Macroeconomics definitions Flashcards
Economic Growth:
measures the rate of change in a country’s output. An expansion in the productive potential capacity of an economy. Increase in Real GDP
Short run economic growth
the actual annual percentage change in real national output (real GDP)
Long run economic growth:
An expansion in the potential productive capacity of the economy
Gross Domestic Product
the value of the quantity of goods and services produced in the economy over a period of time
Real GDP:
the value of the quantity of goods and services produced in the economy over a period of time, adjusted for inflation (constant price)
Nominal GDP:
the value of the quantity of goods and services produced in the economy over a period of time, NOT adjusted for inflation (current price)
GDP per capita: the
the value of total GDP divided by the population of the country
Total GDP
the combined monetary value of all goods and services produced within a country’s borders during a specific time period
Total national income:
the value of all goods and services produced in an economy
Per capita income:
the total income divided by the population
GDP: Volume-
considers the quantity of goods produced within an economy, GDP adjusted for inflation
GDP: Value
considers the monetary worth of the goods and services produced within an economy, nominal figure.
Gross National Product (GNP):
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
Gross National Income:
GDP + net overseas interest payments and dividends (factor incomes)
Purchasing power parities (PPP):
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.
Happiness Economics:
looks at how content individuals are with their life from a theoretical and scientific viewpoint
Inflation
a sustained rise in the general price level within an economy in a given time period.
Inflation rate-
a sustained rise in the general price level within an economy in a given time period, expressed as a percentage
Deflation
a decrease in the GPL within an economy over a given time period
Disinflation
when the inflation rate is falling but it remains positive e.g. the rate of inflation falling from 4% to 2%
Consumer Price Index (CPI) –
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.
Retail Price Index (RPI)
Alternative measure of inflation- unlike CPI, RPI includes housing costs (payments on mortgage interest and council tax)
Index numbers
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
Demand - pull inflation
a sustained rise in the GPL caused by excessive total (aggregate) demand in an economy for G&S
Cost push inflation
a sustained rise in the GPL caused by firms responding to rising costs of production by increasing prices of output
Money Supply
a measure of the amount of stock of money in the economy
MO: Narrow money
includes notes and coins in circulation
M4: Broad money
includes MO (notes and coins)
Shoe leather costs
due to distorted price signals, individuals shop around. The cost of looking around to find cheaper prices/ best rate of interest.
Fiscal drag
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
Menu costs
due to fluctuating prices, firms print new labels and therefore increases their costs
Unemployment-
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.
Structural unemployment-
(supply side) occurs with a long time decline in demand for the goods and services in a particular industry leading to job losses.
Frictional unemployment (supply side
transitional unemployment that occurs as workers move between jobs, mainly through career changes or geographical change
Cyclical (demand- deficient) unemployment
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)
Seasonal unemployment
occurs when workers are unemployed at different times of the year
Real Wage Flexibility
(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
The Claimant Count
measures the number of people claiming unemployment related benefits from the government, job seekers allowance, universal credit and small groups of additional claimants
The labour Force Survey-
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
Underemployment
occurs when workers cannot find a job that is suitable for their qualification and experience or who cannot find enough hours to work
Economically Inactive
people who are of working age who are not seeking work for whatever reason e.g. wealth, disability, discouragement
Full Employment-
when the number of job vacancies equals the number of people actively seeking work
Unemployment level
the number of people who are unemployed
Unemployment rate-
the number of people who are unemployed expressed as a % of the labour force
Formula for unemployment
unemployed workers/ total labour force * 100
Economically inactive people aren’t included in total labour force
Hidden Unemployment
people who are not in work and not seeking work. If they were offered a job they’d take it.
