Macroeconomics Definitions Flashcards

1
Q

macroeconomics

A

involves the study of the whole economy at the aggregate level

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2
Q

policy objective

A

a target or goal that policy-makers aim to ‘hit’

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3
Q

short run economic growth

A

Growth of real output resulting from using idle resources, including labour, thereby taking up the slack in the economy

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4
Q

long run economic growth

A

an increase in the economy’s potential level of real output, and an outward shift of the economy’s production possibility frontier

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5
Q

Gross Domestic Product (GDP)

A

the sum of all goods and services, or level of output, produced in the economy over a period of time, e.g. one year

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6
Q

real GDP

A

a measure of all the goods and services produced in an economy, adjusted for price changes or inflation. The adjustment transforms changes in nominal GDP, which is measured in money terms, into a measure that reflects changes in the total output of the economy

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7
Q

Nominal GDP

A

GDP measured at the current market prices, without removing the effects of inflation

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8
Q

recession

A

a fall in real GDP for 6 months or more

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9
Q

full employment

A

according to Beveridge’s definitions, full employment means 3% or less of the labour force unemployed. According to the free-market definition, it is the level of employment occurring at the market-clearing real-wage rate, where the number of workers whom employers wish to hire equals the number of workers wanting to work

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10
Q

claimant count

A

The method of measuring unemployment according to those people who are claiming unemployment-related benefits (Jobseeker’s Allowance)

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11
Q

Labour Force Survey

A

a quarterly sample survey of households in the UK. Its purpose is to provide information on the UK labour market. The survey seeks information on respondents’ personal circumstances and their labour market status during a period of 1-4 weeks.

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12
Q

Inflation

A

a persistent or continuing rise in the average price level

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13
Q

deflation

A

A persistent or continuing fall in the average price level

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14
Q

disinflation

A

When the rate of inflation is falling, but still positive

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15
Q

price index

A

an index number showing the extent to which a price, or a ‘basket’ of prices, has changed over a month, quarter or year, in comparison with the price(s) in a base year

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16
Q

consumer prices

A

The official measure used to calculate the rate of consumer price inflation in the UK. The CPI calculates the average price increase of a basket of 700 different consumer goods and services.

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17
Q

retail prices index (RPI)

A

the RPI is an older measure used to calculate the rate of consumer price inflation in the UK. Currently, the UK government uses the CPI for the indexation of state pensions and welfare benefits and for setting a monetary policy target, and the RPI for uprating each year the cost of TV and motor vehicle licences, together sometimes with taxes on goods such as alcoholic drinks.

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18
Q

Indexation

A

The automatic adjustment of items such as pensions and welfare benefits to changes in the price level, through the use of a price index.

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19
Q

balance of payments

A

A record of all the currency flows into and out of a country in a particular time period

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20
Q

current account of the balance of payment

A

Measures all the currency flows into and out of a country in a particular time period in payment for exports and imports, together with income and transfer flows

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21
Q

exports

A

domestically produced goods and services sold to residents of other countries

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22
Q

imports

A

Goods or services produced in other countries and sold to residents of this country

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23
Q

Balance of trade

A

the difference between the money value of a country’s imports and its exports. Balance of trade is the largest component of a country’s balance of payments on current accounts.

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24
Q

balance of trace deficit

A

the money value of a country’s imports exceeds the money value of its exports

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25
Q

balance of trade surplus

A

The money value of a country’s exports exceeds the money value of its imports

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26
Q

balanced budget

A

when government spending equals government revenue, which is mostly tax revenue

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27
Q

budget deficit

A

When government spending is greater than government revenue

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28
Q

policy conflict

A

Occurs when two policy objectives cannot both be achieved at the same time: the better the performance in achieving one objective, the worse the performance in achieving the other.

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29
Q

trade-off between policy objectives

A

Although it may be impossible to achieve two desirable objectives at the same time, e.g. zero inflation and full employment, policy-makers may be able to choose an acceptable combination lying between the extremes, e.g. 2% inflation and 4% unemployment

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30
Q

recession

A

2 consecutive quarters of negative (real) GDP growth

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31
Q

Keynesian economists

A

Followers of the economist John Maynard Keynes, who generally believe that governments should manage the economy, particularly through the use of fiscal policy.

