theme 4 key words Flashcards
Absolute advantage
When a country can produce a good more cheaply in absolute terms than another country
Absolute poverty
When people are unable to afford sufficient necessities to maintain life; those on 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 using floating exchange rates
Asymmetric information
When one party has more knowledge than another; this causes market failure in the financial sector
Automatic stabilisers
Mechanisms which reduce the impact of changes in the economy on national income
Balance of payments
A record of all financial dealings over a period of time between economic agents of one country and another
Buffer stock systems
When a maximum and minimum price are imposed together in order to bring about price stability
Capital account
A part of the balance of payments; records debt forgiveness, inheritance taxes, transfers of financial assets and sales of assets
Capital expenditure
Government spending on investment goods such as new roads, 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 borrow and invest
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 market
Members trade freely in all economic resources and impose a common external tariff
Comparative
advantage
When a country is able to produce a good more cheaply relative to other goods produced; it has a lower opportunity cost
Current account
A part of the balance of payments; records payments for the purchase and sale of goods and services, as well as incomes and transfers
Customs union
The removal of all tariff barriers between members and the 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 using floating exchange rates
Devaluation
When the currency is decreased against another under a fixed system
Developed country
Countries with a high GDP per capita and a high standard of living
Developing country
Countries with a low GDP per capita and a low standard of living
Discretionary fiscal
policy
Deliberate manipulation of government expenditure and taxes to
influence the economy; expansionary and deflationary fiscal policy
Economic
development
Improvements in living standards
Emerging economies
A country that is growing quickly and has some characteristics of a
developed country but is not fully there yet
Exchange rate
The purchasing power of a currency in terms of what it can buy of other currencies
Financial account
A part of the balance of payments; records FDI, portfolio investment and the transfer of gold and currency reserves
Financial markets
When buyers and sellers can buy and trade a range of services or assets that are fundamentally monetary in nature
Fiscal deficit
When the government spends more than it receives in a year
Fixed exchange rate
The value of the currency is set against the value of another and that exchange rate does not change