Long term unemployment
when someone is unemployed for more than one year
Net Migration
the difference between emigration (those leaving the UK) and immigration (those entering the UK)
Balance of Payments
A record of a country’s transactions with the rest of the world
Exports
Goods and services sold to foreign countries- positive on the balance of payments as they are an INFLOW of money. Added to Real GDP
Imports
Goods and services bought from foreign countries- negative on the BOP as they are an OUTFLOW of money. Subtracted from Real GDP
Current account:
consists of trade in goods, trade in services, investment income, current transfers
Current account surplus:
When the sum of exports, goods, services, investment income and transfers is greater than imports
Current account deficit:
When the sum of exports, goods, services, investment income and transfers is less than imports
Financial account
consists of FDI, portfolio investment, gold reserves, hot money flows
Investment income:
The reward for investments in other countries. Comprises of interest, profit and dividends
Aggregate demand-
the total level of planned real expenditure on goods and services procedures within a country in a given time period
Consumption
how much consumers spend on goods and services. Consumer income may come from wages, savings, pension, benefit, and investments such a dividend payments
Disposable income
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
The savings ratio
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
The Pigou effect
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
Marginal propensity to consume-
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.
Marginal propensity to save (MPS
refers to the proportion of any extra income that is saved by consumers
Marginal propensity to withdraw (MPW)
a measure of how much of any extra pound earned is saved, taxed or spent outside the economy on imports
Investment
expenditure undertaken by firms to add to the capital stock in the economy
Gross investment-
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.
Net investment
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.
Animal Spirits
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
The accelerator effect-
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.
Net exports
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
Marginal propensity to import
the amount of additional income that households spend on imports
Exchange rates:
the price of one currency expressed in terms of another currency
Government Spending
tax revenue and borrowing spent by the government for the benefit of the country’s citizens
Transfer payments
a redistribution of income and wealth made without goods or services being received in return
Automatic stabilisers
effects which help influence the path of economic growth due to cyclical changes in tax revenue and welfare costs
Fiscal policy-
government changes to spending, taxation and borrowing to manipulate the economy
The multiplier effect
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.
Current expenditure
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
Capital expenditure
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
Balanced budget
this occurs when government expenditure is equal to government revenue through taxations
Budget deficit
where government expenditure exceeds tax rev
Budget surplus
where taxation exceeds government expenditure
Aggregate supply
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.
Short run AS
changes in the value of output in the short run caused by changes in the cost or production
Classical economists LRAS
the classical view of LRAS suggest that the economy will always produce the maximum that its factor resources will allow
Keynesian economists LRAS
an economy could be in equilibrium below full employment
Keynesian LRAS
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.
Circular flow of income
an economic model showing the flow of goods and services, the factors of production and their payments between households and firms within an economy
The wealth effect-
the effect on incomes or spending when asset value changes
Injections-
flows into the circular flow of income i.e. investment, government spending, and imports
Withdrawals
flows out of the circular flow of income i.e. savings, taxes, and imports
The multiplier effect
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
Keynesian multiplier theory
the more the government spends, the more an economy will flourish
Marginal propensity to consume
the proportion of a change in income (the margin) that will be spent on consumption rather than being saved
Marginal propensity to withdraw-
measure of how much of any extra pound is saved, taxed or spent outside the economy
Income
a flow concept
Wealth
a stock concept
Economic growth
measures the rate of change in a country’s output. An expansion of the productive potential of an economy. Increase in Real GDP
Short run economic growth-
measures the rate of change in a country’s output. An expansion of the productive potential of an economy. Increase in Real GDP
Short run economic growth-
the actual annual percentage change in real national output (Real GDP)
Long run economic growth
an expansion in the potential productive capacity of the economy
Actual economic growth-
short run growth caused by increased real GDP
Potential economic growth
long run growth caused by increased productive potential
Migration
the movement of people from one country to another
Export led growth
economic growth caused by rises in net exports
Output gap
the output gap is the difference between the trend rate and actual rate of economic growth
Trend rate
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
Potential output
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
Positive output gap
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
Negative output gap-
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
Trade cycle
variations in the level of productive capacity of an economy over time
Productive capacity/ productive potential-
the maximum amount of goods and services that we can produce with the resources we have available
GDP
the value of goods and services produced in the economy over a period of time
Boom
a period of high levels of economic activity
Recession
the rate of economic growth starts to fall in a downturn. Two consecutive quarters of negative real GDP
Slump
the bottom of the business cycle which represents a period of serious economic decline. Low or negative economic growth.
