AS Macroeconomics Key Terms Flashcards
(206 cards)
1
Q
AAA credit rating
A
The best credit rating that can be given to a corporation’s or a government’s bonds, effectively indicating that the risk of default is negligible
2
Q
Accelerator effect
A
Where planned capital investment is linked positively to the past and expected growth of consumer demand or national income
3
Q
Aggregate supply shock
A
Either an inflation shock or a shock to potential national output; adverse aggregate supply shocks of both types reduce output and can increase the rate of inflation
4
Q
Animal spirits
A
The state of confidence or pessimism held by consumers and businesses
5
Q
Appreciation
A
A rise in the market value of one exchange rate against another
6
Q
Austerity
A
Economic policy aimed at reducing a government’s deficit (or borrowing). Austerity can be achieved through increases in government revenues - primarily via tax rises - and/or a reduction in government spending or future spending commitments.
7
Q
Automatic stabilisers
A
Automatic fiscal changes as the economy moves through stages of the business cycle – e.g. a fall in tax revenues from the circular flow in a recession.
8
Q
Bank run
A
When a large number of people suspect that a bank may go bankrupt and withdraw their deposits. Bank runs are rare, one happened with the Northern Rock in 2007.
9
Q
Bond
A
Both companies and governments can issue bonds. The issue of new government debt is done by the central bank and involves selling debt to capital markets
10
Q
Brain drain
A
The movement of highly skilled people from their own country to another nation
11
Q
BRIC economies
A
The BRIC grouping – Brazil, Russia, India and China – short hand for the rise of emerging markets. The BRICs have a bigger share of world trade than the USA
12
Q
Bubble
A
When the prices of securities or other assets rise so sharply and at such a sustained rate that they exceed valuations justified by fundamentals, making a sudden collapse likely (at which point the bubble “bursts”)
13
Q
Budget deficit
A
Occurs when government spending is greater than tax revenues. Reducing the deficit can be achieved by tax increases or cuts in government spending or a period of economic growth which brings about a rise in direct and indirect tax revenues
14
Q
Business confidence
A
Expectations about the future of the economy – vital in influencing business decisions about how much to spend on new capital goods
15
Q
Capacity utilisation
A
Measures how much of the productive potential of the economy is being used. Utilisation falls during a recession leading to a rise in spare capacity
16
Q
Capital market
A
A stock or a bond market where firms can raise money for investment purposes
17
Q
Capital stock
A
The value of the total stock of capital inputs in the economy
18
Q
Capital-labour
substitution
A
Replacing workers with machines in a bid to increase productivity and reduce the unit cost of production. This can lead to structural unemployment
19
Q
Catch-up effect
A
This occurs when countries that start off poor tend to grow more rapidly than countries that start off rich. The result is some convergence in the standard of living as measured by per capita GDP
20
Q
Claimant Count
A
The number of people claiming unemployment-related benefits
21
Q
Classical LRAS
A
The classical LRAS curve is drawn as vertical because classical economists argue that a country’s productive capacity is determined by factors other than price and demand such as investment and innovation
22
Q
Closed economy
A
An economy operating without imports and exports – i.e. closed to global trade
23
Q
Comparative
advantage
A
Comparative advantage refers to the relative advantage that one country or producer has over another. Countries can benefit from specializing in and exporting the product(s) for which it has the lowest opportunity cost of supply
24
Q
Constant prices
A
Constant prices tells us that the data has been inflation adjusted
25
Consumer
| confidence
Expectations about the future including interest rates, incomes and jobs
26
Consumer durables
Products such as washing machines that are not used up immediately when consumed and which provide a flow of services over time
27
Consumer price
| index
