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Economics Theme 4 > Theme 4 Key Terms > Flashcards

Theme 4 Key Terms Flashcards

1
Q

Absolute advantage

A

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

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2
Q

Absolute poverty

A

When household income is insufficient to afford minimum basket of goods necessary to maintain life, currently $2.15 per person per day in 2017 purchasing power prices

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3
Q

Aid

A

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

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4
Q

Currency appreciation

A

A rise in the value of currency within a floating exchange rate system

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5
Q

Automatic stabilisers

A

Mechanisms by which government expenditure and revenue vary with the business cycle, thereby helping to stabilise the economy without discretionary or active intervention from government. For example during economic booms tax revenue increases as workers’ pay increases even as tax rates remain unchanged and government spending on job seekers allowance falls because fewer people are out of work

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6
Q

Bank for International Settlements (BIS)

A

An institution that acts as bank for central banks and sets standards for regulation of banks that are accepted globally

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7
Q

Balance of Payments

A

A record of all financial exchanges over a period of time between the economic agents of two countries

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8
Q

Buffer stock scheme

A

A scheme intended to stabilise the price of a commodity by buying excess supply in periods when supply is high, and selling when supply is low

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9
Q

Bank rate

A

The rate of interest charged by the Bank of England on short-term loans to other banks

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10
Q

BRICS countries

A

A group of countries comprising Brazil, Russia, India, China and South Africa, that have made rapid progress in recent years

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11
Q

Broad money (M4)

A

Measure of money supply that includes cash plus sterling wholesale and retail deposits with monetary financial institutions such as banks and building societies (e.g. certificates of deposit, foreign currencies, money market accounts, marketable securities, and gilts)

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12
Q

Capital account of the balance of payments

A

Component of the balance of payments identifying transactions in physical capital between the residents of a country and the rest of the world

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13
Q

Capital adequacy ratio

A

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

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14
Q

Capital expenditure

A

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

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15
Q

Capital flight

A

When large amounts of money are taken out of the country rather than being left to be invested or spent

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16
Q

Central bank

A

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

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17
Q

Common market

A

Members agree to remove trade barriers, reduce or eliminate customs duties on mutual trade, allow free movement of capital and labour among members, and impose a common external tariff on imports from non-member countries

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18
Q

Comparative advantage

A

When a country can produce a good relatively more efficiently than another countries, i.e. at a lower opportunity cost

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19
Q

Credit or money multiplier

A

A process by which an increase in money supply can have a multiplied effect on the amount of credit in an economy

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20
Q

Crowding in

A

A process by which a decrease in government expenditure “crowds in” private sector activity by lowering the cost of borrowing

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21
Q

Crowding out

A

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

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22
Q

Current account of the balance of payments

A

Component of the balance of payments recording payments for the purchase and sale of goods and services, as well as income payments and international transfers

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23
Q

Customs union

A

Members agree to remove trade barriers, reduce or eliminate customs duties on mutual trade, and impose a common external tariff on imports from non-member countries, but generally does not allow free movement of capital and labour among member countries, e.g. Turkey membership in the EU

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24
Q

Currency depreciation

A

A fall in the value of currency within a floating exchange rate system

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25
Q

Currency devaluation

A

A process whereby a government reduces the price of its currency relative to an agreed rate in terms of foreign currency under a fixed exchange rate system

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26
Q

Development

A

A process by which real per capita incomes are increased and the inhabitants of a country are able to benefit from improved living conditions, i.e. lower poverty and high standards of education, health, nutrition, and other essentials of life

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27
Q

Direct tax

A

A tax levied directly on income

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28
Q

Economic and Monetary union

A

A set of trading arrangements the same as for a common market, but in addition having a common currency (or permanently fixed exchange rates between the member countries) and a common monetary policy, e.g. Euro zone

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29
Q

Emerging economies

A

Economies that have experienced rapid economic growth with some industrialisation and characteristics of developed markets

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30
Q

Exchange Rate Mechanism (ERM)

A

A system set up by a group of European countries in 1979 with the objective of keeping member countries’ currencies relatively stable against each other

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31
Q

Export-led growth

A

Economic growth underpinned by the exploitation of economies of scale made possible by production for the external market, where aggregate demand is driven by exports of goods and services

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32
Q

Exchange rate

A

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

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33
Q

Fair trade schemes

A

Schemes that set out to ensure that small producers in LDCs receive a fair price for their products

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34
Q

Financial account of the balance of payments

A

This component of the balance of payments includes transactions that result in a change of ownership of financial assets and liabilities between a country’s residents and non-residents. This includes:
Net foreign direct investment flows (FDI); net portfolio investment flows (e.g. inflows/outflows of debt and equity); net banking flows (e.g. hot money flowing in/out of a country’s commercial banks); and changes to the value of a country’s gold and foreign currency reserves

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35
Q

Fixed exchange rate

A

An exchange rate regime under which the government or central bank ties the official exchange rate to another country’s currency (or to the price of gold). The purpose of a fixed exchange rate system is to maintain a country’s currency value within a very narrow band. It can only be changed by the central bank in agreement with other countries, usually mediated through the International Monetary Fund (IMF).

