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Economics > Macroeconomics definitions > Flashcards

Macroeconomics definitions Flashcards

1
Q

Absolute advantage

A

When one country is able to produce more of a good or service for the same amount of resources (lower cost per unit)

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2
Q

Accelerator effect

A

A rise in national income can lead to a proportionately greater final rise in investment

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3
Q

Actual labour force

A

The employed workforce plus those who are unemployed and actively seeking work

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4
Q

Adjustable peg systems

A

A fixed exchange rate in the short-run which is adjusted upwards or downwards to avoid under/over valuation

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5
Q

Aggregate demand

A

The total demand for a country’s goods and services at a given price level and in a given time period

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6
Q

Aggregate supply

A

The total amount that producers in an economy are willing and able to supply at a given price level in a given time period

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7
Q

Animal spirits

A

The state of confidence or pessimism held by consumers and businesses (Keynesian concept)

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8
Q

Asymmetric inflation target

A

Deviations below the inflation target are less important than those above the target

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9
Q

Automatic stabilisers

A

The existence of progressive taxation and a welfare system automatically kick in to help reduce fluctuations in the economic cycle

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10
Q

Average propensity to consume (APC)

A

The proportion of disposable income spent in an economy. Consumer expenditure / disposable income

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11
Q

Average propensity to save (APS)

A

The proportion of disposable income saved in an economy. Savings / disposable income

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12
Q

Balance of payments

A

A record of money flows in and out of a country in a year

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13
Q

Balanced budget

A

Total government spending = Total tax revenue in a given time

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14
Q

Benign deflation

A

Deflation caused by improvements in the supply side (rightwards shift in LRAS)

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15
Q

Budget deficit

A

A budget deficit means that total government spending > total government tax revenue in a given fiscal year

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16
Q

Budget surplus

A

A budget surplus means that total government tax revenue > total government spending in a given fiscal year

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17
Q

Capital account

A

A small account on the balance of payments that includes debt forgiveness, patents, copyrights, franchises, leases and land ownership

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18
Q

Capital expenditure

A

Expenditure on physical assets such as roads, bridges, hospital buildings and equipment. Capital expenditure is long-term spending that does not necessarily have to be renewed every year

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19
Q

Certainty (canon of taxation)

A

Both the individual and the state should know exactly how much tax should be paid, how and when

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20
Q

Circular flow of income

A

A model of the movements of spending and income throughout the economy, which shows the impact of injections and leakages on GDP

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21
Q

Claimant count

A

A monthly count on people claiming unemployment related benefits e.g. JSA in the UK

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22
Q

Comparative advantage

A

Where one country produces a good or service at a lower relative opportunity cost than others

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23
Q

Consumer expenditure

A

Spending by households own domestically produced goods and services

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24
Q

Consumer price index (CPI)

A

A measure of the changes in the price of a representative basket of consumer goods and services. Differs from RPI in methodology and coverage

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25
Q

Convenience (Canon of taxation)

A

The time and method for paying the tax should be suitable

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26
Q

Cost-push inflation

A

Increases in the price level caused by increases in the cost of production and decreases in SRAS

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27
Q

Crawling peg systems

A

Where the exchange rate is fixed but large revaluations or devaluations are avoided by frequent but small changes to the fixed exchange rate

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28
Q

Current account

A

Trade in goods, trade in services, income flows and transfers on the balance of payments

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29
Q

Current account deficit

A

When a country’s expenditure abroad exceeds its revenue from trade, income and transfers

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30
Q

Current account surplus

A

When a country’s revenue from abroad exceeds its expenditure on trade, income and transfers

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31
Q

Current expenditure

A

Expenditure on goods and services, wages, welfare payments and raw materials consumed within the current year. Current expenditure is short-term spending that has to be renewed each year

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32
Q

Cyclical budget deficit

A

A cyclical budget deficit takes into account fluctuations in tax revenue and spending due to the economic cycle

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33
Q

Cyclical unemployment

A

Involuntary unemployment due to a lack of demand for goods and services

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34
Q

Deflation

A

A situation in which the average level of prices is falling (negative inflation)

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35
Q

Degrowth

A

Political, economic and social ideas in favour of abolishing economic growth as a macroeconomic objective

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36
Q

Demand-pull inflation

A

Increases in the price level caused by increases in AD

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37
Q

Development

A

A process that leads an improvement in people’s economic well-being and an increase in quality of life factors

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38
Q

Direct taxation

A

A tax paid directly to the government by the person it’s imposed on. Examples include income tax and corporation tax

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39
Q

Discretionary fiscal policy

A

The deliberate use of government spending and taxation as tools to try and achieve macroeconomic objectives

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40
Q

Disinflation

A

A decrease in the rate of inflation

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41
Q

Disposable income

A

Total personal income minus total personal taxes

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42
Q

Economic cycle

A

The tendency for economic activity to fluctuate around a trend growth rate

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43
Q

Economic development

A

A process that leads to an improvement in people’s economic well-being and an increase in the quality of life factors