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32
Q

pro-free market economists

A

opponents of Keynesian economists, who dislike government intervention in the economy and who much prefer the operation of free markets

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33
Q

monetary policy

A

the use by the government and its agent, the Bank of England, of interest rates and other monetary instruments to try to achieve the government’s policy objectives

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34
Q

fiscal policy

A

the use by the government of government spending and taxation to try to achieve the government’s policy objectives

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35
Q

performance indicator

A

Provides information for judging the success or failure of a particular type of government policy such as fiscal policy or monetary policy

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36
Q

index

A

a number used in an index, such as the consumer prices index, to enable accurate comparisons over time to be made. The base year index number is typically 100. In subsequent years, percentage increases cause the index number to rise above the index number recorded for the previous year, and percentage decreases cause the index number to fall below the index number recorded for the previous year.

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37
Q

national capital stock

A

the stock of capital goods, such as buildings and machinery, in the economy that has accumulated over time and is measured at a point in time

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38
Q

wealth

A

the stock of assets which have value at a point in time, as distinct from income which is a flow generated over a period of time

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39
Q

national wealth

A

the stock of all goods that exist at a point in time that have value in the economy

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40
Q

national income

A

the flow of new output produced by the economy in a particular period (e.g. a year)

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41
Q

national output

A

the same as national income, namely the flow of new output produced by the economy in a particular period (e.g. a year)

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42
Q

consumption

A

total planned spending by households on consumer goods and services produced within the economy

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43
Q

closed economy

A

an economy with no international trade

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44
Q

withdrawal

A

a leakage of spending power out of the circular flow of income into savings, taxation or imports

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45
Q

investment

A

total planned spending by firms on capital goods produced within the economy

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46
Q

Injection

A

spending entering the circular flow of income as a result of investment, government spending and exports

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47
Q

open economy

A

an economy open to international trade

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48
Q

reflationary policies

A

policies that increase aggregate demand with the intention of increasing real output and employment

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49
Q

equilibrium

A

the level of real output at which aggregate demand equals aggregate supply (AD = AS). Alternatively, it is the level of income at which withdrawals from the circular flow of income equal injections into the flow. Also known as macroeconomic equilibrium

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50
Q

Aggregate demand

A

the total planned spending on real output produced within the economy

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51
Q

economic shock

A

an unexpected event hitting the economy. Economic shocks can be demand-side or supply-side shocks (and sometimes both) and unfavourable or favourable

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52
Q

consumption

A

total planned spending by households on consumer goods and services produced within the economy

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53
Q

rate of interest

A

the reward for lending savings to somebody else (e.g. a bank) and the cost of borrowing

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54
Q

life-cycle theory of consumption

A

a theory that explains consumption and saving in terms of how people expect their incomes to change over the whole of their life cycles

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55
Q

availability of credit

A

funds available for households and firms to borrow

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56
Q

credit crunch

A

occurs when there is a lack of funds available in the credit market, making it difficult for borrowers to obtain financing, and leads to a rise in the cost of borrowing

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57
Q

Distribution of income

A

the spread of different incomes among individuals and different income groups in the economy

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58
Q

accelerator

A

a change in the level of investment in new capital goods is induced by a change in the rate of growth of national income or aggregate demand. The size of accelerator depends on the economy’s capital-output ratio.

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59
Q

multiplier

A

the relationship between a change in aggregate demand and the resulting usually larger change in national income

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60
Q

marginal propensity to consume

A

the fraction of an increase in disposable income (income after tax) that people plan to spend on domestically produced consumer goods

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61
Q

short-run aggregate supply (SRAS)

A

aggregate supply when the level of capital is fixed, though the utilisation of existing factors of production can be altered so as to change the level of real output

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62
Q

long run aggregate supply

A

aggregate supply when the economy is producing at its production potential. If more factors of production become available or productivity rises, the LRAS curve shifts to the right.