Recovery
when there are often signs that economic growth is starting to rise often referred to as the green shoots of recovery
Demand side policies
a deliberate manipulation by the government of aggregate demand in order to achieve macroeconomic objectives
Monetary policy
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
Contractionary monetary policy-
reduces the size of the money supply or raises the interest rate in order to reduce AD
Expansionary monetary policy-
increases the size of the money supply, decreases the interest rate in order to increase AD
Interest rate
the cost of borrowing, reward for saving, return for lending
Base rate
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
Commercial bank rate
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.
Inflation targeting
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
Symmetric inflation targeting-
deviations of inflation below the target are to be treated with the same importance as deviations above it
Interest rate transmission mechanism
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
Quantitative easing
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
Fiscal policy
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
Current government spending
government expenditure on day- to day running of public sector activities
Capital government spending
government expenditure on improving the productive capacity of the economy
Discretionary fiscal policy
involves deliberate one off changes in government spending and taxation with the intention of influencing AD
Expansionary fiscal policy-
the use of fiscal policy to stimulate AD, increasing levels of government spending, increasing government borrowing and decreasing taxes- lower tax revenue
Contractionary fiscal policy
the use of fiscal policy to stimulate AD which involves decreasing government spending, decreasing government borrowing and increasing taxes- higher tax rev
Moral hazard
taking excessive risk as you are insured or protective form failure. 3rd party bares the benefit of the cost of someone else
Regulatory capture
when regulators of different industries act in favour of producers not consumers
Government budget-
comprised of government spending and tax revenue
Balanced budget
where government tax rev is = to government expenditure during a financial year
Budget surplus
where tax rev exceeds government spending in a financial year
Budget deficit
where government spending exceeds tax rev in a financial year
Cyclical budget deficit
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
Structural budget deficit
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
Direct taxes-
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
Indirect taxes
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
The Laffer curve
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
Globalisation
the process by which economies have become increasingly integrated and independent, increasing level of cross border trade, investment, and migration
Containerisation
a system of freight transport for use in sea shipping that has reduced the transport costs of shipping 1000s of goods across the globe
Multinational companies
has facilities and other assets in at least one country other than its home country
Transnational companies
TNC’s base their manufacturing, assembly, research and retail operation in a number of countries
Trading bloc
a group of countries within a geographical region protecting themselves from imports and non-members.
Trade liberalisation-
reductions in import tariffs and non- tariff barriers to enhance trade between one or more countries
FDI
the acquisition of a controlling interest in productive operations abroad by business resident in the home economy
Absolute advantage
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.
Comparative advantage
- 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.
Specialisation
when individuals, regions or countries concentrate on making one product to create a surplus
Terms of trade
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
The prebisch – Singer hypothesis
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
Closed economy
an economy operating without imports and exports
Free trade
where trade occurs between countries without restrictions or barriers
Free trade agreements
when two or more countries in a region agree to reduce/eliminate trade barriers on all goods from member countries
Customs union
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.
Common market
single market for participating countries free trade in goods & services and free movement of labour /capital. EU= single market
Monetary union
an intergovernmental agreement that involves 2 or more states sharing the same currency
Trade Creation
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
Trade diversion
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
WTO
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
Quota Limits
placed on the level of imports allowed into a country
Tariffs Taxes
placed on imported goods in an attempt to prevent people from buying them
Non-tariff barriers
trade barriers such as import quotas, embargoes, and export subsidies
Ad valorem tariffs
an import tariff rate charged as percentage of the price
Subsidy
payments by government to domestic suppliers that reduce their costs- domestic output cheaper than imported goods
Dumping
where you export a good lower than the cost of production in the domestic country too
Protectionism
tariff and non- tariff restriction on imports to protect domestic producers
Expenditure reducing policies
policies designed to lower real incomes and AD and thereby cut demand for imports e.g. higher direct taxes or increased I/R
Expenditure switching policies
policies designed to change relative prices of exports and imports. Depreciation
Financial account
transactions that results in change of ownership of financial assets/liabilities between residents of different countries- net flows of money into equities, bonds, property
Financial flows
flows of capital across national borders including debt and equity
Portfolio investment
people/ businesses buy shares or other securities such as bonds in other nations.