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44
Q

Economic growth

A

In the short-run, an increase in real GDP. In the long-run, an increase in productive capacity

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45
Q

Economically inactive

A

People without a job who have not actively sought after work in the last four weeks and/or are not available to start work in the next two weeks

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46
Q

Economy (canon of taxation)

A

The cost of collection should be as small as possible

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47
Q

Employment rate

A

The percentage of people aged 16 to 64 who work for 1 hour or more per week

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48
Q

Endogenous money

A

A Post-Keynesian observation that the quantity of money is not fixed and is not determined by the central bank. Commercial banks have permission to create loans which is money that may be spent into existence in the real economy

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49
Q

Exogenous money

A

A Neoclassical and Monetarist theory that the central bank determines the money supply

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50
Q

Equity (canon of taxation)

A

The burden of taxation should involve equal ‘sacrifice’ , i.e. be progressive

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51
Q

Exchange rate

A

The value of one currency in terms of another currency

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52
Q

Exchange rate band systems

A

Where the exchange rate floats freely within a permitted band of fluctuation. intervention only occurs when the exchange rate reaches its upper or lower limit (ceiling and floor)

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53
Q

Expenditure method measure of GDP

A

Add up all the spending on goods and services in a year

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54
Q

Expenditure reducing policies

A

Policies that reduce the overall level of national income in order to reduce the demand for imports and correct a current account deficit on the balance of payments

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55
Q

Expenditure switching policies

A

Policies that increase the price of imports and/or reduce the price of exports in order to reduce the demand for imports and increase demand for exports

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56
Q

Exports

A

The value of goods and services sold abroad

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57
Q

Financial account

A

Direct capital investment (FDI), financial investment (portfolio investment) and banking flows and reserves

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58
Q

Financial instability hypothesis

A

Minsky argued that stability breeds instability and financial crashes are inevitable in a capitalist society as high borrowing leads to asset price inflation which leads to further borrowing and asset bubbles

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59
Q

Fiscal drag

A

Fiscal drag is a concept where inflation and earnings growth may push more taxpayers into higher tax brackets. Therefore, fiscal drag has the effect of raising government tax revenue without explicitly raising tax rates

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60
Q

Fiscal policy

A

Decisions made by the government on its expenditure, taxation and borrowing

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61
Q

Fixed exchange rate

A

An exchange rate system in which the value of one currency has a fixed value against other countries. This fixed rate is often set by the government

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62
Q

Flat rate income tax

A

A system of taxation where one tax rate is applied to all personal income with no deductions

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63
Q

Freely floating exchange rate

A

A system whereby the price of one currency expressed in terms of another is determined by the forces of demand and supply

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64
Q

Frictional unemployment

A

Transitional unemployment due to people moving between jobs

65
Q

Full employment (Keynesian)

A

Full employment is achieved when there is no cyclical unemployment (demand-deficient unemployment) and therefore only frictional and voluntary unemployment in the economy, i.e. no involuntary unemployment (waste of human potential)

66
Q

Full employment (Monetarist)

A

Full employment or the ‘non-accelerating inflation rate of unemployment’ NAIRU is the level of involuntary unemployment that a central bank judges to be acceptable or necessary to keep inflation low (2% B of E target)

67
Q

GDP

A

The value of output produced in a country in a year

68
Q

GDP per capita

A

The total value of output produced domestically in a country in a year divided by the population

69
Q

GDP per capita PPP

A

Per capita GDP adjusted to an exchange rate which equalises the price of a basket of identical traded goods and services in two different countries

70
Q

GNI

A

GDP plus factor incomes earned by foreign residents, minus income earned in the domestic economy by non-residents

71
Q

Government spending

A

Current and capital expenditure on goods and services by the central government

72
Q

Heckscher-Ohlin theory of trade

A

A theory that a country will export products produced using factors of production that are abundant and import products whose production requires the scarce resources

73
Q

Hyperinflation

A

Occurs when a country experiences very high and often accelerating rates of inflation, rapidly eroding the real value of the currency

74
Q

Hysteresis (Keynesian)

A

Unemployment caused by long-term unemployment

75
Q

Imports

A

The value of goods and services bought from abroad

76
Q

Income (balance of payments)

A

Profit, interest and dividends on investments abroad/sent aboard

77
Q

Income method measure of GDP

A

Add up all the factor incomes earned in the country in a year

78
Q

Income redistribution

A

The transfer of income from rich to poor to ensure greater access to necessities

79
Q

Index numbers

A

An index number is an economic data figure reflecting price or quantity compared with a standard or base vaue

80
Q

Indirect taxation

A

An indirect tax is a tax levied upon goods and services. It is placed upon the transaction, e.g. Value added tax (VAT) and excise duty