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63
Q

technical progress

A

new and better ways of doing things

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64
Q

economic performance

A

success or failure in achieving economic policy objectives

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65
Q

economic recovery

A

when short-run economic growth takes place after a recession

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66
Q

demand-side

A

relates to the impact of changes in aggregate demand on the economy. Associated with Keynesian economics

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67
Q

supply-side

A

relates to changes in the potential output of the economy which is affected by the available factors of production, e.g. changes in the size of the labour force, and the productivity of the economy

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68
Q

trend growth rate

A

the rate at which output can grow, on a sustained basis, without putting upward or downward pressure on inflation. It reflects the annual average percentage increase in the productive capacity of the economy

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69
Q

seasonal fluctuation

A

variation of economic activity resulting from seasonal changes in the economy

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70
Q

economic cycle

A

upswing and downside in aggregate economic activity taking place over 4 to 12 years. Also known as a business cycle or a trade cycle

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71
Q

actual output

A

level of real output produced in the economy in a particular year, not to be confused with the trend level of output. The trend level of output is what the economy is capable of producing when working at full capacity. Actual output differs from the trend level of output when there are output gaps

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72
Q

output gap

A

the level of actual real output in the economy is greater or lower than the trend output level

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73
Q

positive output gap

A

the level of actual real output in the economy is greater than the trend output level

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74
Q

negative output gap

A

the level of actual real output in the economy is lower than the trend output level

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75
Q

frictional unemployment

A

unemployment that is usually short term and occurs when a worker switches between jobs. Also known as transitional unemployment

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76
Q

geographical immobility of labour

A

when workers are unwilling or unable to move from one area to another in search of work

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77
Q

occupational immobility of labour

A

when workers are unwilling or unable to move from one type of job to another, for example because different skills are needed

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78
Q

structural unemployment

A

long-term unemployment occurring when some industries are declining, even though over industries may be growing. Also occurs within a growing industry if automation reduces the demand for labour, and when production requires new skills not possessed by the workers who lose their jobs. Structural unemployment is associated with the occupational and geographical immobility of labour

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79
Q

deindustrialisation

A

the decline of manufacturing industries, together with coal mining

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80
Q

cyclical unemployment

A

also known as Keynesian unemployment and demand-deficient unemployment. As the latter name suggests, it is unemployment caused by a lack of aggregate demand in the economy and occurs when the economy goes into a recession or depression

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81
Q

seasonal unemployment

A

unemployment arising in different seasons of the year, caused by factors such as the weather and the end of the Christmas shopping period

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82
Q

real-wage

A

the purchasing power of the nominal (or money) wage; for example, real wages fall when inflation is higher than the rise in the nominal wage rate and real wages rise when the nominal wage rate increases more rapidly than inflation

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83
Q

real-wage unemployment

A

unemployment caused by real wages being stuck above the equilibrium market-clearing real wage

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84
Q

voluntary employment

A

occurs when workers choose to remain unemployed and refuse job offers at current market wage rates

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85
Q

involuntary unemployment

A

when workers are willing to work at current market wage rates but there are no jobs available

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86
Q

equilibrium unemployment

A

exists when the economy’s aggregate labour market is in equilibrium. It is the same as the natural level of unemployment

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87
Q

demand pull inflation

A

a rising price level caused by an increase in aggregate demand, shown by a shift of the AD curve to the right. Also known as demand inflation

88
Q

cost push inflation

A

a rising price level caused by an increase in the costs of production, shown by a shift of the SRAS curve to the left. Also known as cost inflation

89
Q

wage cost inflation

A

a rising price level caused by an increase in wages and salaries, shown by a shift of the SRAS curve to the left

90
Q

emerging-market country

A

a country that is progressing towards becoming more economically advanced, by means of rapid growth and industrialisation

91
Q

disinflation

A

When the rate of inflation is falling and the price level is rising more slowly than previously

92
Q

monetarists

A

economists who argue that a prior increase in the money supply is the cause of inflation

93
Q

quantity theory of money

A

oldest theory of inflation, which states that inflation is caused by a persistent increase in the supply of money

94
Q

equation of exchange

A

the stock of money in the economy multiplied by the velocity of circulation on money equals the price level multiplied by the quantity of real output in the economy

95
Q

current account deficit

A

occurs when currency outflows in the current account exceed currency inflows. It is often shortened to ‘exports less than imports’

96
Q

current account surplus

A

occurs when currency inflows in the current account exceed currency outflows. It is often shorted to ‘exports greater than imports’.

97
Q

balance of trade in goods

A

the part of the current account measuring payments for exports and imports of goods. The difference between the total value of exports and the total value of imports of goods is sometimes called the ‘balance of visible trade’

98
Q

balance of trade in services

A

a part of the current account and is the difference between the payments for the exports of services and the payments for the imports of services

99
Q

net investment income

A

the difference between inward and outward flows of investment income. When net investment income is positive, the UK is earning more income generated by the direct and portfolio investments held abroad than it is paying to overseas owners of capital assets in the UK. Investment income is the main component of primary income flows in the current account of the balance of payments.

