Unit 4 Economics Definitions
- Created by: Lola
- Created on: 26-02-13 22:05
Globalisation
The growing integration and interdependence of the world economy, i.e. the increased international movement of output, financial capital, FDI (multinational production) and the harmonisation of consumer tastes.
1 of 100
Comparative Advantage
The producer with the lowest opportunity cost of production (or highest output per factor of production) for a particular product.
2 of 100
Absolute Advantage
The producer with the ability to make the largest amount of a particular product using its factors of production.
3 of 100
Multinational Companies
Large company with production based in several different countries.
4 of 100
Foreign Direct Investment
Spending by firms on productive capacity in other countries.
5 of 100
Protectionism
The raising of trade barriers against imports.
6 of 100
Infant Industry Argument
Rationale for protecting domestic firms from foreign competition until they have grown large enough to achieve the economies of scale to match rival foreign firms.
7 of 100
Common External Tariff
A tax on products imported into a customs union. A method of protection used by a customs union to keep down imports from non-members; the tariff is designed to raise the import price to the same level in each member country.
8 of 100
(Import) Quota
A limit on the number of imported goods allowed into a country over a period of time. A barrier to trade which leads to deadweight losses and higher consumer prices; their effect is more certain than tariffs which depend on elesticities.
9 of 100
Non Tariff Barriers
Methods to prevent the sale of imports apart from tariffs or quotas: e.g. product quality controls designed to favour domestic firms, preferential buying from domestic firms by public sector.
10 of 100
Dumping
Practice of selling exports in foreign markets at below cost (or below selling price in domestic market).
11 of 100
World Trade Organisation (WTO)
Organisation to promote free trade and coordinate (police) reduction in barriers to trade.
12 of 100
Free Trade Area (FTA)
A group of countries which coordinate a reduction of trade barriers between themselves but do not erect a common external tariff - often progresses to customs union because each country has different tariff against non-members.
13 of 100
Customs Union
A group of countries with reduced trade barriers (tariffs & quotas) between members but a common external tariff against imports from outside.
14 of 100
Common Market
The stage of economic integration between states when barriers to capital (e.g. exchange controls) and labour mobility (e.g. visas) are removed.
15 of 100
Economic and Monetary Union (EMU)
When a group of countries in a common market abolish national currencies to share a single currency and therefore operate a single monetary policy for the whole union.
16 of 100
Convergence Criteria
Macroeconomic conditions that must be met before a country is allowed to join an Economic & Monetary Union, i.e. low inflation, low government budget deficit, low national debt exchange rate stability against other EMU currencies
17 of 100
Stability and Growth Pact
Limit placed on government budget deficit for countries belonging to the European Single Currency
18 of 100
Trading Bloc
A group of countries who form a free trade area, customs union or common market as a way to reduce trade barriers between them and raise barriers to non-members.
19 of 100
Trade Creation
The welfare gains from joining a customs union. These derive from having reduced trade barriers with customs union members, e.g. lower tariffs will enable countries to specialise more in what they have a C/A gaining the deadweight loss of tariffs.
20 of 100
Trade Diversion
The welfare losses to a country from joining a customs union. These derive from having to adopt a common external tariff which may raise the price of imports from low cost producers outside the customs union.
21 of 100
EU Enlargement
Process whereby its established 15 members of the European Union is widening its membership to new European (accession) countries
22 of 100
Competitiveness
The ability of domestic firms to sell their output in the global market (domestic & foreign)
23 of 100
Unit Labour Costs
Labour costs per unit of output. Key indicator of a country's competitiveness: if output growth can outpace growth in the total wage bill then unit labour costs fall making the goods more competitive.
24 of 100
New Deal
New Labour's policy to combat long term unemployment: after a period of assisted job search, an unemployed person is guaranteed some form of paid work (voluntary work or subsidised employment) or training.
25 of 100
Social Chapter
Section of the Maastricht Treaty which commits European Union countries to guarantee certain legal rights of workers in the labour market.
26 of 100
Working Time Directive
Regulation setting a maximum number of hours per week an employer can insist his employees work.
27 of 100
Exchange Rate System
The rules which determine how a country's exchange rate is set.
28 of 100
Floating Exchange Rate System
Exchange rate is freely determined by market forces (without interventions in the currency market)
29 of 100
Fixed Exchange Rate System
Exchange rate is maintained at a target level by government interventions in the currency market.
30 of 100
Devaluation
Fall in the value of exchange rate, usually announced by government when part of a fixed exchange rate system.