The consumer price index (CPI) is the government's preferred measure of inflation
28
Corporation Tax
A tax on the profits made by companies
29
Cost push inflation
An increase in the price level caused by a sustained increase in firms’ costs of production
30
Credit rating
The assessment given to debts and borrowers by a ratings agency according to their safety from an investment standpoint - based on their creditworthiness, or the ability of the company or government that is borrowing to repay. Ratings range from AAA, the safest, down to D, a company that has already defaulted
31
Creeping inflation
Small rises in the general price level over a long period
32
Creeping
| protectionism
A period of time where import tariff rates rise and where countries introduce quotas and barriers to the mobility of labour and capital
33
Current account
The overall balance of credits minus debits for trade in goods, trade in services, investment income and transfers
34
Current account
| deficit
The amount by which money relating to trade, investment etc going out of a country is more than the amount coming in. A current account deficit implies a net reduction of demand in a country’s circular flow
35
Cyclical trade deficit
A trade deficit that arises purely due to changes in the economy’s cycle, for example many countries run a deficit when their economy is growing strongly
36
Cyclical
| unemployment
Unemployment caused by a lack of aggregate demand for goods and services, where national output < potential output leading to a negative output gap
37
Default
A default occurs when a borrower has broken the terms of a loan or other debt, for example if a borrower misses a payment. The term also means any situation when borrower can no longer repay its debts in full, such as bankruptcy or a debt restructuring
38
Deflation
A persistent fall in the general price level of goods and services
39
De-industrialisation
A decline in the share of national income from manufacturing industries
40
Depreciation
A fall in the market value of one exchange rate against another
41
Depression
Used to describe a severe recession which may become a prolonged downturn in the economy and where a nation’s GDP falls by at least 10 per cent
42
Deregulation
Reducing barriers to entry in order to make a market more competitive
43
Developing country
Countries lacking a high degree of industrialisation and/or other measures of development
44
Discouraged
| workers
People often out of work for a long time who give up on job search
45
Discretionary fiscal policy
Deliberate attempts to affect aggregate demand using changes in government spending, direct and indirect taxation and borrowing
46
Discretionary
| income
Disposable income adjusted for spending on essential bills such as fuel
47
Disposable income
Gross income less income tax and national insurance contributions plus cash welfare benefits. Disposable income is the money that comes into a household from various sources, including welfare benefits but after taxes on income
48
Double dip recession
When an economy goes into recession twice without having undergone a full recovery in between
49
Dumping
When a producer in one country exports a product to another at a price below the price it charges in its home market or below the costs of supply
50
Ecological debt
Ecological debt is the concept that people’s demands have exceeded the Earth’s ability to cope with the rising consumption of its resources
51
Economic cycle
Variations in the annual rate of growth of an economy over time
52
Economic growth
An increase in the real value of goods and services produced in a country or area as measured by the annual % change in real national output. Also a long-run increase in a country’s productive capacity.
53
Economic shocks
Unpredictable events such as volatile prices for oil, gas and foodstuffs
54
Economic stability
When indicators such as growth, prices and unemployment do not change much from one year to another
55
Economically active
Those who are unemployed and actively seeking employment
56
Economically
| inactive
Those who are of working age but are neither in work nor actively seeking work
57
Emerging markets
The financial markets of developing countries
58
Exchange rate
The rate at which one currency can be exchanged for another.
