Theme 4 Definitions (4.2, 4.4 and 4.51-4.53 only for now) Flashcards
Lorenz Curve
A graph depicting the distribution of income within a country
Gini Coefficient
A measure of the degree of inequality in a society
Absolute Poverty
Situation of a household whose income is insufficient to allow it to purchase the minimum bundle of goods and services regarded as necessary for survival
Headcount Ratio
A measure of the percentage of a country’s population living below a poverty line
International Poverty Line
An agreed measure that defines the absolute poverty line on international prices set at $2.15 a day in 2017
Relative Poverty
Situation obtaining if household income falls below 60% of median adjusted household disposable income
Persistent Poverty
Where a household is currently in relative poverty and has also been in this state in at least two of the the preceding three years
Direct Tax
A tax levied directly on income
Marginal Tax Rate
Tax on additional income, defined as the change in tax payments due divided by the change in taxable income
Progressive Tax
A tax in which the marginal tax rate rises with income, i.e. a tax bearing most heavily on the relatively well-off members of society
Indirect Tax
A tax on expenditure, e.g. VAT
Regressive Tax
A tax bearing more heavily on the relatively poorer members of society
Proportional Tax
A tax that is proportional to income, being neither regressive or progressive
Financial Intermediaries
Institutions such as banks and building societies that channels funds from lenders to borrowers
Retail Banks
Banks that provide high-street services to depositors
Wholesale Banks
Banks that deal with companies and other banks on a large scale
Universal Banks
Banks that operate in both retail and wholesale markets
Liquidity Ration
The ratio of liquid assets to total assets
Interbank Lending
Borrowing and lending between banks to manage their liquidity and other requirements for short-term funds
LIBOR
The average rate of interest on interbank lending in the London interbank market
Repo
A sale and repurchase agreement, whereby one financial institution sells a financial asset to another with an agreement to buy it back at an agreed future date
Securitisation
Process whereby future cash flows are converted into marketable securities
Capital Adequacy Ratio
The ratio of a bank’s capital to its current liabilities and risk-weighted assets
Transfer Payments
Occur when the government provides benefit to poor households (not included in AD)
Laffer Curve
A curve showing the relationship between the tax rate and the amount of revenue raised as a consequence
Government Budget Deficit/Surplus
The difference between government expenditure and government revenue
National Debt
The total amount of government debt, based on accumulated previous deficits and surpluses
Cyclical Deficit
A budget deficit that occurs during the downturn of the business cycle, but disappears in the upturn
Structural Deficit
A deficit that persists even when the economy is at full employment
Crowding Out
Process by which an increase in government expenditure crowds out private sector activity by raising the cost of borrowing
Crowding In
Process by which a decrease in government expenditure crowds in private sector activity by lowering the cost of borrowing
Automatic Stabilisers
Process by which government expenditure and revenue varies with the business cycle, thereby helping to stabilise the economy without any conscious intervention from government
Golden Rule of Fiscal Policy
Rule stating that over the economic cycle net government borrowing will be for investment only, not for current spending
Economic Inequality
Economic inequality is the difference in how assets, wealth, or income are distributed amongst the population