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36
Q

Financial Conduct Authority (FCA)

A

A body separate from the Bank of England responsible for conduct regulation of financial services firms

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37
Q

Financial intermediaries

A

Institutions such as banks and banking services that channel funds from lenders to borrowers

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38
Q

Financial Policy Committee (FPC)

A

The decision-making body of the Bank of England responsible for macro prudential regulation

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39
Q

Financial stability

A

A situation in which there is a sufficient and efficient flow of liquidity in the economy

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40
Q

Fiscal deficit

A

When government expenditure exceeds government revenue

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41
Q

Floating exchange rate

A

An exchange rate system in which the exchange rate is permitted to find its own level in the market

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42
Q

Foreign direct investment (FDI)

A

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

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43
Q

Foreign currency gap

A

A situation in which an LDC is unable to import the goods that it needs for development because of a shortage of foreign exchange reserves

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44
Q

Foreign exchange reserves

A

Stocks of foreign currency and gold owned by the central bank of a country to enable it to meet any mismatch between the demand and supply of the country’s currency

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45
Q

Free trade area

A

A group of countries that agree to trade without barriers between themselves, but having their own individual barriers with countries outside the area

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46
Q

Futures market

A

A market in which it is possible to buy a commodity at a fixed price for delivery at a specified future date; such a market exists for foreign exchange

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47
Q

General Agreement on Tariffs and Trade (GATT)

A

The precursor to the WTO, which organised a series of ‘rounds’ of tariff reductions

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48
Q

Gini coefficient

A

A measure of the degree of inequality in a society

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49
Q

Globalisation

A

A process by which the world’s economies are becoming more closely integrated

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50
Q

Golden Rule of fiscal policy

A

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

51
Q

Government budget deficit (surplus)

A

The difference between government expenditure and government revenue

52
Q

Government capital expenditure

A

Spending by the government on capital projects

53
Q

Government consumption expenditure

A

Spending by the government on goods and services

54
Q

Harrod-Domar model

A

A model of economic growth in which a country’s rate of GDP growth is determined by its savings ratio divided by its capital-output ratio

55
Q

HIPC Initiative

A

An initiative launched 1995 to provide debt relief for heavily indebted poor countries

56
Q

Hot money

A

Stock of funds that are moved around the world from country to country in search of the highest return on investment

57
Q

Human Development Index

A

A composite indicator of the level of a country’s development, varying between 0 and 1

58
Q

Indirect tax

A

A tax on expenditure, e.g. VAT

59
Q

Industrialisation

A

A process of transforming an economy by expanding manufacturing and other industrial activity

60
Q

Infrastructure

A

The complex of physical capital goods needed to support development in the form o f roads, airports, ports, communication networks, electricity provision, and educational and healthcare facilities

61
Q

Interbank lending

A

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

62
Q

International Monetary Fund

A

A multilateral institution that provides short-term financing for countries experiencing balance of payments problems

63
Q

Interventionist strategy

A

A strategy for stimulating development that focusses on addressing market failure

64
Q

Invisible trade

A

Trade in services

65
Q

Keynesian school

A

A group of economists who believed that the macroeconomy could settle in an equilibrium that was below full employment

66
Q

Labour productivity

A

A measure of output per worker, or output per hour worked

67
Q

Law of comparative advantage

A

Theory developed by David Ricardo arguing that there may be gains from trade arising when countries (or individuals) specialise in the production of goods or services in which they have a comparative advantage

68
Q

Lender of last resort

A

The role of the central bank in guaranteeing sufficient liquidity is available in the monetary system

69
Q

Lewis model

A

Sir Arthur Lewis’ two-sector model of development, where labour in the traditional sector could be absorbed by the modern sector in order to bring about growth and development

70
Q

LIBOR

A

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

71
Q

Liquidity

A

The extent to which an asset can be converted in the short term and without the holder incurring a cost

72
Q

Liquidity preference

A

A theory that suggests that people will desire to hold money as an asset

73
Q

Liquidity ratio

A

The ratio of liquid assets to total assets

74
Q

Lorenz curve

A

A graphical way of depicting the distribution of income within a country

75
Q

Macroprudential regulation

A

Financial regulation intended to mitigate the risk of the financial system as a whole

76
Q

Marginal tax rate

A

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

77
Q

Market for loanable funds

A

The notion that households will be influenced by the rate of interest in making saving decisions, which will then determine the quantity of loanable funds available for firms to borrow for investment

78
Q

Market-friendly growth

A

An approach to economic growth in which governments are recommended to intervene less where markets can operate effectively, but to intervene more strongly where markets are seen to fail

79
Q

Market-oriented strategy

A

A strategy for encouraging development that relies on enabling markets to work effectively

