Economics Flashcards
Study supply and demand analysis, market structures, economic growth, business cycles, monetary and fiscal policy, international trade, and currency exchange rates.
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Absolute advantage
A country’s ability to produce a good or service at a lower absolute cost than its trading partner.
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Aggregate demand
The total quantity of goods and services demanded within an economy.
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Aggregate demand curve
Shows the relationship between the total quantity of goods and services demanded in an economy and the overall price level. It represents the total spending or demand for all goods and services in an economy at different price levels.
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Aggregate income
The value of all the payments earned by the suppliers of factors used in the production of goods and services.
Aggregate outcome and aggregate income must be equal
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Aggregate output
The value of all the goods and services produced in a period of time.
Aggregate outcome and aggregate income must be equal
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Aggregate supply
The quantity of goods and services produced at any given level of price.
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Aggregate supply curve
The level of domestic output produced at each price level.
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Balance of payments
Summarizes a country’s economic transactions with the rest of the world over a period of time.
Double-entry bookkeeping
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Balance of trade deficit
When an economy is spending more on foreign goods and services than foreign economies are spending on the domestic country’s goods and services.
It is like the domestic country is “spending more than it’s making”
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Balanced Budget
Government budget where spending = revenue
Revenue primarily from taxation
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Capital account
The capital account is one of the major components of a country’s balance of payments, alongside the current account and financial account. It tracks the flow of capital* between a country and the rest of the world.
*includes debt forgiveness, migrant transfers and assets, and the sale of non produced/non financial assets like natural resources or intangible assets.
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Capital market expectations
Expectations regarding the risk and return prospects of asset classes.
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Capital restrictions
Controls placed on movement of capital in or out of a coutry. May impact foreigners’ ability to own domestic assets and/or domestic residents’ ability to own foreign assets.
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Closed economy
An economy that is self sufficient and does not trade with other countries.
aka autarkic economy
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Comparative advantage
A country’s ability to produce a good or service at a lower relative cost (opportunity cost) than its trading partner.
as opposed to an absolute advantage
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Complements
Goods that tend to be used together.
Ttwo goods whose cross-price elasticity of demand is negative.
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Contraction
The downswing of a business cycle after the peak and before the trough
Recession or depression
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Contractionary fiscal policy
Fiscal policy with the objective being a contraction of the real economy. Government spending may be reduced and taxes raised.
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Core inflation
The inflation rate based on a price index of goods and services except food and energy.
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Cost-push
Inflation caused by rising costs (wages).
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Cross-price elasticity of demand
% Change in Quantity Demanded / % Change in the Price of a different good
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Customs union
Extends the free trade area (allowing free movement of goods and services among members) by creating a common trade policy against nonmembers (common external tariffs).
Level of economic integration
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Decreasing returns to scale
When increases in output are proportionately smaller than the increase in inputs.
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Demand curve
A graph showing the relationship between quantity demanded and price paid.
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Demand-pull
Type of inflation where increasing demand raises prices generally (demand outpaces supply).
Workers demand wage hikes to catch up to cost of living.
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Demand function
A mathematical representation that describes the relationship between the quantity demanded of a particular good or service and the factors that influence that demand.
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Demand shock
An unexpected disruption to demand.
Can be caused by things like transportation disruption, trade disputes, etc. (ex. Ever Given suez canal disruption of 2021 + port backlogs)
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Diminishing marginal productivity
When each additional unit of input produces less output than previously.
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Discouraged worker
A person who has given up seeking employment.
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Diseconomies of scale
When the cost per unit of production increases as a result of the growth of the company and overall production.
Typically results in declining profit margins
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Domestic content provisions
When a percentage of the value added (or components used) in production should be of domestic origin.
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Economic costs
Total accounting costs + implicit opportunity costs
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Economies of scale
Reduction in cost per unit resulting from increased production.
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Economic indicator
Variable providing insight into the state of the overall economy.
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Economic union
A common market + common economic institutions and coordination of economic policies among members.
Common fiscal and monetary policy
Level of economic integration
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Elasticity
General measure of how sensitive one variable is to a change in another variable.
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Elasticity of supply
Sensitivity of quantity supplied / change in price.
%∆QSupplied/%∆P
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Elasticity of demand
Sensitivity of quantity demanded / change in a product’s own price.
%∆QDemanded/%∆P
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Expansion
Upward swing of a business cycle after the trough and before the peak.
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Expansionary
Causing the real economy to grow/expand.
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Exports
Goods and services an economy sells to other countries.
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Externality
Effect of a market transaction that is borne by parties other than those who transacted.
Cost or benefit caused by a producer but which does not financially impact that producer.
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Fed funds rate
US interbank lending rate on overnight reserves.
A central bank policy rate
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Fiat money
Money that is not backed by (convertible into) a commodity.
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Financial account
One of the major components of a country’s balance of payments, alongside the current account and capital account. It tracks the investment flows* between a country and the rest of the world.
*financial assets abroad + foreign-owned financial assets within
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First-degree price discrimination
Monopolist can charge each customer the highest price that customer is willing to pay.
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Fiscal multiplier
Change in national income / Change in government spending
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Fisher effect
The thesis that the real rate of interest in an economy is stable over time, therefore changes in nominal interest rates are due to changes in expected inflation.
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Fiscal policy
The use of taxes and government spending to influence the economy.
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Foreign currency reserves
When a central bank holds non-domestic currency deposits and non-domestic bonds in reserve.
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Foreign exchange gains or losses
Specifically when changes in the exchange rate between an investor’s currency and the local currency of the security results in a gain or loss in value.
when the relative strength of the currencies involved changes
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Foreign direct investment
Direct investment by a firm (in the source country) in productive assets in a foreign country (the host country).
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Free trade
No government restrictions on a country’s ability to trade.
ex. no tariffs or quotas
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Free trade areas
FTA
When barriers to the flow of goods and services among members have been reduced or eliminated. Trade between members is treaded very favourably.
for ex. reducing tariffs.
Level of economic integration
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Bilateralism
Cooperation between two countries.
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Giffen goods
Goods that are consumed more as the price of the good rises.
An inferior good whose income effect overwhelms its substitution effect when price changes (can no longer afford more expensive substitutes so deman increase for the inferior good, even as price is rising).
Often arise in cases of limited choice (substitutions) and income constraints.
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Gross domestic product
GDP
The market value of all goods and services produced in the economy in a given time period.
or the aggregate income earned by households, companies, and the government in an economy in a given time period.
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Human capital
Accumulated knowledge and skill which a worker acquires via education, training, and experience.
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Imports
Goods and services that a domestic economy (i.e., house-holds, firms, and government) purchases from other countries.