100
Q

transfers

A

Payments flowing between countries in forms such as foreign aid, grants, private transfers and gifts. They are payments that are made without anything of economic value being received in return. Not to be confused in this context with the part of government spending in which tax revenues are paid to people such as pensioners, without any output being produced in return.

101
Q

export-led growth

A

in the short run, economic growth resulting from the increase in exports as a component of aggregate demand. in the long run, economic growth resulting from the growth and increased international competitiveness of exporting industries

102
Q

reindustrialise

A

Growth of manufacturing industries to replace industries which have disappeared or declined significantly in size. Reindustrialisation is the opposite of deindustrialisation.

103
Q

Phillips curve

A

Based on evidence from the economy, showing the apparent relationship between the rate of inflation and the rate of unemployment. Now known as the short-run Phillips curve.

104
Q

long-run Phillips curve

A

A vertical curve located at the natural rate of unemployment (NRU). It differs from the short-run Phillips curve in that its vertical shape takes account of the role of expectations in the inflationary process.

105
Q

policy instrument

A

A tool or set of tools used to try to achieve a policy objective

106
Q

Bank of England

A

the central bank in the UK economy which is in charge of monetary policy

107
Q

central bank

A

a national bank that provides financial and banking services for its country’s government and commercial banking system, as well as implementing the government’s monetary policy and issuing currency. The Bank of England is the UK’s central bank

108
Q

Money

A

an asset that can be used as a medium of exchange; it is used to buy things// primarily a medium of exchange or means of payment, but also a store of value

109
Q

inflation rate target

A

the CPI inflation rate target set by the government for the Bank of England to try to achieve. The target is currently 3.4%

110
Q

Monetary Policy Committee

A

nine economists, chaired by the governor of the Bank of England, who meet once a month to set Bank Rate, the Bank of England’s key interest rate, and also decide whether other aspects of monetary policy need changing // the part of the Bank of England which implements UK monetary policy. The UK government sets the monetary policy objectives or targets, currently a 3.4 CPI inflation rate target, with the MPC then implementing monetary policy to try to ‘hit’ the target(s)

111
Q

Bank Rate

A

the rate of interest the Bank of England pays to commercial banks on their deposits held at the Bank of England

112
Q

liquidity

A

measures the ease with which assets can be turned into cash quickly without a loss in value. Cash is the most liquid of all assets

113
Q

money supply

A

the stock of money in the economy, made up of cash and bank deposits// the stock of financial assets which function as money

114
Q

contractionary money policy

A

uses higher interest rates to decrease aggregate demand and to shift the AD curve to the left

115
Q

exchange rate

A

the price of a currency, e.g. the pound, measured in terms of another currency such as the US dollar or the euro// the external price of a currency, usually measured against another currency

116
Q

expansionary monetary policy

A

uses lower interest rates to increase aggregate demand and to shift the AD curve to the right

117
Q

budget deficit

A

occurs when government spending exceeds government revenue (G > T). This represents a net injection of demand into the circular flow of income and hence a budget deficit is expansionary.

118
Q

budget surplus

A

occurs when government spending is less than government revenue (G < T). This represents a net withdrawal from the circular flow of income and hence a budget surplus is contractionary

119
Q

public sector borrowing

A

borrowing by the government and other parts of the public sector to finance a budget deficit

120
Q

demand-side fiscal policy

A

used to increase or decrease the level of aggregate demand (and to shift the AD curve right or left) through changes in government spending, taxation and the budget balance

121
Q

deficit financing

A

deliberately running a budget deficit and borrowing to finance the deficit

122
Q

expansionary fiscal policy

A

uses fiscal policy to increase aggregate demand and to shift the AD curve to the right

123
Q

contractionary fiscal policy

A

uses fiscal policy to decrease aggregate demand and to shift the AD curve to the left

124
Q

discretionary fiscal policy

A

involves making discrete changes to G, T and the budget deficit to manage the level of aggregate demand

125
Q

crowding out

A

A situation in which an increase in government or public sector spending displaces private sector spending, with little or no increase in aggregate demand.

126
Q

sovereign debt problem

A

Sovereign debt is the part of the national debt owned by people or institutions outside the country that has sold the debt to them. The sovereign debt problem stems from the difficulties governments face when trying to finance budget deficits by borrowing on international financial markets.

