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Econ - MACRO > Theme 4 Key Terms > Flashcards

Theme 4 Key Terms Flashcards

1
Q

absolute advantage

A

when a country can produce a good more cheaply in absolute terms than another country

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2
Q

absolute poverty

A
  • when people are unable to afford sufficient necessities to maintain life
  • those on less than $1.90 a day
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3
Q

actual deficit

A

primary deficit + debt interest payments

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4
Q

aid

A

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

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5
Q

appreciation

A

an increase in the value of the currency using floating exchange rates

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6
Q

asymmetric information

A
  • when one party has more knowledge than another
  • this causes market failure in the financial sector
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7
Q

austerity

A
  • higher taxes, cuts in spending on public services and welfare benefits
  • hurts poorer ppl and vulnerable ppl, increases ineq
  • SR econ benefits
  • makes recessions worse
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8
Q

automatic stabilisers

A

mechanisms which reduce the impact of changes in the economy on national income
- in recession, benefits increase as more ppl unemployed, benefits are stabiliser, AD falls less.
- in boom, tax rev increases (higher tax bands) as ppl have more jobs/higher income, tax reduces disposable income and so consumption, so AD doesn’t rise too much

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9
Q

balance of payments

A

a record of all financial dealings over a period of time between economic agents of one country and another

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10
Q

bilateral/multilateral trade agreement

A

an agreement to decrease tariffs & quotas between 2/more countries

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11
Q

buffer stock systems

A

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

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12
Q

capital account

A
  • a part of the balance of payments
  • records debt forgiveness, inheritance taxes, transfers of financial assets and sales of assets
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13
Q

capital govt expenditure

A

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

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14
Q

capital flight

A

when large amounts of money are taken out of the country, rather than being left there for people to borrow and invest

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15
Q

central banks

A

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 govt debt

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16
Q

Common market

A

a customs union w/ deeper integration, such as common policies, regulations, and free movement of labour, capital and business between member nations
e.g. EU

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17
Q

comparative advantage

A
  • when a country can produce a good more cheaply relative to other goods produced
  • it has a lower opportunity cost
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18
Q

current account

A
  • a part of the balance of payments
  • records payments for the purchase and sale of goods and services, as well as incomes and transfers
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19
Q

current expenditure

A

general govt final consumption plus transfer payments plus interest payments

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20
Q

customs union

A

an FTA without freedom to trade with countries outside the FTA agreement, with common external barriers stopping imports into the customs union
- e.g EU

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21
Q

cyclical deficit

A

the part of the deficit thay occurs because govt spending fluctuates around the trade cycle
- when economy recession, tax rev low, spending high, so large deficit

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22
Q

depreciation

A

a fall in the value of the currency using floating exchange rates

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23
Q

devaluation

A

when the currency is decreased against another under a fixed system

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24
Q

developed country

A

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

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25
Q

developing country

A

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

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26
Q

discretionary fiscal policy

A
  • deliberate manipulation of govt expenditure and taxes to influence the economy
  • expansionary and deflationary fiscal policy
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27
Q

economic and monetary union

A

everything before (common market) but countries decide to adopt the same currency, central bank and therefore monetary policy
e.g eurozone

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28
Q

economic development

A

improvements in living standards

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29
Q

economic integration

A

process where countries co-ordinte to reduce trade barriers and to harmonise monetary+fiscal policy

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30
Q

embargo

A

total ban on imported goods

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31
Q

emerging economies

A

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

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32
Q

exchange rate

A

the purchasing power of a currency in terms of what it can buy in other currencies

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33
Q

financial account

A
  • a part of the balance of payments
  • records FDI, portfolio investment and the transfer of gold and currency reserves
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34
Q

financial markets

A

where buyers and sellers can buy and trade a range of services or assets that are fundamentally monetary in nature
- return rate to lenders, higher interest rate for borrowers, so lenders and intermediaries profit

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35
Q

fiscal deficit

A

when the govt spends more than it receives in a year

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36
Q

fixed exchange rate

A

the value of the currency is set against the value of another, and that exchange rate does not change

37
Q

foreign currency gap

A

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

38
Q

foreign direct investment

A

investment by one private sector company in one country into another private sector company in another

39
Q

free trade

A

trade with no barriers or restrictions

40
Q

free trade agreements

A

when two or more countries in a region agree to reduce/eliminate trade barriers on all goods from member countries

41
Q

Free Trade Area (FTA)

A
  • when countries join together, decide to eliminate all trade barriers between each other, BUT can trade however they want outside the FTA
    e.g NAFTA (mex, USA, can)
42
Q

free floating exchange rate

A

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

43
Q

full economic integration

A

complete integration, where countries harmonise all policies, including fiscal and monetary policy, political power and all stages before holding
e.g UK

44
Q

general govt final consumption

A

spending on goods and services which will be consumed within the next year (public sector salaries)

45
Q

Gini coefficient

A

a measure of income inequality
- the ratio of the area between the 45-degree line (the line of perfect equality) and the Lorenz curve and the whole area under the 45-degree line

