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136 Cards in this Set

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Absolute advantage
when a country can make a good with fewer resources than another country.
Absolute poverty
when a population is only able to meet its bare subsistence essentials of food, water, clothing and shelter.
Aggregate demand
total planned spending at a given price level. C+I+G+ (X-M)
Aggregate supply
total output firms are willing to supply at a given price level.
Aid
transfer of resources to LEDCs on concessional terms to promote development.
Appreciation of a currency
strengthening of a currency under a floating exchange rate system.
Automatic stabiliser
features of public finance that act to dampen economic fluctuations without government interference.
Balance of Payments (BOP)
a record of a country’s financial dealings with the rest of the world.
Balance of trade
the difference in values between visible (tangible) exports and visible imports.
Black (hidden or informal) economy
economic activity not declared for tax purposes.
Broad money
cash in circulation plus bank and building society deposits. (M4)
Budget (or fiscal) deficit
when government spending exceeds government revenue.
Budget (or fiscal) surplus
when government spending falls short of government revenue.
Business (or trade or economic) cycle
regular oscillations in economic activity. ‘Boom, bust.’
Capital flight
the withdrawal of funds from a country due to poor economic conditions, and a speculative fear of currency devaluation.
Cash crop
agricultural crop produced for the export market.
Circular flow of income
a model showing the flow of goods, services and factors and their payments around the economy.
Closed economy
an economy in which there is no foreign trade.
Common External Tariff
uniform rate of tax on goods imported into a customs union. (e.g. EU)
Comparative advantage
the ability to produce a good at a lower opportunity cost than other countries.
Common Market
a group of countries between which there is free trade in products and factors of production and which imposes a common external tariff on imports from outside the market.
Competitiveness
the ability of a nation to grow successfully and to maintain its share of world trade.
Cost push inflation
inflation caused by increases in costs of production.
Crowding out
when increased public expenditure (i.e. by the government) diverts money or resources away from the private sector.
Current account of the BOP
day-to-day transactions on the BOP
Current account deficit
when outflows of money on the current/day-to-day BOP account exceed inflows.
Current account surplus
when inflows of money on the current/day-to-day BOP account exceed outflows
Customs Union
a free trade area between members plus a common external tariff against imports.
Deflation
sustained fall in the general price level.
Deflationary policy
government policies which reduce aggregate demand.
Demand management
government use of fiscal or other policies to manipulate AD.
Demand pull inflation
inflation caused by excess demand in the economy.
Depreciation of a currency
weakening of a currency under a floating exchange rate system.
Depression (or slump)
a particularly deep and prolonged fall in output.
Devaluation
reduction by government in the value of its currency against another in a fixed exchange rate system.
Disinflation
falling rate of inflation.
Direct tax
tax levied on income, wealth or profits.
Discretionary fiscal policy
deliberate changes to fiscal policy to influence aggregate demand.
Disposable income
household income minus income tax and National Insurance Contributions.
Dumping
the sale of goods at less than cost price by foreign producers in the domestic market.
Economic growth
growth in an economy’s productive potential.
Effective exchange rate or Trade Weighted Index
the exchange rate of a currency against a basket of other currencies, weighted according to the value of trade done with those countries.
European Monetary Union
adoption of the European single currency and the centralisation of monetary policy for the eurozone.
Exchange controls
restrictions on the buying and selling of foreign currency (e.g. in Cyprus now).
Exchange rate
the price of one currency in terms of another.
Expansionary fiscal policy
the use of tax and/or government spending to increase AD.
Expenditure dampening (reducing) policy
government policies to reduce AD.
Expenditure switching policy
government policies aimed at switching demand from imports to domestic production.
Financial account of the BOP
the section of the BOP recording flows of money into and out of a country for the purposes of savings, investment, speculation or currency stabilisation.
Fine tuning
the use of demand management policies to smooth out fluctuations in the economy.
Fiscal drag
the effect of inflation on effective tax rates.
Fiscal policy
government policy towards taxation, government spending and borrowing.
Fiscal stance ­
whether government is trying to raise or lower aggregate demand through fiscal policies.
Fixed exchange rate
an exchange rate pegged at a given rate, maintained by government intervention.
Flexible labour market
the degree to which demand and supply in a labour market respond to external changes to return the market to equilibrium.
Foreign (jnternational or overseas) aid
a voluntary transfer of resources from one country to another, given at least partly to help the recipient country.
Foreign direct investment (FDI)
spending by firms on productive capacity in other countries.
Foreign exchange market
the markets where currencies are bought and sold.
Forward exchange market
a market in which promises to buy or sell currency at a future date at an agreed price are traded.
Floating exchange rate
an exchange rate determined by market forces.
Free Trade Area
a group of countries which coordinate a reduction of trade barriers between themselves but pursue independent policies as regards external tariffs.
Frictional (search) unemployment
when workers are unemployed for short periods between jobs.
Full capacity
the output level at which no extra production can take place in the long run with existing resources.
Gini coefficient
a statistical measure of income or wealth inequality.
Globalisation
the increased integration and interdependence of economies throughout the world.
Gross domestic product
the value of output produced within an economy in a time period.
Gross national income
GDP plus net property income from abroad.