81
Q

Inflation

A

A sustained rise in the general price level

82
Q

Inflationary noise

A

Inflationary noise refers to the distorting effect that inflation can have

83
Q

Injections

A

Additions of extra spending into the circular flow of income in the form of government spending, investment and export revenue

84
Q

Interest rates

A

The interest rate represents the proportion of a principal sum which is due to be paid by a borrower or to a saver. It represents a price on money

85
Q

Investment

A

Business and government spending on capital goods

86
Q

J-Curve

A

A theory stating a country’s trade deficit will worsen initially after the depreciation of its currency but will eventually improve

87
Q

Keynesian school

A

A group of economists who believe that the macroeconomy can settle at an equilibrium that is below full employment

88
Q

Labour force

A

Those in employment plus the unemployed. Both groups are economically active

89
Q

Labour Force Survey (LFS)

A

Uses the ILO definition of unemployment. Survey of 60,000 people done 4 times per year

90
Q

Leakages

A

Withdrawals of possible spending from the circular flow of income in the form of savings, taxation and import expenditure

91
Q

Long run (potential) growth

A

An increase in productive capacity in the economy i.e. An increase in LRAS

92
Q

Long run Phillips curve

A

Monetarist perfectly inelastic curve that shows no permanent trade-off between inflation and unemployment in the long run

93
Q

Macroeconomic equilibrium

A

A situation where aggregate demand equals aggregate supply and real GDP is unchanging

94
Q

Malign deflation

A

Deflation caused by leftwards shifts in AD

95
Q

Managed floating systems

A

Where the exchange rate is allowed to float but there is a central bank intervention to prevent large fluctuations in the exchange rate

96
Q

Marginal propensity to consume (MPC)

A

The proportion of an increase in disposable income that households devote to consumer expenditure

97
Q

Marginal propensity to import (MPM)

A

The proportion of an increase in disposable income that households spend on imported goods and services

98
Q

Marginal propensity to save (MPS)

A

The proportion of an increase in disposable income that households devote to saving

99
Q

Marginal propensity to tax (MPT)

A

The proportion of an increase in disposable income that households pay as tax

100
Q

Marshall-Lerner condition

A

The Marshall-Lerner condition is the assumption that the value of all imports and exports has an elastic PED (>1)

101
Q

Menu costs

A

Menu costs are costs associated with relisting prices as a direct consequence of inflation

102
Q

Monetarist school

A

A group of economists who believe that the macroeconomy always adjusts rapidly to a full employment level of output

103
Q

Money supply

A

The total amount of money or monetary assets available in an economy at a specific time

104
Q

Multiplier effect

A

The process by which any change in a component of aggregate demand results in a greater final change in real GDP

105
Q

NAIRU

A

A Monetarist acronym for Non-Accelerating Inflation Rate of Unemployment and refers to a level of employment where the rate of wage inflation is stable. There is a satisfactory level of involuntary unemployment

106
Q

National debt (MMT)

A

Total money spent into existence by the government that is yet to be returned in taxes

107
Q

National debt (Neoclassical)

A

The accumulation of budget deficits (the total stock of debt)

108
Q

Negative output gap

A

Occurs when a country’s actual output is below its potential output

109
Q

Net errors and omissions

A

A balancing item that takes into account any discrepancies that arise in calculating the balance of payments

110
Q

Net exports

A

The value of exports minus the value of imports

111
Q

Nominal GDP formula

A

Real GDP / (100/ price index)

112
Q

Output gap

A

A measure of the difference between actual and potential output

113
Q

Output method measure of GDP

A

Add up the total value added or final value of goods and services produced in a year

114
Q

Positive output gap

A

Occurs when an economy’s actual output is temporarily above its potential output

115
Q

Potential labour force

A

The employed workforce plus those who are unemployed and actively seeking work plus people who are economically inactive

116
Q

PPP

A

Purchasing Power Parity. The exchange rate which equalises the value of an identical basket of traded goods and services in two different countries

117
Q

Prebisch-Singer hypothesis

A

The Prebisch-Singer hypothesis argues that the price of primary commodities declines relative to the price of manufactured goods over the long term, which causes the terms of trade of primary-product-based economies to deteriorate

118
Q

Price index formula

A

100 X (Nominal GDP/Real GDP)

119
Q

Price level

A

The average of each of the prices of all the products produced in an economy

120
Q

Production possibility curve/frontier

A

A curve showing the maximum combinations of goods and services that can be produced in a set period of time given available resources and the state of technology (if all resources are efficiently employed)

121
Q

Progressive taxation

A

Taxation for which the tax rate raises from low to high so that the taxpayer’s average rate is less than their marginal tax rate (even though both are rising). These take a larger proportion of richer households’ income