59
Expansionary
| monetary policy
A relaxation of monetary policy means an attempt to use an expansionary monetary policy to boost aggregate demand, output and jobs – includes lower interest rates
60
Expectations
How we expect the future to unfold – this can have powerful effects on the spending decisions of households, businesses and the government
61
Expenditure
| measure of GDP
The value of the goods and services purchased by households and by government, investment in machinery and buildings. It also includes the value of exports minus imports. Calculation is as follows: AD=C+I+G+X-M
62
Expenditure
| switching policies
Policies that are designed to ‘switch’ expenditure from imports to domestically produced goods in order to improve the balance of payments and stimulate GDP
63
Export revenue
Sales from selling goods and services overseas, an injection of demand
64
Financial assets
For consumers the main financial assets are property, pensions, equities, unit trusts and cash
65
Fine-tuning
Changes in monetary policy or fiscal policy designed to gradually manage the level of aggregate demand and prices e.g. small changes in policy interest rates
66
Fiscal austerity or fiscal tightening
Fiscal austerity refers to decisions by a government to reduce the amount of government borrowing (i.e. cut the size of a fiscal deficit) over a period of years
67
Fiscal deficit
This happen when government expenditure is higher than the revenue from tax receipts in a particular year
68
Fiscal policy
A government's policy regarding taxation and public spending. It can be loose (with the emphasis on increased spending and lower tax revenue to boost economic activity, with the acceptance of a wider fiscal deficit) or tight (with the emphasis on cutting spending and boosting tax revenue, resulting in a slower economy
69
Fiscal stability
Many governments seek to maintain a degree of balance between tax revenues and public sector spending. A balanced budget is one in which spending equal revenue
70
Fiscal stimulus
Government measures, normally involving increased public spending and lower direct and/or indirect taxation, aimed at giving a positive jolt to economic activity
71
Forecast
A prediction made about the likely future performance of an economy
72
Foreign direct
| investment
FDI stands for Foreign Direct Investment. FDI is investment from one country into another (normally by companies rather than governments) that involves establishing operations or acquiring tangible assets, including stakes in other businesses
73
Free trade
When trade is allowed to occur without any form of restriction such as a tariff
74
Full capacity output
A level of national output where all available factor inputs are fully employed – this is a factor influencing the underlying growth rate (LRAS)
75
Full employment
When there enough job vacancies for all the unemployed to take work
76
G20
A group of finance ministers and central bank governors from 20 economies
77
G7
A group of seven major industrialized countries: Canada, France, Germany, Italy, Japan, the UK and the USA
78
GDP
Gross domestic product (GDP) is the total value of output in the UK and is used to measure change in economic activity
79
Gini Coefficient
A measure of the extent to which groups of households, from the bottom of the income distribution upwards, receive less than an equal share of income.
80
Globalisation
The deepening of relationships between countries of the world reflected in an increasing level of overseas trade and investment
81
GNI
Gross National Income – income generated from the resources owned by inhabitants and businesses of a given country
82
Golden Rule
A rule introduced by the former Labour government which says that borrowing on state provided goods and services should be zero over the course of one economic cycle. Borrowing is allowed when it finances capital investment
83
Government debt
The total stock of unpaid debt issued by a government. A government will normally borrow money by issuing bonds or other securities
84
Gross Domestic
| Product per capita
National income per head of population, a baseline measure of living standards
85
Gross National
| Income (GNI)
This is broadly the same as GDP except that it adds what a country earns from overseas investments and subtracts what foreigners earn in a country and send back home. GNI is affected for example by profits from businesses owned overseas and also remittances sent home by migrant workers
86
Haircut
A reduction in the value of a troubled borrower's debts, imposed on, or agreed with, its lenders as part of a debt restructuring
87
Hard landing
A full-scale recession shown by a decline in real national output
88
Hot Money
Money that flows freely and quickly around the world looking to earn the best rate of return. It might be invested in any asset whose value is expected to rise (e.g. property or shares) or placed in an account offering the best real rate of interest.
89
Household wealth
The value of assets – including property, shares, savings and pension fund assets
90
Human capital
Investment in education and training to increase the quality of the labour force and to make people more flexible in a changing world of work
91
Human
| Development Index
An index to assess comparative levels of development in countries, quantified in terms of literacy, life expectancy and purchasing power
92
Hysteresis
When a sustained period of low aggregate demand can lead to permanent damage to the supply side of the economy
93
Immobility of labour
Barriers to the movement of people between areas and between jobs
94
Income elasticity
Responsiveness of demand to a change in the real income of consumers
95
Inflation
| expectations
The rate of increase of consumer prices expected by consumers. Expectations can influence spending and saving decisions.
