Macroeconomics (theme 4)

• ABSOLUTE ADVANTAGE

  when a country can produce a good at a cheaper price than another country when given the same resources
• ABSOLUTE POVERTY

  when people are unable to afford sufficient necessities to maintain life
• AID

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

  an increase in the value of the currency using floating exchange rates
• ASYMMETRIC INFORMATION

  when one party has more information than the other which causes market failure
• AUTOMATIC STABILISERS

  mechanisms which reduce the impact of changes in the economy on national income
• BALANCE OF PAYMENTS

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

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

  a part of the balance of payments; records debt forgiveness, inheritance taxes, transfers of financial assets and sales of assets
• CAPITAL EXPENDITURE

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

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

  a financial institution that has direct responsibility to control the money supply and monetary policies; to manage gold reserves and foreign currency and issue with government debt
• COMMON MARKET

  when members trade freely in all economic resources and impose a common external tariff
• COMPARATIVE ADVANTAGE

  when a country is able to produce a good at a lower opportunity cost; it is cheaper to produce that good
• CURRENT ACCOUNT

  a part of the balance of payments; records payments for the purchase and sale of goods and services, income and transfers
• CUSTOMS UNION

  the removal of all tariff barriers between members and the introduction of a common external tariff
• CURRENT EXPENDITURE

  general government final consumption + transfer payments + interest payments
• CYCLICAL DEFICIT

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

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

  when the currency is decreased against another under a fixed system
• DEVELOPED COUNTRY

  countries with high GDP per capita and a high standard of living
• DEVELOPING COUNTRY

  countries with a low GDP per capita and a low standard of living
• DISCRETIONARY FISCAL POLICY

  deliberate manipulation of government expenditure and taxes to influence the economy; expansionary and deflationary fiscal policy
• ECONOMIC DEVELOPMENT

  improvements in living standards
• EMERGING ECONOMIES

  a country that is growing quickly and has some characteristics of a developed country
• EXCHANGE RATE

  the purchasing power of currency in terms of what it can buy in other currencies
• FINANCIAL ACCOUNT

  a part of the balance of payments; records FDI, portfolio investments and the transfer of gold and currency reserves
• FINANCIAL MARKETS

  when buyers and sellers can buy and trade a range of services or assets that are fundamentally monetary in nature
• FISCAL DEFICIT

  when the government spends more than it receives each year
• FIXED EXCHANGE RATE

  the value of currency is set against the value of another and it does not change
• FOREIGN CURRENCY GAP

  when a country does not export enough to finance the purchase of goods from overseas
• FOREIGN DIRECT INVESTMENT (FDI)

  investment by one private sector company in one country into another private sector company in another
• FREE TRADE

  trade with no barriers or restrictions
• FREE TRADE AGREEMENTS

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

  value of the currency is determined purely by market demand and supply of the currency
• FREE FLOATING EXCHANGE RATE

  value of the currency is determined purely by market demand and supply of the currency
• GENERAL GOVERNMENT FINAL CONSUMPTION

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

  the growing interdependence of countries; the increasing integration of the world's economies into a single international market
• HARROD-DOMAR MODEL

  savings provide the funds that are used for investment and growth rates depend on the level of savings and the productivity of investment; as a result growth in developing countries is limited due to lack of investment