31 of 100
Marshall Lerner Condition
The sum of elasticity of demand for exports and imports must exceed one. This guarantees that a devaluation of currency will imporve the trade balance of payments of the current account.
32 of 100
J curve effect
The short term fall in Balance of Payments current account following a devaluation of the exchange rate before long run elastic demand for imports and exports lead to rise.
33 of 100
Hot Money
Money in search of the highest short term rate of return available internationally
34 of 100
Dutch Disease
Where the strength of one sector of an economy drives up the exchange rate to a point where its other sectors lose competitiveness
35 of 100
Real Exchange Rate
The price of a country's goods relative to those produced abroad when expressed in a common currency.
36 of 100
Effective Exchange Rate
The exchange rate of a country's currency measured against a weighted average of the currencies of its major trading partners.
37 of 100
Balance of Payments Disequilibrium
Where Balance of Payments current account has a large persistent and rising deficit (or surplus) over time.
38 of 100
Development
Broad notion of progress in social and economic conditions within a society covering improved material standards of living, self esteem and expanded opportunities for all individuals.
39 of 100
Less Economically Developed Countries (LEDCs)
Term referring to those countries with relatively low per capita income.
40 of 100
Newly Industrialised Countries (NICs)
Countries which have industrialised since 1950
41 of 100
Infrastructure
The capital making up society's transport and communications networks, its supply of basic amenities and key public services.
42 of 100
Subsistence
Where farming families produce food for their own consumption.
43 of 100
Cash Crop
Agricultural crop which is produced for the export market
44 of 100
Brain Drain
The emigration of highly skilled workers (domestically trained) who are able to earn far higher salaries abroad
45 of 100
Debt Crisis
Constraint on economic growth facing LEDCs due to growing proportion of their national income needed to service the debt to richer economies.
46 of 100
Capital Flight
The withdrawal of funds from a country due to poor economic conditions, hastened by a speculative fear of currency devaluation.
47 of 100
Rural - Urban Migration
Relocation of people from villages to cities
48 of 100
Corruption
Where government officials allow law-breaking in exchange for illegal payments.
49 of 100
Demographic Transition
Model where population grows according to four phases as a country develops economically. 1.High birth&death rates, 2. Death rates fall, 3.Birth rates fall, 4.Low birth & death rates (steady population)
50 of 100
Industrialisation
Early stage of economic development where proportion of national output from manufacturing grows rapidly as agriculture's share declines.
51 of 100
Deindustrialisation
Later stage of economic development where proportion of national output from manufacturing declines steadily as the share from the service sector rises.
52 of 100
Harrod - Domar Growth Model
Model asserting national economic growth depends on increases in its savings rate and decreases in its capital - output ratio.
53 of 100
Prebisch - Singer Hypothesis
Hypothesis that countries which specialise in primary products will suffer falling terms of trade over time.
54 of 100
Terms of Trade
Ratio of an index of a country's export prices to an index of its import prices.
55 of 100
Trickle Effect
Belief that when the rich get richer, the poor will experience some improvement in their incomes as an indirect result.
56 of 100
Import Substitution
Strategy used by LEDC governments to replace imports of manufactured goods with domestic production.
57 of 100
International Monetary Fund
Institution designed to stabilise the world's financial system, stepping in when exchange rates move dramatically and where countries experience severe Balance of Payments problems.
58 of 100
Stabilisation Programme
Conditions attached to loans from the IMF designed to strengthen macroeconomic performance.
59 of 100
World Bank
International financial institution which provides funds for development projects.
60 of 100
Structural Adjustment Programme
Conditions attached to loans from the World Bank designed to strengthen microeconomic performance by encouraging market friendly institutions.
61 of 100
Non Government Organisations (NGOs)
Private sector organisations (like charities) involved in providing financial and technical assistance to LEDCs
62 of 100
Intermidiate Technology
Technology appropriate to the needs of a LEDC
63 of 100
Aid
Transfer of resources to LEDCs on concessional terms which aim to promote economic development.
64 of 100
Tied Aid
Aid provided by a rich economy on condition that the recipient uses the funds to buy products from thed donor country.
65 of 100
Soft Loan
Loan which is provided to a LEDC at concessionary rates with interest rates at least 25% lower than market rates for example.
66 of 100
Dept for Equity Swap
Mechanism where indebted LEDCs exchange foreign debt for shares in domestic firms.