127
Q

Supply side fiscal policy

A

Used to increase the economy’s ability to produce and supply goods, through creating incentives to work, save, invest and to be entrepreneurial. Interventionist supply-side fiscal policies, such as the financing of retraining schemes for unemployed workers, are also designed to improve supply-side performance

128
Q

national debt

A

the stock of all past central government borrowing that has not been paid back

129
Q

cyclical budget surplus

A

if the structural deficit were zero, a cyclical surplus would probably emerge in the upswing of the economic cycle

130
Q

structural budget deficit

A

the part of the budget deficit which is not affected by the economic cycle but results from structural change in the economy affecting the government’s finances, and also from long-term government policy decisions

131
Q

progressive taxation

A

a tax is progressive if, as income rises, a larger proportion of income is paid in tax

132
Q

principle of taxation

A

a criterion used for judging whether a tax is good or bad. Also known as a canon of taxation.

133
Q

economy

A

the principle of taxation which requires a tax to be convenient for taxpayers to pay

134
Q

certainty

A

one of the principles of taxation of taxation. Tax payers should be reasonably certain of the amount of tax they will be expected to pay.

135
Q

Equity ( as a principle of taxation)

A

requires a tax to be fair

136
Q

efficiency ( as a principle of taxation)

A

a tax should achieve its desired objective(s) with minimum unintended consequences

137
Q

flexibility

A

the principle of taxation that requires a tax to be easy to change to meet new circumstances

138
Q

proportional taxation

A

when the proportion of income paid in tax stays the same as income increases

139
Q

tax threshold

A

the basic tax threshold is the level of income above which people pay income tax. Income below the basic tax threshold is untaxed

140
Q

direct tax

A

A tax which cannot be shifted by the person legally liable to pay the tax onto someone else. Direct taxes are levied on income and wealth.

141
Q

indirect tax

A

A tax which can be shifted by the person legally liable to pay the tax onto someone else, for example through raising the price of a good being sold by the taxpayer. Indirect taxes are levied on spending.

142
Q

supply-side policies

A

Aim to improve national economic performance by creating competitive and more efficient markets and through interventionist policies such as government finance of labour retraining schemes.

143
Q

supply-side economics

A

a branch of free-market economics arguing that government policy should be used to improve the competitiveness and efficiency of markets and, through this, the performance of the economy

144
Q

interventionist policies

A

occur when the government intervenes in, and sometimes replaces, free markets. Interventionist supply-side policies include government funding of research and development

145
Q

non- interventionist supply-side policies

A

Free up markets, promote competition and greater efficiency, and reduce the economic role of the state.

146
Q

privatisation

A

involves shifting ownership of state-owned assets to the private sector

147
Q

marketisation

A

involves shifting provision of goods or services from the non-market sector to the market sector. Also known as commercialisation

148
Q

deregulation

A

involves removing previously imposed regulations. It is the opposite of regulation.

149
Q

supply-side improvement

A

Reforms undertaken by the private sector to reduce costs to enable firms to become more productively efficient and competitive. Supply-side improvement often results from more investment and innovation, often undertaken by firms without prompting from the government

150
Q

eurozone

A

the name used for the group of EU countries that have replaced their national currencies with the euro. Before 2019, 19 of the then 28 EU countries were in the eurozone, though this may change in future years.

151
Q

balance of payments equilibrium

A

a situation in which a deficit or surplus on the current account of the balance of payments is exactly matched by capital inflows or outflows in the other parts of the balance of payments

152
Q

macroeconomic indicator

A

provides information from recent economic performance for judging the success or failure of a particular type of government policy, e.g. fiscal policy or monetary policy

153
Q

human capital

A

the skills, knowledge and experience possessed by the population

154
Q

hidden economy (informal economy, underground economy, black economy)

A

all the economic transactions conducted in cash which are not recorded in the national income figures because of tax evasion

155
Q

purchasing power parity (PPP) exchange rates

A

the rates of currency conversion that equalise the purchasing power of different currencies by eliminating the differences in price levels between countries

156
Q

equilibrium national income

A

The level of income at which withdrawals from the circular flow of income equal injections into the flow; also the level of output at which aggregate demand equals aggregate supply

157
Q

full employment income

A

the level of income when the economy is producing on its production possibility frontier, with no spare capacity

158
Q

aggregate supply

A

The level of real national output that producers are prepared to supply at different average price levels

159
Q

normal capacity level of output

A

the level of output at which the full production potential of the economy is being used.