Hot money
money flowing between financial centres in search of the highest short
Human Development Index (HDI)
a statistic which serves as a frame of reference for both social and economic development, incorporating health, education and living standards.
Hyper inflation
very high inflation rate: nightmare!
Import substitution
restricting imports of manufactured goods and using the foreign exchange saved to build up domestic substitute industries.
Indexation
adjusting the value of economic variables in line with inflation.
Indirect tax
sales tax, e.g. VAT.
Infant industry argument
an argument in support of the retention of a protective import to promote the creation of a local industry.
Inflation
a sustained rise in the general price level.
Infrastructure
social overhead capital.
Injection
spending on domestic output derived from outside the circular flow of income (i.e. G,I,X).
International Monetary Fund (IMF)
an organisation set up to promote international monetary co
Investment
real capital formation.
J curve
devaluation will lead to a short
Liquidity trap
the absorption of any additional money supply into idle balances at very low interest rates, leaving AD unchanged.
Lorenz curve
a curve showing the extent of inequality of income or wealth in society.
Marginal propensity to consume
the proportion of extra income that is spent.
Marginal propensity to save
the proportion of extra income that is not spent.
Marginal rate of tax (MRT)
tax rate paid on each additional unit of income.
Marshall
Lerner condition
Micro finance
a type of banking service provided to unemployed or low income individuals or groups who would otherwise have no means of gaining financial services to become self sufficient.
Monetary policy
government policy towards monetary variables such as the interest rate, money supply and credit.
Multinational (transnational) company (MNC)
an enterprise operating in a number of countries and having production facilities outside its country of origin.
Multiplier
the number of times a rise in income exceeds the rise in injections that caused it.
Narrow money
cash in circulation plus banks balances at the Bank of England. (M0)
National debt
outstanding public sector debt. (No, not a commendation!)
Non government organisations
private sector organisations (e.g. charities) involved in providing financial and technical assistance to LEDCs.
Non tariff barriers (NTBs)
obstacles to imports other than quotas or tariffs.
Open economy
an economy which is open to foreign trade.
Output gap
the difference between the actual level of GDP and full employment output.
Participation (activity) rate
the proportion of any given population in the labour force.
Phillips curve
a curve showing the inverse relationship between inflation and unemployment between 1861 and 1957 in the UK.
Progressive tax
a tax that takes an increasing proportion as tax when income rises. Increasing marginal rate of tax (MRT).
Protectionism
the imposition of trade barriers against imports.
Public sector
central & local government and public corporations.
Public Sector Net Cash Requirement
how much the government needs to borrow per time period.
Purchasing power parity theory
the theory that the exchange rate will adjust so as to offset differences in countries’ inflation rates.
Quantitative easing
a monetary policy where the central bank increases the monetary supply/base by a deliberate amount through the open market purchase of government bonds from banks, funds and other institutions.
Quota
a limit on the quantity or value of imports.
Relative poverty
poverty defined in comparison with existing average household living standards.
Real exchange rate
the price of a country’s goods relative to those produced abroad when expressed in a common currency.
Recession
two successive quarters of negative economic growth.
Regressive tax
a tax that takes a decreasing proportion of tax as income rises.
Revaluation
an increase by government in the value of its currency against another in a fixed exchange rate system.
Stagflation
stagnation of the economy coexisting with high inflation. Oh so very 1970s!
Sub
prime debt
Subsistence farming
where farming families produce food for their own consumption.
Supply side shocks
factors which cause the AS curve to shift.
Sustainable development
development which meets the needs of the present generation without compromising the needs of future generations.
Stop-go
alternate deflationary and reflationary policies to tackle the most pressing economic problems which fluctuate with the trade cycle.
Structural Adjustment Programme (SAP: the other SAP!)
conditions attached to loans from the IMF designed to strengthen microeconomic performance by encouraging market friendly institutions. (N.B. SAP now known as ‘Poverty Reduction Strategy Programmes’)
Structural unemployment
unemployment arising from changes in the pattern of demand & supply.
Terms of trade
an index of a country’s export prices relative to its import prices.
Transfer payments
income for which there is no corresponding output (e.g. pension)
Tariff
tax on imported good.
Tied aid
aid granted on condition that the recipient country buys products from the donor country.
Trade barriers
a measure which artificially restricts international trade.
Trade creation
where joining a customs union leads to sourcing of goods & services from a lower cost producer within the union.
Trade diversion
where joining a customs union leads to sourcing goods & services from a higher cost producer within the union.
Trading blocs
groups of countries with preferential trading arrangements.
Transfer pricing
an accounting technique used by MNCs for reducing taxes by declaring profits where the tax rate is low.
Underemployment
where people who want full
Unemployment­
the number of people who are actively looking for work, currently without a job.
Unemployment rate
the number of unemployed expressed as a % of the labour force.
Unit labour costs (ULCs)
the average costs of labour per unit of output.
Wealth
a stock of assets which has a money value.
Wealth effect
the change in consumption following a change in wealth.
Withdrawals (or leakages)
income which is not spent on domestic output. (i.e. T, S, M)
World Bank
an organisation aiming to promote economic development by providing low interest loans, free credit and grants to LEDCs for education, health, infrastructure and communications.
World Trade Organisation
an organisation that negotiates agreements aimed at reducing obstacles to international trade, thus contributing to economic growth and development.