122
Q

Proportional taxation

A

Taxation for which the same tax rate is charged for each taxpayer, irrespective of income

123
Q

Quantitative easing

A

Central bank asset purchase (usually government and corporate bonds) with money it has ‘printed’ or more accurately, created electronically. This increases reserves and therefore lowering interest rates and increasing the money supply

124
Q

Quantity theory of money (Monetarist)

A

Based on the Fisher equation the quantity theory of money argues it is possible to increase the money supply and there is a positive causal relationship between the money supply and price level

125
Q

Real GDP

A

The country’s output measured in constant prices and so adjusted to inflation

126
Q

Real GDP formula

A

Nominal GDP X (100 / price index )

127
Q

Recession

A

A period of negative economic growth that lasts for 6 months (two consecutive quarters) or more

128
Q

Regional unemployment

A

Usually arises from structural unemployment. There is a mismatch between skills demanded and skills available in the labour market

129
Q

Regressive taxation

A

Taxation for which the tax rate falls from high to low so that the taxpayers’ average tax rate becomes greater than their marginal tax rate (even though both are falling). These take a larger proportion of poorer households’ income

130
Q

Retail price index (RPI)

A

A measure of inflation that is used for adjusting pensions and other benefits to take account of changes in inflation and frequently used in wage negotiations. Differs from CPI at methodology and coverage

131
Q

Risk

A

Decision making situations in which all potential outcomes and their likelihood of occurrences are known to the decision maker

132
Q

Seasonal unemployment

A

Unemployment at certain times of the year because work in some industries is not needed all year round

133
Q

Semi-fixed / Semi-floating exchange rate

A

An exchange rate system that allows a country’s currency to fluctuate within a permitted band of fluctuation

134
Q

Shock

A

A shock is an unexpected or unpredictable event that affects an economy, either positively or negatively

135
Q

Shoe leather costs

A

Shoe leather costs relate to the costs involved in reducing holdings of cash and money in current accounts and seeking the highest rate of interest

136
Q

Short run (actual) growth

A

An increase in real GDP

137
Q

Short run Phillips curve

A

New Keynesian curve that shows a trade-off between inflation and unemployment

138
Q

Stagflation

A

Occurs when an economy simultaneously experiences stagnant economic growth, high unemployment and high price inflation

139
Q

Structural budget deficit

A

This is the level of the deficit that exists when the economy is operating at full employment

140
Q

Structural unemployment

A

Occurs when there is a long-run decline in an industry

141
Q

Supply-side policies (free market)

A

Free-market supply-side policies involve policies to increase competitiveness and competition. For example, privatisation, deregulation, lower income tax rates, and reduced power of trade unions

142
Q

Supply-side policies (Interventionist)

A

Interventionist supply-side policies involve government intervention to overcome market failure. For example, higher government spending on education, housing and transport infrastructure

143
Q

Sustainable economic growth

A

Economic growth that allows increases in output to be achieved today without compromising the ability of future generations to meet their needs

144
Q

Symmetric inflation target

A

When deviations above and below the target are given equal weight in the inflation target

145
Q

Terms of trade

A

Terms of trade measure the rate of exchange of one good or service for another when two countries trade with each other

146
Q

The golden rule (1997)

A

Over the economic cycle, the government will only borrow for capital spending and not to fund current spending

147
Q

The money illusion

A

The tendency of other people to think of currency in nominal, rather than real, terms

148
Q

The normal times rule (2015)

A

By 2020, the government must run budget surpluses during ‘normal times’ when GDP growth is 1% or more

149
Q

The sustainable investment rule (EU)

A

Public sector net debt should not exceed 40% of GDP

150
Q

Transfers (balance of payments)

A

Money sent and received between workers in the UK and abroad

151
Q

Uncertainty

A

Decision making situations in which the outcomes and/or their probabilities of occurring are unknown to the decision-maker

152
Q

Unemployment

A

Describes people without a job, who have been actively seeking work in the past 4 weeks and are available to start work in the next 2 weeks (ILO)

153
Q

Unemployment rate

A

The percentage of he labour force without a job, who have been actively seeking work in the past 4 weeks and are available to start work in the next 2 weeks (ILO)

154
Q

Unit labour costs

A

The total cost of labour per unit of output

155
Q

Universal basic income (UBI)

A

A sum of money, sufficient to support a decent standard of living, given to every person in society, regardless of their need or existing wealth

156
Q

Universal job guarantee (UJG)

A

A public sector option for employment paid at a living wage for anyone willing and able to contribute time to public purpose

157
Q

Universal basic services (UBS)

A

A guarantee that all citizens receive unconditional access to a range of free, basic public services such as shelter, healthcare, education and public transport

158
Q

Tariff

A

A tariff is a tax placed on the value of imports

159
Q

crowding-in

A

Increase in government spending incentivises firms to invest in a country due to profit incentives

Economics (9 decks)

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