Mind the Gap Economics CAPS Grade 12 - Vocabulary Flashcards

A set of vocabulary flashcards covering core terms and definitions from the Mind the Gap CAPS Grade 12 Economics study guide, organized to aid exam preparation.

Circular flow model

A macroeconomic model showing the continuous movement of income, production and spending among the main economic sectors (households, firms, government, and the foreign sector) with both real and money flows.

Open economy circular flow

A circular flow model that includes the foreign sector, showing how imports, exports and foreign exchange interact with the domestic economy.

Four-sector diagram

The circular flow diagram for an open economy including households, firms, government, and the foreign sector.

Injections

Adds money into the economy: investment (I), government spending (G), and exports (X).

Leakages

Money leaving the economy: savings (S), taxes (T), and imports (M).

Equilibrium (L = J)

The state when leakages equal injections, so national income remains stable: S + T + M = I + G + X.

National account aggregates

Key measures of economic activity: GDP, GDP(I), GDP(E), GDP(P)/GVA and related concepts used in the System of National Accounts.

GDP (Gross Domestic Product)

The total market value of all final goods and services produced within a country in a given period.

GDP(P) production method

GDP measured by adding the value added (VAP) across all sectors; also called Gross Value Added (GVA) at basic prices.

GDP(E) expenditure method

GDP measured by total expenditure: AE = C + I + G + (X − M); sum of spending by households, firms, government and the foreign sector.

GDP(I) income method

GDP measured by summing all income earned by the owners of the factors of production (wages, rents, interest, profits); also called GDI.

GVA (Gross Value Added) at basic prices

GDP measured at basic prices, obtained by adding value created in production and adjusting for taxes/subsidies on production.

GDP at market prices

GDP adjusted to reflect market prices, i.e., after adding taxes on products and subtracting subsidies on products.

Basic prices

Prices used in the production method that include taxes on production but exclude subsidies on production.

Market prices

Prices used in the expenditure method; GDP at market prices equals GDP at basic prices plus taxes on products minus subsidies on products.

Factor cost

Prices of factors of production used in the income method; used to measure GDP at factor cost.

Real GDP

GDP adjusted for inflation, reflecting true changes in volume of production.

Nominal (current price) GDP

GDP measured at current prices, not adjusted for inflation.

System of National Accounts (SNA)

International framework for compiling and presenting macroeconomic statistics.

GDE (Gross Domestic Expenditure)

Total expenditure on GDP measured by spending by four sectors (equivalent to AE in the expenditure approach).

GDI (Gross Domestic Income)

Total income earned by the owners of the factors of production; GDP by income method.

GNP / GNI

Gross National Product / Gross National Income; GDP adjusted for income earned from abroad.

Domestic vs National figures

Domestic figures refer to production within borders; national figures include income earned by residents abroad.

Open vs Closed economy

Open economy engages in international trade; closed economy has no foreign sector.

Real flow vs Money flow

Real flow concerns physical goods and factors; money flow concerns incomes and expenditures.

Leakages and injections (definitions)

Leakages: S + T + M; Injections: I + G + X; equilibrium occurs when L = J.

Multiplier

A factor by which an initial change in spending leads to a larger change in national income.

MPC (Marginal Propensity to Consume)

The fraction of an additional unit of income that is spent on consumption.

MPS (Marginal Propensity to Save)

The fraction of an additional unit of income that is saved.

Multiplier formula (two forms)

M = 1/(1 − MPC) = 1/(1 − MPS); the multiplier shows how much income changes per unit of autonomous spending.

BoP (Balance of Payments)

A record of all economic transactions between a country and the rest of the world in a period, including current, capital and financial accounts, and reserves.

Current account

BoP subaccount recording trade in goods/services, income, and current transfers.

Financial account

BoP subaccount recording investments (direct, portfolio, other) and reserve assets.

Terms of Trade

Index of export prices divided by index of import prices, multiplied by 100; measures relative prices of a country’s exports and imports.

Exchange rate

Price of one currency in terms of another; determines how much of one currency you need to buy another.

Appreciation

Increase in the value of a currency relative to another currency.

Depreciation

Decrease in the value of a currency relative to another currency.

Revaluation

Deliberate upward adjustment of a currency’s value under a fixed exchange rate system.

Devaluation

Deliberate downward adjustment of a currency’s value under a fixed exchange rate system.

Intervention in forex markets

Central bank actions to influence exchange rates, including direct (buy/sell currency) and indirect (interest rate adjustments).

Export promotion

Policies and incentives aimed at increasing a country’s exports.

Import substitution

Policy approach to produce domestically goods previously imported to reduce imports.

Protectionism

Policies (tariffs, quotas, subsidies) designed to protect domestic industries from foreign competition.

Free trade

Trade without restrictive barriers or protectionist policies between countries.

SEZ / IDZ

Special Economic Zone / Industrial Development Zone: designated areas offering incentives to attract investment and promote exports.

SDI / SIPs / IMS / IPAP

Regional development and industrial policy tools: Spatial Development Initiatives, Strategic Integrated Projects, Integrated Manufacturing Strategy, Industrial Policy Action Plans.

Laffer Curve

Graph showing relationship between tax rates and tax revenue; suggests there is an optimal tax rate for maximum revenue.

Fiscal policy

Use of taxation, government spending, and borrowing to influence the economy.

Monetary policy

Central bank actions to control money supply and interest rates to achieve price stability and growth.

Inflation measures (CPI, PPI, GDP deflator)

CPI tracks consumer prices; PPI tracks production prices; GDP deflator measures price level for all final goods and services.

Demand-pull inflation

Inflation caused by demand rising faster than supply.

Cost-push inflation

Inflation caused by rising production costs (wages, inputs, etc.).

Hyperinflation

Extremely high inflation, typically >50% per month or year.

Tourism (Inbound vs Outbound)

Inbound: foreign tourists visiting a country; Outbound: residents traveling abroad.

Externalities (positive vs negative)

Costs or benefits of a transaction not borne by the parties involved; affects third parties.

Public goods / Merit goods / Demerit goods

Public goods: non-excludable and non-rival; Merit goods: underprovided by market; Demerit goods: overprovided or harmful.