improving individual well-being, quality of life including improvements in SOL, alleviating poverty, improving health and education, and increasing freedom and economic choice

208
Q

Economic growth

A

measures the rate of change in a country’s output, it’s an expansion in the productive potential capacity, an increase in real GDP

209
Q

Economic development

A

process of improving individual well-being, quality of life including improvements in SOL, alleviating poverty, improving health and education, and increasing freedom and economic choice

210
Q

Economic development

A

process of improving individual well-being, quality of life including improvements in SOL, alleviating poverty, improving health and education, and increasing freedom and economic choice

211
Q

Economic development

A

process of improving individual well-being, quality of life including improvements in SOL, alleviating poverty, improving health and education, and increasing freedom and economic choice

212
Q

Emerging economy

A

a lower to middle income country that’s progressing toward becoming more advanced, rapid growth, urbanisation and industrialisation

213
Q

GDP

A

total value of an economy is domestic output of goods and services

214
Q

GNI

A

broadly same as GDP except includes country owns in overseas investments and minuses what foreigners earn in country and send back home. GNI is affected by profit on businesses overseas. remittances sent home migrant workers

215
Q

LEDCs

A

countries that have been classified by UN as least developed in terms of low GDP per capita with human assets and high degree of economic vulnerability

216
Q

Primary product dependency-

A

dependence as measured as a share of GDP, total export or employment on the extraction/cultivation of primary commodity such as copper an oil

217
Q

Savings gap-

A

Savings are needed to finance capital investment. In many smaller lower income countries, high levels of extreme poverty = difficult to generate sufficient savings to provide the funds needed to fund investment projects. This increases reliance on aid or borrowing from overseas.

218
Q

Harrod-Domar model

A

Increased investment = increased capital stock = increased economic growth = increased saving = repeat

219
Q

Savings surplus

A

the excess of aggregate savings over domestic investment, where investment is in fixed capital and inventories by both the public and the private sectors.

220
Q

Foreign currency gap-

A

currency outflows persistently exceed currency inflows, persistent c.a deficit

221
Q

Capital flight-

A

rapid movements of large sums of money out of a country. Owners of liquid assets move them to other countries perceived to be safe haven’t or offering better returns

222
Q

Infrastructure-

A

transport links, communication networks, sewage, energy plants/ facilities essential 4 functioning of country

223
Q

Debt relief

A

cancellation, rescheduling, refinancing of nations external debt

224
Q

Property rights

A

Rights to ownership or an asset such as land or ideas (IP) rights

225
Q

Primary sector

A

industry involved in production of raw materials including agriculture

226
Q

Brain drain

A

movement of highly skilled or professional people from their own country to another where they earn more money

227
Q

Corruption

A

abuse of entrusted power for private gain, key cause of govt failure

228
Q

Market based development policies

A

policies designed to promote development by minimising the role of govt and maximising the free operation of markets

229
Q

Trade liberalisation

A

involves the removal of trade barriers, tariffs and quotas, promoting free trade

230
Q

FDI

A

acquisition of a controlling interest in productive operations abroad by businesses resident in home economy.

231
Q

Floating exchange rate

A

currency’s value is purely market determined and the Bank of England does not seek to intervene through buying and selling currencies in order to influence the pound’s value.

232
Q

Microfinance

A

form or credit offered to low- income individuals not traditionally serviced by formal banking sector

233
Q

Privatisation

A

when state run businesses are sold to the private sector

234
Q

Interventionist development policies

A

policies designed to promote development by actively encouraging the role of govt in the economy

235
Q

Human capital

A

skills, experience, attitudes, aptitudes

236
Q

Managed exchange rates

A

the value of the currency is determined by demand and supply but the Central Bank will try to prevent large changes in the exchange rate on a day to day basis

237
Q

Protectionism-

A

Tarff and non-tariff restrictions on imports to protect domestic producers

238
Q

Infrastructure

A

The transport links, communications networks, sewage sunders, energy plants and other facilities essential for functioning of country

239
Q

Joint venture

A

Agreement between 2 or more companies to cooperate on a particular project or a business that serves the mutual interests.

