Theme 4 definitions

Question 1

absolute advantage

Answer 1

when a country produces a good more cheaply in absolute terms than another country

Question 2

absolute poverty

Answer 2

when a person is unable to afford basic economic necessities; according to World Bank earns less than $1.90 a day

Question 3

Aid

Answer 3

when a country voluntarily transfers resources to another or gives loans on a concessionary basis

Question 4

appreciation

Answer 4

an increase in the value of the currency in a free floating exchange system

Question 5

asymmetric information

Answer 5

when one party has more knowledge then the other economic agents, this causes market failure like in the financial sector

Question 6

automatic stabilisers

Answer 6

mechanisms which reduce the impact of changes in the economy on national income
(dampen the fluctuations of the trade cycle)

Question 7

balance of payments

Answer 7

a record of all international transactions between economies; including the financial, capital and current account

Question 8

buffer stock systems

Answer 8

when a maximum and minimum price are imposed together in order to bring about price stability

Question 9

capital account

Answer 9

1/3 of the balance of payments; record of debt forgiveness, inheritance tax, and the transfer of financial assets and sales of assets

Question 10

capital expenditure

Answer 10

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

Question 11

capital flight

Answer 11

when large amounts of money are taken out of the country rather than being left there for people to invest and borrow
(when firms leave an economy)

Question 12

central banks

Answer 12

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

Question 13

common markets

Answer 13

A type of trade bloc, involves all characteristics of FTA, custom union and allows free movement of capital and labour

Question 14

comparative advantage

Answer 14

when a country is able to produce a good at a lower opportunity cost to another economy
(produce the good more cheaply relatively to other goods they produce)

Question 15

current account

Answer 15

1/3 of balance of payments; record payments for the purchase and sales of goods and services as we as incomes and transfers

Question 16

customs union

Answer 16

the removal of all tariff barriers between members (reduced barriers) with an introduction of a common external tariff

Question 17

current expenditure

Answer 17

general government final consumption plus transfer payments plus interest payments

Question 18

cyclical deficit

Answer 18

the part of the deficit that occurs because government spending fluctuates around the trade cycle

Question 19

depreciation

Answer 19

a fall in the value of the currency against another, using floating exchange rates

Question 20

devaluation

Answer 20

when the currency has fallen against another in a fixed exchange rate system

Question 21

developed country

Answer 21

countries with high GDP per capital and a high standard of living

Question 22

developing countries

Answer 22

countries with low GDP per capita and a low standard of living

Question 23

discretionary fiscal policy

Answer 23

deliberate manipulation of government expenditure and taxes to influence the economy; via expansionary and contractionary fiscal policies

Question 24

economic development

Answer 24

the improvement in living standards - growth in social and economic opportunities

Question 25

emerging economies

Answer 25

a country that is growing quickly but has some characteristics of a developed country but is not fully there yet

Question 26

exchange rate

Answer 26

the value of a currency/ basket of a currencies compared to other currnecies

Question 27

financial account

Answer 27

1/3 of the balance of payments; record FDI, investments and the transfer of gold and currency reserves

Question 28

financial market

Answer 28

where buyer and sellers can buy and trade a range of services or assets that are fundamentally monetary in nature

Question 29

fiscal deficit

Answer 29

when government spends more than it receives

Question 30

fixed exchange rate systems

Answer 30

the value of the currency is set against the value of another and that exchange rate does not change (controlled by the government) (pegged to another currency) e.g china's Yuan to USA dollar

Question 31

foreign currency gap

Answer 31

when a country does not export enough to finance the purchase of goods from overseas

Question 32

foreign direct investment (FDI)

Answer 32

investment by a private sector firm in one country to another private sector firm in another

Question 33

Free trade

Answer 33

trade with no barriers or restrictions

Question 34

free trade agreement

Answer 34

when two or more countries in a region agree to reduce or eliminate all protectionism on trade amongst members

Question 35

free floating exchange rate

Answer 35

value of the currency is determined purely by market demand and supply of the currency

Question 36

general government and final consumption

Answer 36

spending on goods and services which will be consumed within the next year

Question 37

gini coefficient

Answer 37

a measure of income inequality

Question 38

globalisation

Answer 38

the growing interdependence, integration and interconnectedness of economies

Question 39

Harrod-Domar model

Answer 39

Savings in developing countries would lead to investments and growth

Question 40

human capital

Answer 40

the economic value of an individuals skills, experience and training

Question 41

HDI

Answer 41

measure of an economy's development based on income, health and education

Question 42

infrastructure

Answer 42

facilities required for an economy to function such as road

Question 43

international competitiveness

Answer 43

the ability of an economies exports to compete in international markets and become attractive

Question 44

J-curve

Answer 44

a current account will worsen before improving following a depreciation of a currency until marshal learning condition is met (PED of X+M >1)

Question 45

laffer curve

Answer 45

shows how a rise in tax rates does not necessarily lead to a rise in tax revenue

Question 46

Lewis 2 model

Answer 46

A country develops through the transaction from rural agriculture sector to urban industrial sector. This would lead to workers wages increasing due to producing goods that are more in demand, leading to increased savings and investments

Question 47

lorenz curve

Answer 47

cumulative % of population against cumulative % of income highlights income inequality

Question 48

market bubbles

Answer 48

when prices of an asset rises massively and exceeds the value of the asset itself

Question 49

market rigging

Answer 49

when a group colludes to fix prices or exchange information that will lead to gains for themselves

Question 50

microfinance schemes

Answer 50

used to give loans to poor households and give them access to a range of financial services

Question 51

Marshall learning condition

Answer 51

the sum of price elasticities of imports and exports being higher than 1

Question 52

monetary unions

Answer 52

Characteristics of common market, all have the same currency and central bank

Question 53

moral hazard

Answer 53

when individuals engage in risky behaviour for their interests knowing they can cause market failure and not take responsibility for it

Question 54

national debt

Answer 54

the sum of government debt built over many years

Question 55

primary product dependency

Answer 55

when a country relies heavily on primary products such as agricultural goods or mining

Question 56

progressive taxation

Answer 56

where those on higher incomes pay a higher marginal rate of tax

Question 57

proportional taxation

Answer 57

proportion of income paid on the tax remains the same whilst the income of the tax payer changes; everyone pays the same %

Question 58

protectionism

Answer 58

any measures by the government to restrict trade e.g tariffs, quotas and subsidies

Question 59

quota

Answer 59

physical limit on levels of imports into a country