Depreciation
a fall in the external value of one currency against another
Devaluation of currency-
fall in the external value of a currency inside a fixed exchange rate system
Revaluation of currency
an increase in the external value of currency inside a fixed e/r system
Fixed E/R
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
Floating exchange rate
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
Managed floating-
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
Real E/R-
the product of the nominal E/R and the ratio of prices between 2 countries
J curve effect-
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
Marshall Lerner condition-
predicts the circumstances in which a fall in E/R improves C.A on BOP. Devaluation improves BoP ONLY if PEDX + PEDM > 1
Income inequality
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
Poverty
when incomes are not high enough to meet basic human needs
Absolute poverty
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
Relative poverty-
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
Lorenz curve
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
Gini coefficient
measures extent to which distribution of income among individuals within an economy deviates from a perfectly equal distribution. 0-1
Poverty line
minimum level of income deemed necessary to achieve an adequate standard of living in a given country.
Poverty trap
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
Economically inactive
those who are of working age but not seeking work for whatever reason
Earnings
made up of wage plus overtime pay, bonuses and commission
Wealth
stock concept value of assets owned by a household, property, shares, saving
Wealth inequality-
the degree to which wealth is distributed unequally across a population
Capitalism
economic and political system in which a country’s trades and industry are controlled by private owners for a profit
Dependency ration
ratio of dependents to the working population
Gini coefficient
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.
Lorenz curve
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
Wage differentials-
the difference in wages between workers. Differences in wages between differently skilled workers in same industry, or similar skilled workers in diff industries.
Minimum wage
wage set above the equilibrium
Maximum wage
wage set below the equilibrium price
Economic development
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
Economic growth
measures the rate of change in a country’s output, it’s an expansion in the productive potential capacity, an increase in real GDP
Economic development
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
Economic development
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
Economic development
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
Emerging economy
a lower to middle income country that’s progressing toward becoming more advanced, rapid growth, urbanisation and industrialisation
GDP
total value of an economy is domestic output of goods and services
GNI
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
LEDCs
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
Primary product dependency-
dependence as measured as a share of GDP, total export or employment on the extraction/cultivation of primary commodity such as copper an oil
Savings gap-
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.
Harrod-Domar model
Increased investment = increased capital stock = increased economic growth = increased saving = repeat
Savings surplus
the excess of aggregate savings over domestic investment, where investment is in fixed capital and inventories by both the public and the private sectors.
Foreign currency gap-
currency outflows persistently exceed currency inflows, persistent c.a deficit
Capital flight-
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
Infrastructure-
transport links, communication networks, sewage, energy plants/ facilities essential 4 functioning of country
Debt relief
cancellation, rescheduling, refinancing of nations external debt
Property rights
Rights to ownership or an asset such as land or ideas (IP) rights
Primary sector
industry involved in production of raw materials including agriculture
Brain drain
movement of highly skilled or professional people from their own country to another where they earn more money
Corruption
abuse of entrusted power for private gain, key cause of govt failure
Market based development policies
policies designed to promote development by minimising the role of govt and maximising the free operation of markets
Trade liberalisation
involves the removal of trade barriers, tariffs and quotas, promoting free trade
FDI
acquisition of a controlling interest in productive operations abroad by businesses resident in home economy.
Floating exchange rate
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.
Microfinance
form or credit offered to low- income individuals not traditionally serviced by formal banking sector
Privatisation
when state run businesses are sold to the private sector
Interventionist development policies
policies designed to promote development by actively encouraging the role of govt in the economy
Human capital
skills, experience, attitudes, aptitudes
Managed exchange rates
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
Protectionism-
Tarff and non-tariff restrictions on imports to protect domestic producers
Infrastructure
The transport links, communications networks, sewage sunders, energy plants and other facilities essential for functioning of country
Joint venture
Agreement between 2 or more companies to cooperate on a particular project or a business that serves the mutual interests.
Buffer stock
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
Import substitution
replacement of imports by domestic production, protected using tariffs
Lewis Model
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
Resource efficiency-
Achieving more with less producing more goods and services with lower environmental footprint
Fairtrade
Trade between companies in developed countries and producers in developing countries in which fair prices are paid to producers
Debt forgiveness
cancelling by a creditor of a debt to a country or company
Debt relief-
cancellation, rescheduling, refinancing of nations external debt
Aid
overseas development assistance from one country to another- humanitarian assistance project aid etc.
