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ALevel Economics (Edexcel A) > Theme 4 > Flashcards

Theme 4 Flashcards

1
Q

Absolute advantage

A

When a country can produce a good more cheaply in absolute terms than another country

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2
Q

Absolute poverty

A

When people are unable to afford sufficient necessities to maintain life; those on less than $1.90 a day

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3
Q

Aid

A

When a country voluntarily transfers resources to another or gives loans on a concessionary basis

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4
Q

Appreciation

A

An increase in the value of the currency using floating exchange rates

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5
Q

Asymmetric information

A

When one party has more knowledge than another; this causes market failure in the financial sector

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6
Q

Automatic stabilisers

A

Mechanisms which reduce the impact of changes in the economy on national income

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7
Q

Balance of payments

A

A record of all financial dealings over a period of time between economic agents of one country and another

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8
Q

Buffer stock systems

A

When a maximum and minimum price are imposed together in order to bring about price stability

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9
Q

Capital account

A

A part of the balance of payments; records debt forgiveness, inheritance taxes, transfers of financial assets and sales of assets

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10
Q

Capital expenditure

A

Government spending on investment goods such as new roads, schools and hospitals, which will be consumed in over a year

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11
Q

Capital flight

A

When large amounts of money are taken out of the country, rather than being left there for people to borrow and invest

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12
Q

Central banks

A

A financial institution that has direct responsibility to control the money supply and monetary policy, to manage gold reserves and foreign currency and to issue government debt

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13
Q

Common market

A

Memebers trade freely in all economic resources and impose a common external tariff

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14
Q

Comparative advantage

A

When a country is able to produce a good more cheaply relative to other goods produced; it has a lower opportunity cost

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15
Q

Current account

A

A part of the balance of payments; records payments for the purchase and sale of goods and services, as well as incomes and transfers

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16
Q

Customs union

A

The removal of all tariff barriers between members and the introduction of a common external tariff

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17
Q

Current expenditure

A

General government final consumption plus transfer payments plus interest payments

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18
Q

Cyclical deficit

A

The part of the deficit that occurs because government spending fluctuates around the trade cycle

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19
Q

Depreciation

A

A fall in the value of the currency using floating exchange rates

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20
Q

Devaluation

A

When the currency is decreased against another under a fixed system

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21
Q

Developed country

A

Countries with high GDP per capita and a high standard of living

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22
Q

Developing country

A

Countries with a low GDP per capita and a low standard of living

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23
Q

Discretionary fiscal policy

A

Deliberate manipulation of government expenditure and taxes to influence the economy; expansionary and deflationary fiscal policy

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24
Q

Economic development

A

Improvements in living standards

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25
Q

Emerging economies

A

A country that is growing quickly and has some characteristics of a developed country but is not fully there yet

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26
Q

Exchange rate

A

The purchasing power of a currency in terms of what it can buy of other currencies

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27
Q

Financial account

A

A part of the balance of payments; records FDI, portfolio investment and the transfer of gold and currency reserves

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28
Q

Financial markets

A

When buyers and sellers can buy and trade a range of services or assets that are fundamentally monetary in nature

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29
Q

Fiscal deficit

A

When the government spends more than it receives each year

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30
Q

Fixed exchange rate

A

The value of the currency is set against the value of another and that exchange rate does not change

31
Q

Foreign currency gap

A

When a country does not export enough to finance the purchase of goods from overseas

32
Q

Foreign direct investment

A

Investment by one private sector company in one country into another private sector company in another

33
Q

Free trade

A

Trade with no barriers or restrictions

34
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

35
Q

Free floating exchange rate

A

Value of the currency is determined purely by market demand and supply of the currency

36
Q

General government final consumption

A

Spending on goods and services which will be consumed within the next year

37
Q

Gini coefficient

A

A measure of income inequality; the ratio of the area between the 45 degree line and the Lorenz curve and the whole area under the 45 degree line

38
Q

Globalisation

A

The growing interdependence of countries and the rapid rate of change it brings about; movement towards free trade of goods and services, free movement of labour and capital and free interchange of technology and intellectual capital

