Macroeconomics Key Terms

  • Created by: Richard98
  • Created on: 20-03-17 14:21
Absolute poverty
The situation of a household whose income is insufficient to purchase the minimum bundle of goods and services needed for survival
1 of 100
A theory by whih the level of investment depends upon the change in real output
2 of 100
Aggregate demand curve (AD)
A curve showing the relationship between the level of aggregate demand in an economy and the overall price level; it shows planned expenditure at any given overall price level
3 of 100
Automatic stabilisers
A process by which government expenditure and revenue vary with the economic cycle, thereby helping to stabilise the economy without any conscious intervention from government
4 of 100
Bank for International Settlements (BIS)
An institution that acts as a bank for central banks and sets standards for regulation of banks that are accepted globally
5 of 100
Bank rate
The rate of interest charged by the Bank of England on short-term loans to other banks
6 of 100
Broad money (M4)
M0 plus sterling wholesale and retail deposits with monetary financial institutions such as banks and building societies
7 of 100
Capital adequacy ratio
The ratio of a bank's capital to its current liabilities and risk-weighted assets
8 of 100
Central bank
The banker to the government, performing a range of functions, which may include issues of coins and banknotes, acting as banker to commercial banks and regulating the financial system
9 of 100
Common Market
A set of trading arrangements in which a group of countries remove barriers to trade among them, adopt a common set of barriers against external trade, establish common tax rates and laws regulating economic activity, allow free movement of factors
10 of 100
Credit multiplier
A process by which an increase in money supply can have a multiplied effect on the amount of credit in an economy
11 of 100
Crowding in
A process by which a decrease in government expenditure 'crowds in' private sector activity by lowering the cost of borrowing
12 of 100
Crowding out
A process by which an increase in government expenditure 'crowds out' private sector activity by raising the cost of borrowing
13 of 100
Customs union
A group of countries that agree to remove restrictions on trade between the member countries, and set a common set of restrictions (including tariffs) against non-member states
14 of 100
A process by which real per capita incomes are increased and the inhabitants of a country are able to benefit from improved living conditions i.e. lower poverty and enhanced standards of education, health, nutrition and other essentials of life
15 of 100
Direct tax
A tax levied directly on income
16 of 100
Economic and monetary union
A set of trading arrangements the same as for common market, but in addition having a common currency (or permanently fixed exchange rates between the member countries) and a common monetary policy
17 of 100
Economic cycle
A phenomenon whereby GDP fluctuates around its underlying trend, following a regular pattern
18 of 100
Emerging economies
Economies that have experienced rapid economic growth with some industrialisation and characteristic of developed markets
19 of 100
Exchange rate
The price of one currency in terms of another
20 of 100
Financial Conduct Authority (FCA)
A body separate from the Bank of England responsible for conduct regulation of financial servics firms
21 of 100
Financial intermediaries
Institutions such as banks and building societies that channel funds from lenders to borrowers
22 of 100
Financial Policy Committee (FPC)
The decision-making body of the Bank of England responsible for macroprudential regulation
23 of 100
Financial stability
It is present when there is an efficient flow of funds in the economy and confidence in financial institutions
24 of 100
Fiscal policy
Decisions made by the government on its expenditure, taxation and borrowing
25 of 100
Foreign direct investment (FDI)
Investment undertaken in one country by companies based in other countries
26 of 100
Foreign exchange gap
A situation in which and LDC is unable to import the goods that it needs for development because of a shortage of foreign exchange
27 of 100
Free trade area
A group of countries that agree to remove tariffs, quotas and other restrictions on trade between the member countries, but have no agreement on a common barrier against non-members
28 of 100
General Agreement on Tariffs and Trade (GATT)
Precursor of the WTO, GATT organised a series of 'rouds' of tariff reductions
29 of 100
Gini Index
A measure of the degree of inequality in a society
30 of 100
A process y which the world's economies are becoming more closely integrated
31 of 100
GNI per capita
GDP plus net income from abroad, expressed as an average per person
32 of 100
Golden Rule of fiscal policy
A rule stating that, over the economic cycle, net government borrowing will be investment only, and not for current spending
33 of 100
Harrod-Domar model
A model of economic growth that emphasises the importance of saving and investment importance of savings and investment
34 of 100
HIPC Initiative
An initiative launched in 1995 to provide debt relief for heavily indebted poor countries
35 of 100
Human development index
A composite indicator of the level of a country's development, varying between 0 and 1
36 of 100
Indirect tax
A tax on expenditure e.g. VAT
37 of 100
Inflation targeting
An approach to monetary policy in which the central bank is given independence to set interest rates in order to meet an inflation target
38 of 100
Interbank lending
Borrowing and lending between banks to manage their liquidity and other requirements for short-term funds
39 of 100
International Monetary Fund (IMF)
A multilateral institution that acts as a bank for central banks and sets standards for regulation of banks that are accepted globally
40 of 100
Keynesian School
A group of economists who believed that the macroeconomy could settle in an equilibrium that was below the full employment level
41 of 100
Lender of last resort
The role of the central bank in guarenteeing sufficient liquidity is available in the monetary system
42 of 100
The average rate of interest on interbank lending in the London interbank market
43 of 100
The extent to which an asset can be converted in the short term and without the holder incurring a cost
44 of 100
Liquidity preference
A theory that suggests that people will desire to hold money as an asset
45 of 100
Liquidity ratio
The ratio of liquid assets to total assets
46 of 100
Liquidity trap
A situation in an economy when interest rates can fall no further, and monetary policy cannot influence aggregate demand
47 of 100
Long-run Aggregate supply curve (LRAS)
A curve that shows the amount of real output that will be supplied in the economy in the long run at any given overall price level
48 of 100