160
Q

voluntary employment

A

occurs when workers choose to remain unemployed and refuse job offers at current market wage rates

161
Q

real wages

A

the purchasing power of the nominal (or money) wage; for example, real wages fall when inflation is higher than the rise in the nominal wage rate and real wages rise when the nominal wage rate increases more rapidly than inflation

162
Q

natural rate of unemployment

A

the rate of unemployment when the aggregate labour market is in equilibrium

163
Q

monetarism

A

narrow monetarism centres of increases in the money supply as the prime cause of inflation. Broader monetarism focuses on the virtues of free markets in resource allocation

164
Q

assets

A

things which people or organisations own

165
Q

liabilities

A

things which people or organisations owe

166
Q

narrow money

A

the part of the stock of money (or money supply) made up of cash and liquid bank and building society deposits

167
Q

broad money

A

the part of the stock of money (or money supply) made up of cash, other liquid assets such as bank and building society deposits, but also some illiquid assets. The measure of broad money used by the Bank of England is called M4

168
Q

shares

A

Undated financial assets, sold initially by a company to raise financial capital. Shares sold by public companies or PLCs are marketable on a stock exchange, but shares sold by private companies are not marketable. Unlike a loan, a share signifies that the holder owns part of the enterprise.

169
Q

bonds

A

financial securities sold by companies (corporate bonds) or by governments (government bonds) which are a form of long-term borrowing. Bonds usually have a maturity date on which they are redeemed, with the borrower usually making a fixed interest payment each year until the bond matures

170
Q

fiancial markets

A

markets in which financial assets or securities are traded

171
Q

money markets

A

Provide a means for lenders and borrowers to satisfy their short-term financial needs. Assets that are bought and sold on money markets are short term, with maturities ranging from a day to a year, and are normally easily convertible into cash. The term ‘money market’ is an umbrella that covers several markets, including the markets for Treasury bills and commercial bills

172
Q

capital markets

A

where securities such as shares and bonds are issued to raise medium- to long-term financing, and where shares and bonds are then traded on the ‘second-hand’ part of the market, e.g. the London Stock Exchange.

173
Q

foreign exchange market

A

global, decentralised markets for the trading of currencies. The main participants in this market are large international commercial banks. Collectively, foreign exchange markets are the largest markets in the global economy

174
Q

corporate bonds

A

debt security issued by a company and sold as new issues to people who lend long-term to the company. They can usually be resold second-hand on a stock exchange

175
Q

government bonds

A

debt security, in the UK known as gilt-edged securities or gilts, issued by a government and sold as new issues to people who lend long-term to the government. They can be resold second-hand on a stock exchange.

176
Q

commercial bank

A

a financial institution which aims to make profits by selling banking services to its customers

177
Q

investment bank

A

a bank which does not generally accept deposits from ordinary members of the general public. Traditional ‘investment banking’ refers to financial advisory work, such as advising private companies on how to become a public company by floating on the stock market, or advising public companies on how to buy up another company. Investment banks also deal directly in financial markets for their own account.

178
Q

systemic risk

A

in a financial context, this refers to the risk of a breakdown of the entire financial system, caused by inter-linkages within the financial system, rather than simply the failure of an individual bank or financial institution within the system

179
Q

credit

A

when a bank makes a loan it creates credit. The loan results in the creation of an advance, which is an asset on the bank’s balance sheet, and a deposit, which is a liability of the banks

180
Q

monetary policy instruments

A

tools such as Bank Rate which are used to try to achieve monetary policy objectives

181
Q

contractionary policy instruments

A

uses higher interest rates to decrease aggregate demand and to shift the AD curve to the left

182
Q

quantitative easing

A

when the Bank of England buys assets, usually government bonds, with money that the Bank has created electronically

183
Q

forward guidance

A

attempts to send signals to financial markets, businesses and individuals, about the Bank of England’s interest rate policy in the months and years ahead, so that economic agents are not surprised by a sudden and unexpected change in policy

184
Q

Financial Policy Committee

A

the part of the Bank of England charged with the primary objective of identifying, monitoring and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system. The committee’s secondary objective is to support the economic policy of the government.