96
Inflation
A sustained increase in the general price level for goods and services
97
Inflation target
The Bank of England has a CPI inflation target, which is currently 2 per cent
98
Inflationary
| pressures
Demand and supply-side pressures that can cause a rise in the general price level. Demand-pull inflationary pressure is greatest when actual GDP exceeds potential GDP causing a positive output gap. Cost-push inflationary pressure can arise from increases in unit wage costs, rising import prices and an increase in the prices of raw materials, fuel and components used in production
99
Infrastructure
The transport links, communications networks, sewage systems, energy plants and other facilities essential for the efficient functioning of a country and its economy
100
Innovation
Changes to products or production processes – innovation is important in delivering improvements in dynamic efficiency and generating better goods and services
101
International
Monetary Fund
(IMF)
An organisation of 186 countries, promoting global monetary cooperation, financial stability, international trade, employment and sustainable economic growth. It has provided help for several nations in the wake of the 2007-09 financial crises.
102
International
| reserves
A nation’s stock of foreign currency and gold
103
Inventories
These consist of materials and supplies which are stored for use in production, work-in progress, finished goods and goods for re-sale
104
Investment
Spending on capital goods including plant & machinery and infrastructure
105
Investment income
Interest, profits and dividends from assets owned and located overseas
106
Job search
The process by which workers find appropriate jobs given their tastes and skills
107
Keynesian
| economics
The economics of John Maynard Keynes. The belief that the state can directly stimulate demand in a stagnating economy. For instance, by borrowing money to spend on public works projects like roads, housing, schools and hospitals
108
Keynesian
| unemployment
Unemployment caused by a lack of aggregate demand in the economy – a deficiency of private sector spending causes output and employment to contract
109
Labour shedding
Cut backs in employment often seen in a slowdown or a recession
110
Labour shortages
When businesses find it difficult to recruit the workers they need
111
Labour supply
The number of people able, available and willing to work at prevailing wage rates
112
Lagging indicators
Indicators which tend to follow economic cycles e.g. unemployment
113
Leading indicators
Indicators which predict future economic trends e.g. consumer confidence
114
Leveraging
The use of borrowed funds to increase your capacity to spend or invest
115
LIBOR
Libor stands for the London Interbank Offered Rate and is used by banks world-wide to determine the rate at which they lend to each other - whether that’s receiving or giving loans (including 24 hour - 5 year loans). Libor rates are set daily and released at the same time everyday - 11am London time
116
Life-cycle model
A theory that says that savings rates depend on how old someone is
117
Liquidity
The ease with which something can be converted to cash with little loss of value
118
Liquidity trap
When very low interest rates cease to have a strong effect on aggregate demand
119
Macroeconomic
| performance
The overall performance in terms of output, prices, jobs, trade and living standards.
120
Marginal propensity to consume
The proportion of any change in income that is spent rather than saved
121
Marginal propensity to save
The change in total saving as a result of a change in income
122
Marginal rate of tax
The rate of tax on the next unit (£1) of income earned
123
Misery index
Calculated by adding together the unemployment rate and the rate of inflation
124
Monetary Policy
| Committee (MPC)
Bank of England committee of 9 people meets every month to set interest rates.
125
Money supply
The entire quantity of a country's commercial bills, coins, loans and credit
126
Monetary stimulus
Changes in monetary policy designed to increase aggregate demand including lower policy interest rates and measures to increase the supply of credit
127
Moral hazard
When an insured party decides to take higher risks because they perceive their losses will be covered
128
Multiplier effect
If there is an initial injection (e.g. a rise in exports) into the economy then the final increase in aggregate demand and real GDP will be greater.
