PMT Theme 4

• What is absolute advantage?

  When a country can produce a good more cheaply in absolute terms than another country
• What defines absolute poverty?

  When people are unable to afford sufficient necessities to maintain life; those on less than $1.90 a day
• What is aid in economic terms?

  When a country voluntarily transfers resources to another or gives loans on a concessionary basis
• What does appreciation refer to in economics?

  An increase in the value of the currency using floating exchange rates
• What is asymmetric information?

  When one party has more knowledge than another; this causes market failure in the financial sector
• What are automatic stabilisers?

  Mechanisms which reduce the impact of changes in the economy on national income
• What is the balance of payments?

  A record of all financial dealings over a period of time between economic agents of one country and another
• What are buffer stock systems?

  When a maximum and minimum price are imposed together in order to bring about price stability
• What is the capital account?

  A part of the balance of payments; records debt forgiveness, inheritance taxes, transfers of financial assets and sales of assets
• What is capital expenditure?

  Government spending on investment goods such as new roads, schools and hospitals, which will be consumed in over a year
• What is capital flight?

  When large amounts of money are taken out of the country, rather than being left there for people to borrow and invest
• What are central banks responsible for?

  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
• What is a common market?

  Members trade freely in all economic resources and impose a common external tariff
• What is comparative advantage?

  When a country is able to produce a good more cheaply relative to other goods produced; it has a lower opportunity cost
• What is the current account?

  A part of the balance of payments; records payments for the purchase and sale of goods and services, as well as incomes and transfers
• What is a customs union?

  The removal of all tariff barriers between members and the introduction of a common external tariff
• What is current expenditure?

  General government final consumption plus transfer payments plus interest payments
• What is a cyclical deficit?

  The part of the deficit that occurs because government spending fluctuates around the trade cycle
• What is depreciation in economic terms?

  A fall in the value of the currency using floating exchange rates
• What is devaluation?

  When the currency is decreased against another under a fixed system
• What defines a developed country?

  Countries with high GDP per capita and a high standard of living
• What defines a developing country?

  Countries with a low GDP per capita and a low standard of living
• What is discretionary fiscal policy?

  Deliberate manipulation of government expenditure and taxes to influence the economy; expansionary and deflationary fiscal policy
• What is economic development?

  Improvements in living standards
• What are emerging economies?

  A country that is growing quickly and has some characteristics of a developed country but is not fully there yet
• What is an exchange rate?

  The purchasing power of a currency in terms of what it can buy of other currencies
• What is the financial account?

  A part of the balance of payments; records FDI, portfolio investment and the transfer of gold and currency reserves
• What are financial markets?

  When buyers and sellers can buy and trade a range of services or assets that are fundamentally monetary in nature
• What is a fiscal deficit?

  When the government spends more than it receives each year
• What is a fixed exchange rate?

  The value of the currency is set against the value of another and that exchange rate does not change
• What is a foreign currency gap?

  When a country does not export enough to finance the purchase of goods from overseas
• What is foreign direct investment?

  Investment by one private sector company in one country into another private sector company in another
• What is free trade?

  Trade with no barriers or restrictions
• What are free trade agreements?

  When two or more countries in a region agree to reduce/eliminate trade barriers on all goods from member countries
• What is a free floating exchange rate?

  Value of the currency is determined purely by market demand and supply of the currency
• What is general government final consumption?

  Spending on goods and services which will be consumed within the next year
• What is the Gini coefficient?

  A measure of income inequality; the ratio of the area between the 45 degree line and the Lorenz curve and the whole area under the 45 degree line
• What is globalisation?

  The growing interdependence of countries and the rapid rate of change it brings about; movement towards free trade of goods and services, free movement of labour and capital and free interchange of technology and intellectual capital
• What does the Harrod-Domar model state?

  Savings provide the funds that are used for investment, and growth rates depend on the level of savings and the productivity of investment
• What does the Human Development Index (HDI) measure?

  Measures an economy’s development based on income, health and education