67 of 100
Micro Finance
Small loans provided to poorest households in LEDCs not traditionally available from large indigenous banks
68 of 100
Fair Trade
A worldwide movement to alleviate poverty in poor countries based on sale of their certified exports at a fair (higher) price.
69 of 100
Horizontal Equity
The equal treatment of people in the same circumstances, e.g. government charging same income tax to all people earning the same income.
70 of 100
Vertical Equity
The notion which can be used to justify taxing richer people more to bring about greater fairness.
71 of 100
Lorenz Curve
Graphical representation of inequality: cumulative shares of (e.g.) income, are plotted against cumulative shares of the population.
72 of 100
Gini Coefficient
A statistical measure of inequality; on Lorenz curve diagram, Gini coefficient = area between line of equality and Lorenz curve/whole area uner line of equality.
73 of 100
Absolute poverty
A state where a household or person is unable to purchase the basic necessities to sustain a civilised life.
74 of 100
Relative poverty
A state where a household or person is significantly poorer than the average for the rest of the society.
75 of 100
Poverty trap
The disincentive to work when someone on benefits faces a very high effective marginal rate of tax if they work harder.
76 of 100
Replacement Ratio
The ratio of unemployment benefits to average earnings.
77 of 100
Means Tested Benefits
Benefits which are only paid to households who can prove they are poor.
78 of 100
Direct Tax
Tax levied on an individual or company on their income or wealth.
79 of 100
Indirect Tax
Tax levied on expenditure.
80 of 100
Progressive Tax
A tax which takes a higher proportion of income as income rises.
81 of 100
Regressive Tax
A tax which takes a lower proportion of income as income rises.
82 of 100
Marginal Tax Rate (MRT)
The proportion of an additional pound of income which goes in tax.
83 of 100
Automatic Stabiliser
A feature of the government's public finance which helps keep aggregate demand stable in face of booms and busts (the business cycle) without a deliberate attempt by government to adjust AD.
84 of 100
Discretionary Fiscal Policy
Alterations to fiscal policy (government spending and taxation) deliberately made by government to modify AD in pursuit of its macroeconomic policy aims.
85 of 100
Demographic Timebomb
The negative effects of the ageing population in the industrialised world
86 of 100
Public Sector Net Cash Requirement
Government spending minus revenue (per year). Also known as budger deficit.
87 of 100
Deflationary Policy
Government policies to reduce aggregate demand; increase interest rates, cut government spending and raise taxes
88 of 100
Fiscal Drag
The effect of inflation (or even real earnings growth) which increases the tax burden in a progressive income tax system without government raising tax rates because people move into higher tax brackets.
89 of 100
Fiscal Boost
The effect of inflation to reduce the real burden of unit taxes over time unless government indexes unit taxes or moves them in line with inflation.
90 of 100
Income Effect (and Supply of Labour)
The increased demand for leisure (fall in supply of labour) by an individual worker as wage rates rise because workers regard leisure as a normal good to be enjoyerd more as they earn more.
91 of 100
Substitution Effect (and Supply of Labour)
The fall in demand for leisure (increased supply of labour) by an individual worker as wage rates rise because leisure becomes more expensive in terms of opportunity cost (wage foregone)
92 of 100
Laffer Curve
The relationship between average rate of income tax and tax revenue: at low tax rates, raising tax rates will increase revenue but at a point revenue falls as workers lose the incentive to work.
93 of 100
National Debt
Outstanding debt of a national government at a point in time.
94 of 100
Golden Rule
UK Government must only borrow for investment projects: all current spending (non durable items, like wages) must be paid for from current year tax receipts.
95 of 100
Sustainable Investment Rule
UK Government must ensure national (i.e. public sector) debt never exceeds 40% of national income.
96 of 100
Phillips Curve
Inverse relationship between rate of wage inflation and unemployment in the macro economy.
97 of 100
Monetarism
The belief that monetary policy is the only way for government to effectively run the macro economy.
98 of 100
Keynesianism
The belief that the macro economy can reach an equilibrium even with much unemployment and that then expansionary fiscal policy is a more effective solution than monetary policy.
99 of 100
Deflation
Situation of persistent negative inflation.
100 of 100
Other cards in this set
Card 2
Front
The producer with the lowest opportunity cost of production (or highest output per factor of production) for a particular product.
Back
Comparative Advantage
Card 3
Front
The producer with the ability to make the largest amount of a particular product using its factors of production.
Back
Card 4
Front
Large company with production based in several different countries.
Back
Card 5
Front
Spending by firms on productive capacity in other countries.
Back
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