80
Q

Microfinance

A

Schemes that provide finance for small-scale projects in LDCs

81
Q

Microprudential regulation

A

Financial regulation intended to set standards and supervise financial institutions at the level of the individual firm

82
Q

Millennium Development Goals (MDGs)

A

Targets set for each LDC, reflecting a range of development objectives to be monitored each year to evaluate progress

83
Q

Monetarist school

A

A group of economists who believed that the macroeconomy always adjusts rapidly to the full-employment level of real output, and that monetary policy should be the prime instrument for stabilising the economy

84
Q

Monetary Policy Committee (MPC)

A

The body within the Bank of England responsible for the conduct of monetary policy

85
Q

Monetary union

A

Members adopt a common currency

86
Q

Monetary stability

A

A situation in which there is stability in prices relative to the government’s inflation target

87
Q

Multinational corporation (MNC)

A

A company that has business operations in at least one country other than its home country

88
Q

Narrow money (M0)

A

Notes and coins in circulation as commercial banks’ deposits at the Bank of England

89
Q

National debt

A

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

90
Q

National rate of output

A

The long-run equilibrium level of real output to which monetarists believe the macroeconomy will always tend

91
Q

Natural rate of unemployment

A

The unemployment rate that exists when the economy is in long-run equilibrium

92
Q

Non-tariff barriers

A

Measures imposed by a government that have the effect of inhibiting international trade. Examples include quotas, rules on import content, health and safety regulations

93
Q

Official development assistance

A

Aid provided to LDCs by countries in the OECD

94
Q

Open market operations

A

Intervention by the central bank to influence short-run interest rates by buying or selling securities

95
Q

Progressive tax

A

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. Examples include income tax bands that tax higher income groups at a higher tax rate

96
Q

Prudential Regulation Authority (PRA)

A

A decision making body in the Bank of England responsible for micro prudential regulation of deposit-takers, insurers, and major investment firms

97
Q

Purchasing power parity theory of exchange rates

A

A theory stating that the long run exchange rates (in a floating rate system) are determined by relative inflation rates in different countries

98
Q

Quantitative easing

A

A process by which liquidity in the economy is increased when the central bank purchases assets from commercial banks and other financial intermediaries

99
Q

Real exchange rate

A

The nominal exchange rate adjusted for differences in relative inflation rates between countries

100
Q

Regressive tax

A

A tax bearing more heavily on the relatively poorer members of society. Examples include consumption taxes such as VAT

101
Q

Relative poverty

A

Households with less than 60% of a country’s median household disposable income (EU measure)

102
Q

Repo

A

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

103
Q

Retail banks

A

Banks that provide high-street services to depositors

104
Q

Currency revaluation

A

A process whereby a government raises the price of domestic currency in terms of foreign currency

105
Q

Securitisation

A

Term used to describe a legal and financial process in which certain assets, such as mortgages, debts, loans and receivables of a business, can be combined into a single security, making it easier to raise money, set prices, and measure risk and reward

106
Q

Sharecropping

A

A form of land tenure system in which the tenant farmer pays the landlord a share of the crop in exchange for the right to farm the land

107
Q

Rostow’s stages of economic growth

A

Walt Rostow’s theory of five stages through which all developing countries are expected to pass

108
Q

Sustainable development

A

“Development which meets the needs of the present without compromising the ability of future generations to meet their own needs” (Brundtland Commission, 1987)

109
Q

Tariff

A

A tax imposed on imported goods

110
Q

Terms of trade

A

The ratio of export prices to import prices

111
Q

Tiger economies

A

A group of economies in Southeast Asia (Hong Kong, South Korea, Singapore, and Taiwan) that enjoyed rapid economic growth from the 1960s

112
Q

Total factor productivity

A

The average productivity of all factors, measured as the total output divided by the total amount of inputs used

113
Q

Trade creation

A

The replacement of more expensive domestic production or imports with cheaper output from a partner within the trading bloc

114
Q

Trade diversion

A

When tariff agreements cause a shift in imports from low-cost countries to imports from less efficient trading partners within a bloc

115
Q

Trading possibilities curve

A

Shows the consumption possibilities under conditions of free trade

116
Q

Transfer payments

A

Occur when the government provides benefits (in cash or in kind) to low-income households

117
Q

Transfer pricing

A

A process by which multinational corporations can minimise their global tax liability by manipulating the internal prices for transactions between their branches in different countries

118
Q

Universal banks

A

Banks that operate in both retail and wholesale markets

119
Q

Velocity of circulation (V)

A

The rate at which money changes hands: the volume of transactions divided by money stock

120
Q

Visible trade

A

Trade in goods

121
Q

Voluntary export restraint (VER)

A

An agreement by a country to limit its exports to another country to a given quantity or quota, e.g. Japan exports of automobiles to the US

122
Q

Wholesale banks

A

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

123
Q

World Bank

A

A multilateral organisation that provides financing for long-term development projects

124
Q

World Trade Organisation (WTO)

A

A multilateral body responsible for overseesing the conduct of international trade

Economics Theme 4 (2 decks)

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