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Actual Growth
Economic growth as measured in changes of GDP
Aggregate demand
Total level of demand in an economy at any given price level at any given time.
Aggregate Supply
The total amount of output possible in an economy at any given price at any given time.
Animal Spirits
The level of confidence in business owners
Balance of payments
A recording of all financial dealings over a period of time between economic agents of one country and all other countries.
Index number
Numbers allowing accurate comparisons to be made over time. The base value is out of 100.
Base year
A year chosen as a good comparison in a series of data in the building of indexes.
Boom
The peak of the business cycle, when growth is high.
Budget
Where the government lays out their spending and taxation plans.
Budget deficit
When the government spends more money than it receives.
Budget surplus
When the government receives more money than it spends.
Circular flow
Model of economy, showing the flow of goods and services, the factors of production and money.
Injections
Investment
Government Expenditure
Export Revenues
Leakages
Imports
Taxation
Savings
Claimant Count
A measure of employment, covering the number of people currently claiming benefits.
Consumer Price index
Official measure used in the calculation of inflation rates, utilising a weighted basket measure.
Consumption
Consumer spending of goods and services
Cost-push inflation
Inflation caused by a decrease in Aggregate Supply.
Current Account
A record of the payments for the purchase and sale of goods and services.
Exports - Positive
Imports - Negative
Current Account Surplus
When more money enters the country than leaving, leading to a positive current account.
Current Account Deficit
When more money leaves the country than enters, leading to a negative current account.
Capital Account
National account that records transactions involving the purchase and sale of assets
Cyclical unemployment
Unemployment that arises during the downturn of the economic cycle, such as a recession.
Deflation
A persistent fall in prices of goods and services, two consecutive quarters.
Deflationary/Contractionary policy
Fiscal or Monetary policy aimed at the reduction of Aggregate Demand.
Demand-Pull Inflation
Inflation that is caused by an increase in aggregate demand.
Depreciation
Reduction in the value of machinery over time.
Direct tax
Taxes that are paid straight to the government by the individual tax payer.
Disinflation
A reduction in the rate of inflation.
Disposable income
Income remaining for a person to spend or save after all taxes have been paid.
Economic Growth
An increase in the long term productive potential of the economy, measured by gross domestic product.
Employed
Someone who does 1 hour of paid work a week or is temporarily away from work on government funded training schemes or does a minimum of 15 hours of unpaid work.
Expansionary policy
Fiscal and Monetary policy which is aimed at increasing aggregate demand.
Fiscal Policy
Government spending or taxation used to manipulate levels of aggregate demand.
Frictional Unemployment
Unemployment that occurs when people take time to find a job.
Foreign Direct Investment
Investment made by a foreign company in the economy of another country.
Gross Domestic product
The value of goods and services produced by a country over a period of time
GDP per capita
Total GDP/Population
Gross National Income
The value of goods and services produced by a country over a period of time plus interest and taxes paid.
Gross National Product
The value of goods and services produced by citizens of a country inside or outside of the county.
Government Spending
Spending by the government on the provision of goods and services.
Imports
Goods and Services bought from foreigners takes income out of the country.
Income
A flow of assets
Indirect tax
Tax charged that which the cost of it can be passed on to someone else.
Financial Markets
Bring together lenders and borrowers, allowing for the exchange of goods and services such as;
Current Accounts
Savings Accounts
Credit Cards
Debit Cards
What does a financial market do?
Facilitates savings
Provides a market for currencies and commodities
Provide a market for equities
Primary Stock Market
A market where newly issued shares are sold by companies.
Secondary Stock Market
A market where investors trade company stock between themselves.
Fowards Market
Binding contracts between two parties to trade a range of instruments at negotiated terms, where payments are pre-provided prior to the agreement being made.
Why is a forwards market good?
Provides certainty for both parties, that one will be provided a good post paying ant the other having the income for their sale before handing off the good.
Financial Institutions
Entities that provide financial services, such as taking deposits, managing investments, brokering financial transactions, or giving loans.
Transnational corporations (TNCs)
Companies that operate globally and often have global supply chains. E.g. Nike
Purpose of financial institutions
Retail - Future cashflows converted into a marketable product.
Building society - Lending for house purchases.
Commodities - Primary product, grown or manufactured good.
Investment banks - Trade in foreign exchange and commodities.
Money Market
Provision of short term government bonds on the basis to be repaid within 6 months → Less than a year.
Capital Market
Provision of long term government bonds for exchange, on the basis to be repaid within a duration longer than a year.
Demand For Currency
Investment
Profits
High interest rates then to returns on saving
High demand for exports (SPICED WPIDEC)
Speculative trading (other terms Day trading)
why do people trade speculatively?
In hopes to buy low and sell high, in other terms to make a profit on investment.
In instance of Market bubble, possibly to pump a currency, equity or commodity to overvalue for big dump sale.
