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Economics key terms > 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

Automatic stabilisers

A

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

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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

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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7
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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8
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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9
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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10
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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11
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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12
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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13
Q

Common market

A

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

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14
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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15
Q

Customs union

A

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

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16
Q

Current expenditure

A

General government final consumption plus transfer payments plus
interest payments

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16
Q

Cyclical deficit

A

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

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17
Q

Depreciation

A

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

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18
Q

Devaluation

A

When the currency is decreased against another under a fixed system

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19
Q

Developed country

A

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

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20
Q

Developing country

A

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

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21
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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22
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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22
Q

Economic
development

A

Improvements in living standards

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23
Q

Exchange rate

A

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

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24
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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25
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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26
Q

Fiscal deficit

A

When the government spends more than it receives in a year

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27
Q

Fixed exchange rate

A

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

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28
Q

Foreign direct
investment

A

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

29
Q

Foreign currency gap

A

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

30
Q

Free trade

A

Trade with no barriers or restrictions

31
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

32
Q

Free floating
exchange rate

A

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

33
Q

General government
final consumption

A

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

34
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

35
Q

Gini coefficient

A

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

36
Q

Harrod-Domar model

A

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

37
Q

Human capital

A

The economic value of an individual’s skills, experience, training etc

38
Q

Human Development
Index (HDI)

A

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

39
Q

Infrastructure

A

Facilities required for an economy to function, such as roads

40
Q

International
competitiveness

A

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

41
Q

J-curve

A

A current account will worsen before it improves following a
depreciation of the currency

42
Q

Laffer curve

A

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

43
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

44
Q

Lorenz curve

A

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

45
Q

Market bubbles

A

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

46
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

47
Q

Microfinance
schemes

A

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

48
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

49
Q

Marshall-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

50
Q

Monetary unions

A

Two or more countries with a single currency

51
Q

National debt

A

The sum of government debts built up over many years

51
Q

Moral hazard

A

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

52
Q

Primary product
dependency

A

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

53
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

54
Q

Protectionism

A

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

55
Q

Proportional taxation

A

he 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

56
Q

Quota

A

Limits placed on the level of imports allowed into a country

57
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

58
Q

Relative poverty

A

When income falls below an average income threshold. In the UK, this
is those on less than 60% of median household income

59
Q

Revaluation

A

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

60
Q

Speculation

A

Trading financial assets in hope of significant returns

61
Q

Tariffs

A

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

61
Q

Structural deficit

A

The deficit which occurs when the cyclical deficit is 0

62
Q

Theory of
comparative
advantage

A

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

62
Q

Terms of trade

A

The ratio of an index of a country’s export prices to an index of its
import prices.
average export price index x100
average import price index

63
Q

Trade diversion

A

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

64
Q

Trade creation

A

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

65
Q

Trade liberalisation

A

Reduction or removal of protectionist policies

66
Q

Trading bloc

A

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

67
Q

Transfer payments

A

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

68
Q

Transfer pricing

A

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

68
Q

Unit labour costs

A

The cost of employing workers for each unit of a good
total wages
real output

Economics key terms (4 decks)

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