Bilateral Aid-
aid that flows from one country to another
Tied aid
aid with conditions attached, economic or political reforms or commitment to buy goods from donor country
Multilateral aid
is when countries give aid to an international organisation who distributes it to other countries.
International Monetary Fund-
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
NGOs
private non-profit making bodies which are active in development work
World bank-
promotes institutional, structural, social development of LDCs, providing low interest loans for domestic investment projects and technical assistance
Financial market failure
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
Bank assets-
assets are ‘owned’ by the bank e.g. cash, balances, loads (advances), securities (bonds), and also fixed assets – property
Bank capital
value of the bank’s assets minus its liabilities
Bank liabilities
‘owed’ by the bank
Bank reserves
money and liquid assets held by banks in order to meet cash withdrawals by customers
Banking credit
an arrangement with a bank for a loan, or bank lending in general
Banking system-
way banks work together to handle payments, make money available
Base money
Currency (banknotes and coins) in circulation plus minimum reserves credit institutions are required/choose to hold with a country’s central bank
Base interest rate
the rate of interest set by the MPC of BOE being in effect the lowest rate that commercial lenders will charge interest at
Bond market
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
Broad money-
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
Building societies
owned by their members and not shareholders – focus on offering mortgages and savings
Crowdfunding
form of equity finance
Debt default
failure of a debtor to make agreed payments
Equity
refers to the value of the interest of an owner or partial owner in an investors
Forward market-
a market dealing in commodities, currencies and securities for future delivery at prices agreed upon in advance.
SPOT markets
trade at current prices
Financial market-
any exchange that facilitates the trading of financial instruments- stocks, bonds, foreign exchange, or primary commodities such as oil and gas
Leverage
the use of borrowed funds to inc profitability. One measure of leverage is the amount of l/t debt relative to equity
Liquidity
the ease and cost with which assets can be turned into cash and used immediately as a means of exchange
Asset bubble
a sustained rise in prices of assets, housing, equities which takes their values well above long run sustainable levels
Asymmetric information
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
Moral hazard
taking excessive risk as you are insured or protective form failure. 3rd party bares the benefit of the cost of someone else
Regulatory capture
when regulators of different industries act in favour of producers not consumers
Systemic risk
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
Market rigging
illegally and unfairly controlling the price of the interest-rate in order to increase their joint profits will exploit consumers
Transfer payments
- a redistribution of income and wealth made without goods or services being received in return
Automatic stabilisers
effects which help influence the path of economic growth due to cyclical changes in tax revenue and welfare costs, without direct intervention by gov
Current expenditure
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
Capital expenditure
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
Balanced budget
this occurs when government expenditure is equal to government revenue through taxations
Budget deficit
where government expenditure exceeds tax rev
Budget surplus
where taxation exceeds government expenditure
Crowding in
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.
Crowding out
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
Public sector debt
owed by central and local government and by public corporations
Quantitative easing
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
Direct tax-
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
Indirect tax
imposed on producers (suppliers) by the government
Laffer curve
relationship between economic activity and the rate of taxation which suggests there’s an optimum tax rate which maximises total revenue
Progressive tax
the marginal rate of income tax rises as incomes rises
Proportional tax
when the marginal rate of income tax is constant leading to a constant average rate of tax
Regressive tax-
the rate of tax paid falls as incomes rise
Tax burden-
measures total tax revenue as a % of GDP
Discretionary fiscal policy
deliberate attempts to affect the level and growth of AD using changes in government spending, direct and indirect taxation
Fiscal deficit
when government expenditure is higher than the revenue from taxes in a given year
National debt
a governments total outstanding debt- effectively what the government still owed from the budget deficits accumulated over time
National savings
total public and private sectors saving measured as a share of GDP. Saving is the difference between income and consumption
Public sector
made up of central government, local government and public corporation
AAA credit rating –
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
External shocks
an unexpected event beyond the control of the country’s -large negative impact on its economy
LRPC
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
Sovereign debt wealth
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
Transfer pricing
Method of pricing goods and services transferred within a multinational or trans-national company in order to reduce tax burdens and maximise profits.
Cyclical budget deficit-
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.
Structural budget deficit
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