46
Q

globalisation

A
  • the growing interdependence of countries and the rapid rate of change it brings about
  • increasing integration of the world’s local, regional and national economies into a single international market
47
Q

Harrod-domar model theory

A

used to identify factors that affect the rate of growth of GDP
- savings provide the funds that are used for investment
- therefore, growth in developing countries is limited by the lack of investment

48
Q

Harrod domar model definiton

A
  • states that the rate of growth of GDP is determined by the national savings ratio & the ratio of capital to output in an economy
  • Rate of growth of GDP = (savings rate) / (capital/output ratio)
49
Q

hot money flows

A

the flow of funds (or capital) from one country to another in order to earn a short-term profit on interest rate differences and/or anticipated exchange rate shifts

50
Q

human capital

A

the economic value of an individuals skills, experience, training etc

51
Q

HDI

A

measures an economy’s development based on income, health and education
income: real GNI/capita @ PPP
health: LE at birth
education: mean years of schooling of adults 25+ and expected years schooling of a current 5-year-old over their life
- equal weighting, mean taken, number from 0 to 1. higher number = more development

52
Q

infrastructure

A

facilities required for an economy to function, such as roads

53
Q

internal competitiveness

A

the ability of a country to compete effectively and become attractive in international markets

54
Q

j curve

A

a current account will worsen before it improves following a depreciation of the currency

55
Q

laffer curve

A

shows that a rise in tax rates does not necessarily lead to a rise in tax revenue, due to the impact on incentives and work

56
Q

lewis 2 model

A
  • a model which suggests that countries will develop through industrialisation as labour is moved from the unproductive agriculture sector to the more productive urban sector
  • this increases wages and leads to more savings and investment
57
Q

Lorenz curve

A

the cumulative % of the population plotted against the cumulative % of income that those people have

58
Q

market bubbles

A

when the price of an asset rises massively and greatly exceeds the value of the asset itself

59
Q

market rigging

A

a group of individuals or institutions collude to fix prices or exchange information that will lead to gains for themselves at the expense of other participants in the market

60
Q

microfinance schemes

A

schemes which aim to give poor and near-poor households permanent access to a range of financial services

61
Q

managed floating exchange rate

A

value of the currency is determined by demand and supply but the Central Bank intervenes to prevent large changes

62
Q

Marshall Lerner condition

A

the sum of the price elasticities of imports and exports must be more than one if a currency depreciation is to have a positive impact on the trade balance

63
Q

monetary unions

A

two or more countries with a single currency

64
Q

moral hazard

A

when individuals act in their own best interests knowing there are potential risks - another cause of financial market failure

65
Q

national debt

A

the sum of govt debts built up over many years

66
Q

preferential trading area (PTA)

A

countries join together to decrease tariffs and quotas but only on certain goods and services, where countries have preferential access, NOT eliminating all tariffs/quotas

67
Q

primary product dependency

A

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

68
Q

progressive taxation

A
  • where those on higher incomes pay a higher marginal rate of tax
  • those on higher incomes pay a higher % of their income on tax
69
Q

proportional tax

A
  • the proportion of income paid on the tax remains the same whilst the income of the taxpayer changes
  • everyone pays the same % of their income on tax
70
Q

protectionism

A

when govt enact policies to restrict the free entry of imports into their country, such as tariffs and quotas

71
Q

quota

A

limits placed on the level of imports allowed into a country

72
Q

regressive taxation

A
  • where the proportion of income paid in tax falls whilst the income of the taxpayer increases
  • those on lower incomes pay a higher % of their income on tax
  • VAT as when income increases, the tax paid is a lower proportion of income
73
Q

relative poverty

A
  • when income falls below an average income threshold
  • in the UK, this is those on less than 60% of median household income
74
Q

revaluation

A

when the currency is increased against the value of another under a fixed system

75
Q

speculation

A

trading financial assets in the hope of significant returns

76
Q

structural deficit

A

the deficit which occurs when the cyclical deficit is 0

77
Q

subsidy

A

payment to domestic producers which lower their costs, help to be more competitive due to cheaper prices

78
Q

tariffs

A

taxes placed on imported goods in an attempt to prevent people from buying them, and more likely to buy domestic goods

79
Q

terms of trade

A

measures the rate of exchange of one product for another when two countries trade

80
Q

terms of trade formula

A

(avg export price index) / (avg import price index)

x 100

81
Q

theory of comparative advantage

A

countries will find specialisation mutually advantageous if the opportunity costs of production are different

82
Q

trade creation

A

when a country moves from buying goods from a high cost to a lower cost producer

83
Q

trade diversion

A

when a country moves from buying goods from a low-cost producer to a higher-cost one

84
Q

trade liberalisation

A

reduction or removal of protectionist policies

85
Q

trading bloc

A

a group of countries that reduce or remove trade barriers between them

86
Q

transfer payments

A

govt spending for which there is no corresponding output, where money is taken from one group and given to another

87
Q

transfer pricing

A

when firms manipulate the price of their good so that profit is increased in areas of low tax

88
Q

unit labour costs

A

the cost of employing workers for each unit of a good

89
Q

unit labour costs formula

A

(total wages) / (real output)

Econ - MACRO (4 decks)

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