240
Q

Buffer stock

A

seek to stabilise market price of agricultural products by buying up supplies of product when harvests are plentiful and selling stocks when supplies are low

241
Q

Import substitution

A

replacement of imports by domestic production, protected using tariffs

242
Q

Lewis Model

A

a development model of a dualistic economy consisting of rural agricultural and urban manufacturing sectors- model of structural change- outlines development from traditional economy to industrialised one

243
Q

Resource efficiency-

A

Achieving more with less producing more goods and services with lower environmental footprint

244
Q

Fairtrade

A

Trade between companies in developed countries and producers in developing countries in which fair prices are paid to producers

245
Q

Debt forgiveness

A

cancelling by a creditor of a debt to a country or company

246
Q

Debt relief-

A

cancellation, rescheduling, refinancing of nations external debt

247
Q

Aid

A

overseas development assistance from one country to another- humanitarian assistance project aid etc.

248
Q

Bilateral Aid-

A

aid that flows from one country to another

249
Q

Tied aid

A

aid with conditions attached, economic or political reforms or commitment to buy goods from donor country

250
Q

Multilateral aid

A

is when countries give aid to an international organisation who distributes it to other countries.

251
Q

International Monetary Fund-

A

Intergovernmental organization that oversees the global financial system by following the macroeconomic policies of its member countries, in particular those with an impact on exchange rate and BOP

252
Q

NGOs

A

private non-profit making bodies which are active in development work

253
Q

World bank-

A

promotes institutional, structural, social development of LDCs, providing low interest loans for domestic investment projects and technical assistance

254
Q

Financial market failure

A

when free financial markets fail to allocate financial products and services at the socially optimum level of output resulting in a net loss of social and economic welfare

255
Q

Bank assets-

A

assets are ‘owned’ by the bank e.g. cash, balances, loads (advances), securities (bonds), and also fixed assets – property

256
Q

Bank capital

A

value of the bank’s assets minus its liabilities

257
Q

Bank liabilities

A

‘owed’ by the bank

258
Q

Bank reserves

A

money and liquid assets held by banks in order to meet cash withdrawals by customers

259
Q

Banking credit

A

an arrangement with a bank for a loan, or bank lending in general

260
Q

Banking system-

A

way banks work together to handle payments, make money available

261
Q

Base money

A

Currency (banknotes and coins) in circulation plus minimum reserves credit institutions are required/choose to hold with a country’s central bank

262
Q

Base interest rate

A

the rate of interest set by the MPC of BOE being in effect the lowest rate that commercial lenders will charge interest at

263
Q

Bond market

A

market for interest-bearing securities (fixed or floating rate) and with a maturity off at least one year) that companies and government issue to raise capital

264
Q

Broad money-

A

a measure of the money supply. Broad money is a measure of the total amount of money held by households and companies in economy. Mainly commercial bank deposits= IOU’s from commercial banks to households and companies and currency- IOUs from central bank

265
Q

Building societies

A

owned by their members and not shareholders – focus on offering mortgages and savings

266
Q

Crowdfunding

A

form of equity finance

267
Q

Debt default

A

failure of a debtor to make agreed payments

268
Q

Equity

A

refers to the value of the interest of an owner or partial owner in an investors

269
Q

Forward market-

A

a market dealing in commodities, currencies and securities for future delivery at prices agreed upon in advance.

270
Q

SPOT markets

A

trade at current prices

271
Q

Financial market-

A

any exchange that facilitates the trading of financial instruments- stocks, bonds, foreign exchange, or primary commodities such as oil and gas

272
Q

Leverage

A

the use of borrowed funds to inc profitability. One measure of leverage is the amount of l/t debt relative to equity

273
Q

Liquidity

A

the ease and cost with which assets can be turned into cash and used immediately as a means of exchange

274
Q

Asset bubble

A

a sustained rise in prices of assets, housing, equities which takes their values well above long run sustainable levels

275
Q

Asymmetric information

A

this type of market failure exists when one individual or part has more info than another and uses that advantage to exploit the other party. Often a borrower has better info on likelihood that they will be able to repay a loan than the lender

276
Q

Moral hazard

A

taking excessive risk as you are insured or protective form failure. 3rd party bares the benefit of the cost of someone else

277
Q

Regulatory capture

A

when regulators of different industries act in favour of producers not consumers

278
Q

Systemic risk

A

the possibility that an event at the microlevel of an individual bank could then trigger instability of the collapse of entire of the entire industry or economy

