Theme 4 definitions Flashcards
absolute advantage
when a country produces a good more cheaply in absolute terms than another country
absolute poverty
when a person is unable to afford basic economic necessities; according to World Bank earns less than $1.90 a day
Aid
when a country voluntarily transfers resources to another or gives loans on a concessionary basis
appreciation
an increase in the value of the currency in a free floating exchange system
asymmetric information
when one party has more knowledge then the other economic agents, this causes market failure like in the financial sector
automatic stabilisers
mechanisms which reduce the impact of changes in the economy on national income
(dampen the fluctuations of the trade cycle)
balance of payments
a record of all international transactions between economies; including the financial, capital and current account
buffer stock systems
when a maximum and minimum price are imposed together in order to bring about price stability
capital account
1/3 of the balance of payments; record of debt forgiveness, inheritance tax, and the transfer of financial assets and sales of assets
capital expenditure
government spending on investment goods such as new roads,infrastructure, schools and hospitals which will be consumed in over a year
capital flight
when large amounts of money are taken out of the country rather than being left there for people to invest and borrow
(when firms leave an economy)
central banks
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
common markets
A type of trade bloc, involves all characteristics of FTA, custom union and allows free movement of capital and labour
comparative advantage
when a country is able to produce a good at a lower opportunity cost to another economy
(produce the good more cheaply relatively to other goods they produce)
current account
1/3 of balance of payments; record payments for the purchase and sales of goods and services as we as incomes and transfers
customs union
the removal of all tariff barriers between members (reduced barriers) with an introduction of a common external tariff
current expenditure
general government final consumption plus transfer payments plus interest payments
cyclical deficit
the part of the deficit that occurs because government spending fluctuates around the trade cycle
depreciation
a fall in the value of the currency against another, using floating exchange rates
devaluation
when the currency has fallen against another in a fixed exchange rate system
developed country
countries with high GDP per capital and a high standard of living
developing countries
countries with low GDP per capita and a low standard of living
discretionary fiscal policy
deliberate manipulation of government expenditure and taxes to influence the economy; via expansionary and contractionary fiscal policies
economic development
the improvement in living standards
- growth in social and economic opportunities
emerging economies
a country that is growing quickly but has some characteristics of a developed country but is not fully there yet
exchange rate
the value of a currency/ basket of a currencies compared to other currnecies
financial account
1/3 of the balance of payments; record FDI, investments and the transfer of gold and currency reserves
financial market
where buyer and sellers can buy and trade a range of services or assets that are fundamentally monetary in nature
fiscal deficit
when government spends more than it receives
fixed exchange rate systems
the value of the currency is set against the value of another and that exchange rate does not change
(controlled by the government)
(pegged to another currency)
e.g china’s Yuan to USA dollar
foreign currency gap
when a country does not export enough to finance the purchase of goods from overseas
foreign direct investment (FDI)
investment by a private sector firm in one country to another private sector firm in another
Free trade
trade with no barriers or restrictions
free trade agreement
when two or more countries in a region agree to reduce or eliminate all protectionism on trade amongst members
free floating exchange rate
value of the currency is determined purely by market demand and supply of the currency
general government and final consumption
spending on goods and services which will be consumed within the next year
gini coefficient
a measure of income inequality
globalisation
the growing interdependence, integration and interconnectedness of economies
Harrod-Domar model
Savings in developing countries would lead to investments and growth
human capital
the economic value of an individuals skills, experience and training
HDI
measure of an economy’s development based on income, health and education
infrastructure
facilities required for an economy to function such as road
international competitiveness
the ability of an economies exports to compete in international markets and become attractive
J-curve
a current account will worsen before improving following a depreciation of a currency until marshal learning condition is met (PED of X+M >1)
laffer curve
shows how a rise in tax rates does not necessarily lead to a rise in tax revenue
Lewis 2 model
A country develops through the transaction from rural agriculture sector to urban industrial sector.
This would lead to workers wages increasing due to producing goods that are more in demand, leading to increased savings and investments
lorenz curve
cumulative % of population against cumulative % of income
highlights income inequality
market bubbles
when prices of an asset rises massively and exceeds the value of the asset itself
market rigging
when a group colludes to fix prices or exchange information that will lead to gains for themselves
microfinance schemes
used to give loans to poor households and give them access to a range of financial services
Marshall learning condition
the sum of price elasticities of imports and exports being higher than 1
monetary unions
Characteristics of common market, all have the same currency and central bank
moral hazard
when individuals engage in risky behaviour for their interests knowing they can cause market failure and not take responsibility for it
national debt
the sum of government debt built over many years
primary product dependency
when a country relies heavily on primary products such as agricultural goods or mining
progressive taxation
where those on higher incomes pay a higher marginal rate of tax
proportional taxation
proportion of income paid on the tax remains the same whilst the income of the tax payer changes; everyone pays the same %
protectionism
any measures by the government to restrict trade e.g tariffs, quotas and subsidies
quota
physical limit on levels of imports into a country