129
NAFTA
North American Free Trade Agreement - a free trade area agreement signed by the US, Canada and Mexico
130
National debt
A government's total outstanding debt - effectively what the government still owes from the budget deficits accumulated over time
131
Nationalisation
Bringing a privately owned asset such as a company under state control
132
Negative equity
When the value of an asset falls below the debt left to pay on that asset. Term is most commonly used in connection with property prices after a slump in prices
133
Net investment
Gross investment minus an estimate for capital depreciation
134
Net inward
| migration
When the number of migrants coming into a country is greater than those leaving
135
Net trade
The balance between the value of exports and imports
136
Nominal GDP
Monetary value of all goods and services produced expressed at current prices
137
Nominal wage
| growth
The annual growth of wages unadjusted for inflation
138
Non-inflationary
| growth
Sustained growth of real national output whilst maintaining price stabilty
139
Output gap
Difference between actual and potential national output. A negative output gap means that an economy has a large margin of spare productive capacity
140
Output measure
| GDP
Value of the goods and services produced by all sectors of the economy; agriculture, manufacturing, energy, construction, the service sector and government
141
Overseas assets
Assets such as businesses, shares, property which are owned in overseas countries and which might generate a flow of income which is a credit item on the current account of the balance of payments
142
Paradox of thrift
If people save more in a recession, it will reduce consumption and thus AD will fall, impeding economic growth and, eventually, lowering the general level of savings
143
Patent box
A reduced rate of Corporation Tax applied to profits from patents – designed to stimulate research and innovation and improve the supply-side of the economy
144
Peak
The high point of the economic cycle beyond which a recession starts
145
Pension Fund
Fund that pools employees' pension benefits and holds them so that they can be paid at retirement. The money is invested in stocks, bonds and other assets to boost returns and ensure that there are sufficient funds to be paid out
146
Per capita incomes
Income per head of the population – a measure of average living standards
147
Phillips Curve
A statistical relationship between unemployment and inflation
148
Policy asymmetry
When a given change in interest rates affects different groups or different countries to a lesser or greater degree
149
Precautionary saving
Saving because of fears of a loss of real income or employment
150
Price stability
Price stability occurs when there is low inflation and the price changes that do occur have little impact on day-to-day decisions of people
151
Productive potential
Productive capacity of the economy – boosted by high quality investment
152
Productivity
A measure of efficiency e.g. output per person employed or output per person-hour
153
Propensity to import
Proportion of any change in income that is spent on overseas products
154
Propensity to save
Proportion of any change in income that is saved rather than spent
155
Protectionism
Restricting trade through tariffs and other forms of import controls
156
Purchasing power
The buying power of a unit of currency. It is inversely related to the rate of inflation
157
Quantitative easing (QE)
The introduction of new money into the national supply by a central bank. The idea is to add more money into the system to lower the risk of depression and deflation and encourage banks/people to borrow and spend
158
Quota
A physical limit on the quantity of a good that can be imported into a country
159
Real disposable
| income
Income after taxes and welfare benefits, adjusted for the effects of inflation
160
Real income
Nominal income adjusted for price changes, expressed at constant prices
161
Real interest rate
The nominal rate of interest adjusted for inflation
162
Real wage
The nominal wage adjusted for the effects of inflation
163
Recession
A period of at least six months when an economy suffers a fall in output. Or a broadly based contraction in output, employment, investment and confidence
164
Recovery
A phase of the economic cycle, after a recession/depression, during which real GDP starts to increase and unemployment begins to fall
165
Redundancy
Making someone redundant is to end their employment
166
Relative deflation
An economy with an inflation rate, which is lower than comparable economies. Over time, a low relative rate of inflation can lead to an improvement in price competitiveness
167
Remittances
Sending of money to people in another country. For many lower-income nations, remittance income is now a big contribution to Gross National Income (GNI)
168
Repo Rate (policy rate)
The official 'base' rate of interest that is set by the Monetary Policy Committee and which, when changed, sends a signal to the rest of the financial markets about a desired change in the direction of other borrowing and savings interest rates. Repo is the rate of interest at which the Bank of England is prepared to lend to banks
169
Retail Price Index (RPI)
The RPI is broadly similar to the CPI but includes mortgage repayments and some taxes, and excludes the top 4 per cent of earners. It is used to calculate annual changes in wages, state benefits and pensions
170
Risk averse
Exhibiting a dislike of uncertainty, often seen in a recession
171
Saving ratio
The percentage of disposable income that is saved rather than spent
172
Slowdown
A fall in the rate of growth of an economy but not a full-scale recession
173
Slump
A sustained decrease in real GDP and a persistent rise in unemployment
174
Soft landing
A slowdown in economic activity but which does not result in a recession
175
Sovereign debt
Debt issued by or guaranteed by a government
176
Spare capacity
When a business is not making full use of its available capacity – there are spare factors of production including land, labour and capital. When an economy has plenty of spare capacity, short run aggregate supply tends to be elastic.