279
Q

Market rigging

A

illegally and unfairly controlling the price of the interest-rate in order to increase their joint profits will exploit consumers

280
Q

Transfer payments

A
  • a redistribution of income and wealth made without goods or services being received in return
281
Q

Automatic stabilisers

A

effects which help influence the path of economic growth due to cyclical changes in tax revenue and welfare costs, without direct intervention by gov

282
Q

Current expenditure

A

government spending on the day to day running of the country e.g. wages. An increase will see a shift in the SRAS curve to the right

283
Q

Capital expenditure

A

government spending on physical assets will help to develop infrastructure, allowing businesses to operate effectively and efficiently. This will help shift the LRAS curve to the right and PPF outwards

284
Q

Balanced budget

A

this occurs when government expenditure is equal to government revenue through taxations

285
Q

Budget deficit

A

where government expenditure exceeds tax rev

286
Q

Budget surplus

A

where taxation exceeds government expenditure

287
Q

Crowding in

A

when an increase in government spending investment leads to an expansion of economic activity (real GDP) which incentivises private sector firms to raise the own levels of capital investment and employment.

288
Q

Crowding out

A

rapid growth of government spending leads to a transfer of scarce productive resources from the private sector to the public sector where productivity might be lower. Can also lead to higher taxes and i/r which squeezes profits, investment employment in the private sector

289
Q

Public sector debt

A

owed by central and local government and by public corporations

290
Q

Quantitative easing

A

a central bank uses QE to inc the base supply of money in the banking system and encourage banks to lend at cheaper I/R i.e. to small and medium sized businesses

291
Q

Direct tax-

A

A tax on income and wealth e.g. income tax or corporation tax where the burden of the tax cannot be passed on to someone else

292
Q

Indirect tax

A

imposed on producers (suppliers) by the government

293
Q

Laffer curve

A

relationship between economic activity and the rate of taxation which suggests there’s an optimum tax rate which maximises total revenue

294
Q

Progressive tax

A

the marginal rate of income tax rises as incomes rises

295
Q

Proportional tax

A

when the marginal rate of income tax is constant leading to a constant average rate of tax

296
Q

Regressive tax-

A

the rate of tax paid falls as incomes rise

297
Q

Tax burden-

A

measures total tax revenue as a % of GDP

298
Q

Discretionary fiscal policy

A

deliberate attempts to affect the level and growth of AD using changes in government spending, direct and indirect taxation

299
Q

Fiscal deficit

A

when government expenditure is higher than the revenue from taxes in a given year

300
Q

National debt

A

a governments total outstanding debt- effectively what the government still owed from the budget deficits accumulated over time

301
Q

National savings

A

total public and private sectors saving measured as a share of GDP. Saving is the difference between income and consumption

302
Q

Public sector

A

made up of central government, local government and public corporation

303
Q

AAA credit rating –

A

the best credit rating that can be given by credit rating agencies to corporate or government bonds, effectively indicating that the risk of debt default is negligible

304
Q

External shocks

A

an unexpected event beyond the control of the country’s -large negative impact on its economy

305
Q

LRPC

A

the long run Philips curve is assumed to be a vertical line at the natural rate of unemployment where the rate of inflation has no effect on the rate of unemployment

306
Q

Sovereign debt wealth

A

a broad term for the widespread problem of high government fiscal deficits and rising national debts In many developed countries especially in the vulnerable countries inside European currency zone

307
Q

Transfer pricing

A

Method of pricing goods and services transferred within a multinational or trans-national company in order to reduce tax burdens and maximise profits.

308
Q

Cyclical budget deficit-

A

temporary budget position, related to business cycle. Deficit may occur during a recession, tax revenue fall and expenditure of unemployment benefits increases- government increase sending to stimulate the economy

 Size of the deficits is influenced by the state of the economy: in a boom, tax receipts are relatively high and spending on unemployment benefit is low.

309
Q

Structural budget deficit

A

a budget which is either in a deficit or surplus due to an imbalance in the revenue and expenditure of the government, it exists at every point in the business cycle. Doesn’t matter if a county is in a boom or recession, country would still run a deficit (planned spending)

 The structural deficit is that part of the deficit which is not related to the state of the economy. This part of the

Economics (6 decks)

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