Theme 4 Definitions (4.2, 4.4 and 4.51-4.53 only for now)

Question 1

Lorenz Curve

Answer 1

A graph depicting the distribution of income within a country

Question 2

Gini Coefficient

Answer 2

A measure of the degree of inequality in a society

Question 3

Absolute Poverty

Answer 3

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

Question 4

Headcount Ratio

Answer 4

A measure of the percentage of a country’s population living below a poverty line

Question 5

International Poverty Line

Answer 5

An agreed measure that defines the absolute poverty line on international prices set at $2.15 a day in 2017

Question 6

Relative Poverty

Answer 6

Situation obtaining if household income falls below 60% of median adjusted household disposable income

Question 7

Persistent Poverty

Answer 7

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

Question 8

Direct Tax

Answer 8

A tax levied directly on income

Question 9

Marginal Tax Rate

Answer 9

Tax on additional income, defined as the change in tax payments due divided by the change in taxable income

Question 10

Progressive Tax

Answer 10

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

Question 11

Indirect Tax

Answer 11

A tax on expenditure, e.g. VAT

Question 12

Regressive Tax

Answer 12

A tax bearing more heavily on the relatively poorer members of society

Question 13

Proportional Tax

Answer 13

A tax that is proportional to income, being neither regressive or progressive

Question 14

Financial Intermediaries

Answer 14

Institutions such as banks and building societies that channels funds from lenders to borrowers

Question 15

Retail Banks

Answer 15

Banks that provide high-street services to depositors

Question 16

Wholesale Banks

Answer 16

Banks that deal with companies and other banks on a large scale

Question 17

Universal Banks

Answer 17

Banks that operate in both retail and wholesale markets

Question 18

Liquidity Ration

Answer 18

The ratio of liquid assets to total assets

Question 19

Interbank Lending

Answer 19

Borrowing and lending between banks to manage their liquidity and other requirements for short-term funds

Question 20

LIBOR

Answer 20

The average rate of interest on interbank lending in the London interbank market

Question 21

Repo

Answer 21

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

Question 22

Securitisation

Answer 22

Process whereby future cash flows are converted into marketable securities

Question 23

Capital Adequacy Ratio

Answer 23

The ratio of a bank’s capital to its current liabilities and risk-weighted assets

Question 24

Transfer Payments

Answer 24

Occur when the government provides benefit to poor households (not included in AD)

Question 25

Laffer Curve

Answer 25

A curve showing the relationship between the tax rate and the amount of revenue raised as a consequence

Question 26

Government Budget Deficit/Surplus

Answer 26

The difference between government expenditure and government revenue

Question 27

National Debt

Answer 27

The total amount of government debt, based on accumulated previous deficits and surpluses

Question 28

Cyclical Deficit

Answer 28

A budget deficit that occurs during the downturn of the business cycle, but disappears in the upturn

Question 29

Structural Deficit

Answer 29

A deficit that persists even when the economy is at full employment

Question 30

Crowding Out

Answer 30

Process by which an increase in government expenditure crowds out private sector activity by raising the cost of borrowing

Question 31

Crowding In

Answer 31

Process by which a decrease in government expenditure crowds in private sector activity by lowering the cost of borrowing

Question 32

Automatic Stabilisers

Answer 32

Process by which government expenditure and revenue varies with the business cycle, thereby helping to stabilise the economy without any conscious intervention from government

Question 33

Golden Rule of Fiscal Policy

Answer 33

Rule stating that over the economic cycle net government borrowing will be for investment only, not for current spending

Question 34

Economic Inequality

Answer 34

Economic inequality is the difference in how assets, wealth, or income are distributed amongst the population