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Econ - MACRO > Theme 4 Key Terms > Flashcards

Theme 4 Key Terms Flashcards

(89 cards)

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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
developing country
countries with a low GDP per capita and a low standard of living
26
discretionary fiscal policy
- deliberate manipulation of govt expenditure and taxes to influence the economy - expansionary and deflationary fiscal policy
27
economic and monetary union
everything before (common market) but countries decide to adopt the **same currency, central bank and therefore monetary policy** e.g eurozone
28
economic development
improvements in living standards
29
economic integration
process where countries co-ordinte to reduce trade barriers and to harmonise monetary+fiscal policy
30
embargo
total ban on imported goods
31
emerging economies
a country that is growing quickly and has some characteristics of a developed country but is not there fully yet
32
exchange rate
the purchasing power of a currency in terms of what it can buy in other currencies
33
financial account
- a part of the balance of payments - records FDI, portfolio investment and the transfer of gold and currency reserves
34
financial markets
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
35
fiscal deficit
when the govt spends more than it receives in a year
36
fixed exchange rate
the value of the currency is set against the value of another, and that exchange rate does not change
37
foreign currency gap
when a country does not export enough to finance the purchase of goods from overseas
38
foreign direct investment
investment by one private sector company in one country into another private sector company in another
39
free trade
trade with no barriers or restrictions
40
free trade agreements
when two or more countries in a region agree to reduce/eliminate trade barriers on all goods from member countries
41
Free Trade Area (FTA)
- 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
free floating exchange rate
value of the currency is determined purely by market demand and supply of the currency
43
full economic integration
complete integration, where countries harmonise all policies, including **fiscal and monetary policy, political power** and all stages before holding e.g UK
44
general govt final consumption
spending on goods and services which will be consumed within the next year (public sector salaries)
45
Gini coefficient
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
globalisation
- 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
Harrod-domar model theory
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
Harrod domar model definiton
- 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
hot money flows
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
human capital
the economic value of an individuals skills, experience, training etc
51
HDI
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
infrastructure
facilities required for an economy to function, such as roads
53
internal competitiveness
the ability of a country to compete effectively and become attractive in international markets
54
j curve
a current account will worsen before it improves following a depreciation of the currency
55
laffer curve
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
lewis 2 model
- 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
Lorenz curve
the cumulative % of the population plotted against the cumulative % of income that those people have
58
market bubbles
when the price of an asset rises massively and greatly exceeds the value of the asset itself
59
market rigging
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
microfinance schemes
schemes which aim to give poor and near-poor households permanent access to a range of financial services
61
managed floating exchange rate
value of the currency is determined by demand and supply but the Central Bank intervenes to prevent large changes
62
Marshall Lerner condition
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
monetary unions
two or more countries with a single currency
64
moral hazard
when individuals act in their own best interests knowing there are potential risks - another cause of financial market failure
65
national debt
the sum of govt debts built up over many years
66
preferential trading area (PTA)
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
primary product dependency
when a country relies heavily on primary products, such as agricultural goods or mining
68
progressive taxation
- 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
proportional tax
- 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
protectionism
when govt enact policies to restrict the free entry of imports into their country, such as tariffs and quotas
71
quota
limits placed on the level of imports allowed into a country
72
regressive taxation
- 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
relative poverty
- when income falls below an average income threshold - in the UK, this is those on less than 60% of median household income
74
revaluation
when the currency is increased against the value of another under a fixed system
75
speculation
trading financial assets in the hope of significant returns
76
structural deficit
the deficit which occurs when the cyclical deficit is 0
77
subsidy
payment to domestic producers which lower their costs, help to be more competitive due to cheaper prices
78
tariffs
taxes placed on imported goods in an attempt to prevent people from buying them, and more likely to buy domestic goods
79
terms of trade
measures the rate of exchange of one product for another when two countries trade
80
terms of trade formula
(avg export price index) / (avg import price index) x 100
81
theory of comparative advantage
countries will find specialisation mutually advantageous if the opportunity costs of production are different
82
trade creation
when a country moves from buying goods from a high cost to a lower cost producer
83
trade diversion
when a country moves from buying goods from a low-cost producer to a higher-cost one
84
trade liberalisation
reduction or removal of protectionist policies
85
trading bloc
a group of countries that reduce or remove trade barriers between them
86
transfer payments
govt spending for which there is no corresponding output, where money is taken from one group and given to another
87
transfer pricing
when firms manipulate the price of their good so that profit is increased in areas of low tax
88
unit labour costs
the cost of employing workers for each unit of a good
89
unit labour costs formula
(total wages) / (real output)

Econ - MACRO (4 decks)

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