Long-run economic growth
An increase in the productive capacity of the economy
49 of 100
Lorenz curve
A graphical way of depicting the distribution of income within a country
50 of 100
Macroprudential regulation
Financial regulation intened to mitigate the risk of the financial system as a whole
51 of 100
Marginal propensity to withdraw
The sum of the marginal propensities to save, tax and import; it is the proportion of additional income that is withdrawn from the circular flow
52 of 100
Marginal tax rate
Tax on additional income, defined as the change in tax payments divided by the change in taxable income
53 of 100
Market for loanable funds
The notion that households will be influenced by the rate of interest in making saving decisions, which will then determine the quantity of loanable funds available for firms to borrow for investment
54 of 100
Schemes that provide finance for small-scale projects in LDCs
55 of 100
Microprudential regulation
Financial regulation intended to set standards and supervise financial institutions at the level of the individual firm
56 of 100
Millennium development goals (MDGs)
Targets set for each less developed country, reflecting a range of development objectives to be monitored each year to evaluate progress
57 of 100
Monetary policy
Decisions made by the government regarding monetary variables such as money supply and interest rates
58 of 100
Monetary Policy Committees (MPC)
The body within the Bank of England responsible for the conduct of monetary policy
59 of 100
Monetary stability
A situation in which there is stability in prices relative to the government's inflation target
60 of 100
Monetary transmission mechanism
The channel by which monetary policy affects aggregate demand
61 of 100
Monetary union
A situation in which countries adopt a common currency
62 of 100
Money stock
The quantity of money that is in circulation in the economy
63 of 100
Multinational corporation (MNC)
A company whose production activites are carried out in more than one country
64 of 100
The ratio of a change in equilibrium real income to the autonomous change that brought it about; it is calculated as 1 divided by the marginal propensity to withdarw
65 of 100
Narrow Money (M0)
Notes and coins in circulation and as commercial banks' deposits at the Bank of England
66 of 100
Natural rate of unemployment
The equilibrium full employment level of unemployment
67 of 100
New Classical (monetarist) school
A group of economists who believed that the macroeconomy always adjusts rapidly to the full employment level of output; they also argued that monetary policy should be prime instrument for stabilising the economy
68 of 100
Non-accelerating inflation rate of unempolyment (NAIRU)
The rate of unemploymen in an economy that is consistent with a constant rate of inflation; equivalent to the natural rate of unemployment
69 of 100
Non-tariff barrier
An obstacle to free trade other than a tariff (e.g. quality standards imposed on imported products)
70 of 100
Offical development assistance (ODA)
Aid provided to LDCs by countries in the OECD
71 of 100
Open market operations
Intervention by the central bank to influence short-run interest rates by buying or selling securities
72 of 100
Output gap
The difference between actual GDP and its trend value
73 of 100
Phillips curve
An empirical relationship suggesting that there is a trade-off between unemployment and inflation
74 of 100
Primary production
Production using natural resources, including the extraction of raw materials and the growing of crops
75 of 100
Progressive tax
A tax in which the marginal rate rises with income
76 of 100
Prudential Regulation Authority (PRA)
The decision-making body in the Bank of England responsible formicroprudential regulation of deposit-takers, insurers and major investment firms
77 of 100
Quantitative easing
A process by which liquidity in the economy is increased when the central bank purchases assets from the commercial banks
78 of 100
A situation in which an economy's real GDP falls in two consecutive quarters
79 of 100
Regressive tax
A tax bearing more heavily on the relative poorer members of society
80 of 100
Relative poverty
A situation in which household income falls below 50% of median adjusted household income
81 of 100
A sale and repurchase agreement, whereby one financial institution sells a financial asset to another with an agreement to buy it back at an agreed future date
82 of 100
Retail banks
Banks that provide high-street services to depositors
83 of 100
Secondary production
The production of manufactured goods
84 of 100
A process whereby future cash flows are converted into marketable securities
85 of 100
Short-run aggregate supply curve (SAS)
A curve showing how much output firms are prepared to supply in the short run at any given overall price level
86 of 100
Short-run economic growth
An increase in GDP as the economy moves towards capacity output
87 of 100
Stages of economic growth
A process described by economic historian Walt Rostow, which set out five stages through which he claimed that all developing countries would pass
88 of 100
A situation describing an economy in which both unemployment and inflation are high at the same time
89 of 100
A tax imposed on imported goods
90 of 100
Terms of trade
The ratio of export prices to import prices
91 of 100
Tertiary production
The production of the service sector; may include the quaternary sector, which includes production based on information technology and information products
92 of 100
Trade creation
The replacement of more expensive domestic production or imports with cheaper output from a partner within the trading bloc
93 of 100
Trade diversion
The replacement of cheaper imported goods by goods from a less efficient trading partner within a bloc
94 of 100
Universal banks
Banks that operate in both retail and wholesale markets
95 of 100
Velocity of circulation (V)
The rate at which money changes hands; the volume of transactions divided by money stock
96 of 100
Voluntary export restraint (VER)
An agreement by a country to limit its exports to another country to a given quantity (quota)
97 of 100
Wholesale banks
Banks that deal with companies and other banks on a large scale
98 of 100
World Bank
A multilateral organisation that provides financing for long-term development projects
99 of 100
World Trade Organisation (WTO)
Multilateral body responsible for overseeing the conduct of international trade
100 of 100

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Card 2




A theory by whih the level of investment depends upon the change in real output

Card 3


Aggregate demand curve (AD)


Preview of the front of card 3

Card 4


Automatic stabilisers


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Card 5


Bank for International Settlements (BIS)


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