185
Q

Prudential Regulation Authority

A

the part of the Bank of England responsible for the microprudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms

186
Q

Fiancial Conduct Authority

A

aims to make sure that financial markets work well so that consumers get a fair deal, by ensuring that the financial industry is run with integrity and that consumers can trust that firms have their best interests at heart, and by providing consumers with appropriate financial products and services

187
Q

moral hazard

A

The tendency of individuals and firms, once protected against some contingency, to behave so as to make that contingency more likely.

188
Q

liquidity ratio

A

the ratio of a bank’s cash and other liquid assets to its deposits

189
Q

regressive taxation

A

when the proportion of income paid in tax falls as income increases

190
Q

capital ratio

A

The amount of capital on a bank’s balance sheet as a proportion of its loans

191
Q

automatic stabilisers

A

fiscal policy instruments, such as progressive taxes and income related welfare benefits, that automatically simulate aggregate demand in an economic downswing and depress aggregate demand in an upswing, thereby ‘smoothing’ the economic cycle

192
Q

supply-side polices

A

Reforms undertaken by the private sector to increase productivity so as to reduce costs and to become more efficient and competitive. Supply-side improvement often results from more investment and innovation, often undertaken by firms without prompting from the government.

193
Q

market-based supply-side policies

A

these policies free up markets, promote competition and greater efficiency, and reduce the economic role of the state

194
Q

globalisation

A

the process of increasing economic integration of the world’s economies

195
Q

World Trade organisation

A

An international body whose purpose is to promote free trade by persuading countries to abolish import tariffs and other barriers to trade. As such, it has become closely associated with globalisation.

196
Q

multinational corporations

A

Enterprises operating in several countries but with their headquarters in one country

197
Q

less developed countries

A

Countries considered behind in terms of their economy, human capital, infrastructure and industrial base

198
Q

more developed country

A

countries with a high degree of economic development, high average income per head, high standards of living, usually with service industries dominating manufacturing, and investment having taken place over many years in human capital and infrastructure

199
Q

European Union

A

an economic and partially political union established in 1993 after the ratification of the Maastricht Treaty by members of the European Community and since expanded to include numerous central and eastern European nations

200
Q

absolute advantage

A

A country has an absolute advantage if it can produce more of a good than other countries from the same amount of resources

201
Q

comparative advantage

A

this is measured in terms of opportunity cost. The country with the least opportunity cost when producing a good possesses a comparative advantage in that good

202
Q

quotas

A

physical limits on the quantities of imported goods allowed into a country

203
Q

tariffs (import duties)

A

taxes imposed on imports from other countries entering a country

204
Q

export subsidies

A

Money given to domestic firms by the government to encourage firms to sell their products abroad and to help make their goods cheaper in export markets

205
Q

free trade area

A

in a free trade area, member countries abolish tariffs on mutual trade, but each partner determines its own tariffs on trade with non-member countries

206
Q

customs unions

A

trading blocs in which member countries enjoy internal free trade in goods and possibly services, with all the member countries protected by a common external tariff barrier

207
Q

current account

A

measures all the currency flows into an out of a country in a particular time period in payment for exports and imports of goods and services, together with primary and secondary income flows (previously known as income flows and transfers)

208
Q

financial account

A

the part of the balance of payments which records capital flows into and out of the economy

209
Q

balance of primary income

A

inward primary income flows comprising both inward-income flowing into the economy in the current year generated by UK-owned capital assets located overseas, and outward primary income flows comprising income flowing out of the economy in the current year generated by overseas-owned capital assets located in the UK

210
Q

balance of secondary income

A

current transfers, e.g. gifts of money, international aid and transfers between the UK and the EU, flowing into or out of the UK economy in a particular year

211
Q

foreign direct investment

A

investment in capital assets, e.g. manufacturing and service industry capacity, in a foreign country by a business with headquarters in another country. Very often the overseas company establishes subsidiary companies in the countries in which it is investing

212
Q

free floating exchange rate

A

the exchange rate is determined solely by the interplay of demand for, and supply of, the currency.

213
Q

fixed exchange rate

A

an exchange rate fixed at a certain level by the country’s central bank and maintained by the central bank’s intervention in the foreign exchange market

214
Q

currency union

A

an agreement between a group of countries to share a common currency, and usually to have a single monetary and foreign exchange rate policy

215
Q

indicators of development

A

these include gross domestic product (GDP) per head, information on the distribution of income, mortality rates and health statistics