39
Q

Harrod-Domar model

A

Savings provide the funds that are used for investment, and growth rates depend on the level of savings and the productivity of investment. Therefore, growth in developing countries is limited by the lack of investment

40
Q

Human Development Index (HDI)

A

Measures an economy’s development based on income, health and education

41
Q

Infrastructure

A

Facilities reuqired for an economy to function, such as roads

42
Q

International competitiveness

A

The ability of a country to compete effectively and become attractive in international markets

43
Q

J-Curve

A

The current account will worsen before it improves following a depreciatioin of the currency

44
Q

Laffer curve

A

Shows that a rise in tax rates does not necessarily lead to a rise in tax revenues, due to the impact on incentives and work

45
Q

Lewis 2 model

A

A model which suggests that countries will develop through industrialisation as labour is moved from the unproductive agriculture sector to the more productive urban sector. This increases wages and leads to more saving and investment

46
Q

Lorenz curve

A

The cumulative percentage of population plotted against the cumulative percentage of income that those people have

47
Q

Market bubbles

A

When the price of an asst rises massively and greatly exceeds the value of the asset itself

48
Q

Market rigging

A

A group of individuals or institutions collude to fix prices or exchange information that will lead to gains for themselves at the expense of other participants in the market

49
Q

Microfinance schemes

A

Schemes which aim to give poor and near-poor households permanent access to a range of financial services

50
Q

Managed floating exchange rate

A

Value of the currency is determined by demand and supply but the Central Bank intervenes to prevent large changes

51
Q

Marshal-Lerner condition

A

The sum of the price elasticities of imports and exports must be more than one if a currency depreciation is to have a positive impact on the trade balance

52
Q

Monetary unions

A

Two or more countries with a single currency

53
Q

Moral hazard

A

When individuals act in their own best interests knowing there are potential risks - another cause of financial market failure

54
Q

National debt

A

The sum of government debts built up over many years

55
Q

Primary product dependency

A

When a country relies heavily on primary products, such as agricultural goods or mining

56
Q

Progressive taxation

A

Where those on higher incomes pay a higher marginal rate of tax; those on higher incomes pay a higher percentage of their income on tax

57
Q

Proportional taxation

A

The proportion of income paid on the tax remains the same whilst the income of the taxpayer changes; everyone pays the same percentage of their income on tax

58
Q

Protectionism

A

When governments enact policies to restrict the free entry of imports into their country, such as tariffs and quotas

59
Q

Quotas

A

Limits placed on the level of imports allowed into a country

60
Q

Regressive taxation

A

Where the proportion of income paid in tax falls whilst the income of the taxpayer increases; those on lower incomes pay a higher percentage of their income on tax

61
Q

Relative poverty

A

When income falls below an average income threshold.

In the UK, this is those on less than 60% of the median household income

62
Q

Revaluation

A

When the currency is increased against the value of another under a fixed system

63
Q

Speculation

A

Trading financial assets in hope of significant returns

64
Q

Structural deficit

A

The deficit which occurs when the cyclical deficit is 0

65
Q

Tariffs

A

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

66
Q

Terms of trade

A

The ratio of an index of a country’s exports to an index of its import prices

67
Q

Theory of comparative advantage

A

Countries will find specialisation mutually advantageous if the opportunity costs of production are different

68
Q

Trade creation

A

When a country moves from buying goods from a high cost to a lower cost producer

69
Q

Trade diversion

A

When a country moves from buying goods from a low cost producer to a higher cost one

70
Q

Trade liberalisation

A

Reduction or removal of protectionist policies

71
Q

Trading bloc

A

A group of countries that reduce or remove trade barriers between them

72
Q

Transfer payments

A

Government spending for which there is no corresponding output, where money is taken from one group and given to another

73
Q

Transfer pricing

A

Where firms manipulate the price of their good so that profit is increased in areas of low tax

74
Q

Unit labour costs

A

The cost of employing workers for each unit of a good

ALevel Economics (Edexcel A) (4 decks)

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