177
Stagflation
A combination of slow growth and rising inflation. The most notable recent period of stagflation occurred during the 1970s, when world oil prices rose dramatically, and UK inflation rose at one point to nearly 30 per cent
178
Sterling exchange rate index
External value of sterling calculated using a weighted index of a basket of currencies – weightings are based on the value of trade with different countries
179
Stimulus
Monetary policy and/or fiscal policy aimed at encouraging higher growth and/or inflation. This can include interest rate cuts, quantitative easing, tax cuts and government spending increases
180
Structural trade
| deficit
A trade deficit that arises due to supply-side weaknesses rather than a change in GDP or currency – caused by poor competitiveness
181
Structural budget deficit
The size of a fiscal (budget) deficit adjusted to take account of the effects of changes in the economic cycle
182
Structural
| unemployment
Unemployment that results from the decline in a particular industry which leaves people unemployed because they do not have the skills needed by the industries that are growing
183
Sustainable growth
Growth that meets the needs of the present without compromising the ability of future generations to meet their own needs. Growth that can continue without damage to the environment, or the exhaustion of non-renewable resources
184
Target
A target is an objective of government policy e.g. low inflation
185
Tariff
A tax on imported products which may be ad valorem (%) or a specific tax (a set amount per unit imported).
186
Tight labour market
When demand for labour is high and there are shortages of labour. Businesses may have to offer higher wages to attract and keep the workers they need
187
Time lags
The time it takes for one change e.g. a change in interest rates to affect other variables e.g. consumer confidence and spending
188
Toxic debt
Loans that may not be repaid. For example, if one home loan on one street goes bad, it might make people think that all the loans on the street will go bad
189
Trade deficit
A trade deficit occurs when a country imports a greater value of goods and services than it exports. A trade deficit as a net withdrawal from the circular flow of income
190
Trade-off
A trade-off implies that choices have to be made between different objectives of economic policy for example a trade-of between economic growth and inflation
191
Tragedy of the
| Commons
A conflict over finite resources between individual interests and the common good which can lead to irreversible damage to the stock of natural resources available to current and future generations
192
Transmission
| mechanism
How a change in interest rates affects the various sectors of the economy
193
Trend growth
The long run average growth rate – mainly determined by changes in the stock of available factor inputs and also improvements in productivity. Trend growth is represented by a rightward shift in the LRAS (or PPC boundary)
194
Trough
The low point of the economic cycle beyond which a recovery starts
195
Twin Deficits
Twin deficits refer to a situation where an economy is running both a fiscal deficit and also a deficit on the current account of the balance of payments
196
Under-employment
Workers are underemployed when they are willing to supply more hours of work than their employers are prepared to offer.
197
Unemployment trap
When the prospect of the loss of unemployment benefits dissuades those without work from taking a new job – creates a disincentives problem
198
Unit wage costs
Labour costs per unit of output
199
Unsecured credit
Credit not secured by another asset – i.e. money borrowed on credit cards
200
Wage price spiral
Where workers bid for higher wages because they have seen their real income eroded by rising prices. This can lead to a further burst of cost-push inflation
201
Wealth effect
The supposed link between changes in wealth and household spending
202
World Bank
A source of financial and technical assistance to developing countries. It can provide loans and grants for a wide array of purposes that include investments in education, health, public administration, infrastructure, financial and private sector development, agriculture and environmental and natural resource management
203
World Trade
| Organisation
WTO oversees trade agreements, negotiations and disputes between member countries. The WTO is an organisation that was formed in 1995 to control trade agreements between countries and to set rules on international trade. It replaced GATT(the General Agreement on Tariffs and Trade)
204
Zero Hours Contract
An employment contract under which the employee is not guaranteed work and is paid only for work carried out
205
Zombie Companies
Weak and inefficient companies which are able to survive thanks to low interest rates and a supposedly more tolerant attitude to corporate borrowers by banks.
206
Negative interest
| rate
An interest rate that is below zero. For real interest rates, this can occur when the inflation rate is higher than nominal interest rates