Role of the Bank of England
Controls monetary policy, quantitative easing and the base interest rate/
Aim to keep inflation at 2%
Committee is made up of 9 people
Maintain financial stability
Manage Banking services
Holds all the UK Gold reserves
Quantitative Easing
Where the central bank buys financial assets in exchange for money in order to increase borrowing and lending in the economy.
Promoting the availability of finance.
Prudential Regulation authority
One of the two main regulators of financial services in the UK.
The UK regulator responsible for making sure that financial institutions/banks are authorised to operate in the UK and are financially sound.
Providing supervision for financial institutions, ensuring that there are liquid assets in reserve.
Financial Policy Committee (FPC)
An official Bank of England run committee, that seeks to identify, monitor and action to reduce systemic risk.
They work on maintaining financial stability.
They perform stress tests to help ensure bank resilience.
Financial Conduct Authority (FCA)
One of the two main regulators of financial services in the UK
The organisation that regulates financial firms providing services to consumers.
Protects consumers increases confidence in financial institutions.
Must act with integrity fairness.
Microfinance
Provision of small value loans, to individuals or sole traders for the sole purpose of providing money for investments to help develop an economy.
Microeconomic and Macroeconomic abbreviations
POPSICLE
DIGESTIF
POPSICLE
Price, Output, Profit, Structure of market, Inefficiency, Competition, Labour market, Externalities
DIGESTIF
Development, Inflation, Government, Employment, Structure of economy, Taxation, Inequalities, Fiscal policy
Exchange rates
The price/value of one currency expressed in the terms of another currency
Classification of currency
Choices of exchange rate regime is important for Monetary policy for a country. (Required decision)
Free Floating Currency
Where the external value of a currency depends wholly on market forces of supply and demand.
Managed Floating Currency
When the central bank may choose to intervene in the foreign exchange markets to affect the value of currency in aims to meet specific Macroeconomic objectives.
Fixed Exchange Rate System
Currency system in which a government will peg the value of their currency to another as part of a broad or membership.
E.g. Barbados dollar is fixed to USD
Floating Exchange Rate
Currency value set by market forces.
No government/Central Bank intervention.
No target exchange rate.
SPICED
Strong Pound Imports Cheaper Exports Dearer
WPIDEC
Weak Pound Imports Dearer Exports Cheaper
Savings gap
The difference between the level of savings needed to finance investment for growth and the actual level of savings.
Harrod Domar model
Increased savings → Increased investments → Higher capital stock → Higher economic growth → Increased incomes → Increased savings.
Privatisation
The sale of public sector organisations to the private sector.
Firms goals may differ (profit max>consumer welfare)
Nationalisation
The sale of private sector businesses to the government.
The sale may be voluntary, forced, coerced or the assets simply expropriated.
Government goals may differ (consumer welfare>profit max)
Increased Government expenditure.
Terms of Trade
the relationship between a country’s export prices and its import prices.
Increase in average export price/increase in average import price
Effects of increasing export prices
+Export revenue per unit increases
-Decreased demand for exports
-Lower export volume
+/- could be debated whether or not current account is benefitted or hurt.
+/- could be debated whether or not aggregate demand will rise or fall.
Effects of increasing import prices
+Reduced Importing (expenditure)
+Current account benefitted
+Consumption within Economy rises (AD)
-Consumer choices are reduced
Market-Orientated Development Strategies
Strategies based upon Market activity to promote Economic Development.
They are:
Trade Liberalisation
Promotion of Foreign Direct Investment
Subsidy removal
Free Floating Exchange Rates
Microfinance provision
Privatisation
Deregulation
Intervention Development Strategies
Strategies based upon government intervention in markets to promote Economic Development.
They are:
Development of Human Capital
Trade Protection
Managed Exchange Rates
Infrastructure Development
Joint Ventures with MultiNational Companies
Buffer Stock Schemes
Industrialisation, Primary Sector and Tourism
Fair Trade Schemes
Aid and Debt Relief
Trade Liberalisation
The move towards greater free trade through the removal of protectionist barriers to trade.
Containerisation
Techonology
Communication
Promotion of Foreign Direct Investment
strategies and policies implemented by governments or entities to attract investment from foreign companies into their economies.
Tax Breaks
Deregulation
Subsidy removal
The halting of government spending in markets to allow for market forces to work amongst themselves.
Allowing the economy to essentially learn how to walk without a crutch.
Free Floating Exchange Rates
allowing currency values to be determined by market forces of supply and demand.
Promotes stability in the economy.
Deregulation
The loosening of government intervention overall within markets, to allow for market forces to work amongst themselves.
Crowding in
Government spending encourages private investment into certain regions and industries.
Marginal Propensity to Consume (MPC)
The proportion of an increase in income that a person or household is likely to spend on consumption. Greater the MPC = Greater multiplier effect.
Human Capital
Knowledge and Skills required for a job.
Incumbent firm
A firm that has been in an industry for a long period of time, before new entrants join.
Dumping
When a country deliberately sells goods in another country at a much lower price .
