Econ glossary

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Appreciation

An increase in the value of one currency in terms of another currency in a floating exchange rate system.

Balance of payments

It is a record of the value of all the transactions between the residents of a country with the residents of all other countries over a given period of time.

Balance of trade in goods

A measure of the revenue received from the exports of tangible (physical) goods minus the expenditure on the imports of tangible goods over a given period of time.

Balance of trade in services

A measure of the revenue received from the exports of services minus the expenditure on the imports of services over a given period of time.

Capital account

A measure of the buying and selling of assets between countries. The assets are often separated to show assets that represent ownership and assets that represent lending.

Comparative advantage

This is where a country is able to produce a good at a lower opportunity cost of resources than another country.

Capital account transfers

A measure of net monetary movements gained or lost through actions such as the transfer of goods and financial assets by migrants entering or leaving the country, transfers relating to the sale of fixed assets, gift taxes, inheritance taxes, and death duties.

Central bank

The government’s bank. The institution that is responsible for an economy’s monetary policy.

Current account

A measure of the flow of funds from trade in goods and services, plus net investment income flows and net transfers of money.

Current account deficit

This is where revenue from the exports of goods and services and income flows is less than the expenditure on the import of goods and services and income flows in a given year.

Current account surplus

This is where the revenue from the export of goods and services and income flows is greater than the expenditure on the import of goods and services and income flows in a given year.

Current transfers

These are recorded in the balance of payments whenever an economy receives goods, services, income, or financial items without something in return.

Customs union

An agreement made between countries where they trade freely among themselves and adopt common external barriers against non-member countries.

Debt relief

The act of eliminating the debt owed by an economically least developed country in order to allow it to achieve development objectives.

Deflation

A persistent fall in the average level of prices in an economy.

Depreciation

A fall in the value of one currency in terms of another currency in a floating exchange rate system.

Devaluation

A decrease in the value of a currency in a fixed exchange rate system.

Disinflation

A fall in the rate of inflation.

Dumping

The selling of a good in another country at a price below its unit cost of production.

Economically least developed countries (ELDCs)

Countries classified by the UN as low-income countries confronting severe structural impediments to sustainable development.

Elasticity

A measure of the responsiveness of something to a change in one of its determinants.

Elasticity of demand for exports

A measure of the responsiveness of the quantity demanded of exports when there is a change in the price of exports.

Elasticity of demand for imports

A measure of the responsiveness of the quantity demanded of imports when there is a change in the price of imports.

Equity

The concept or idea of fairness.

Excess demand

This occurs where the price of a good is lower than the equilibrium price, such that quantity demanded is greater than quantity supplied.

Excess supply

This occurs where the price of a good is higher than the equilibrium price, such that quantity supplied is greater than quantity demanded.

Exchange rate

The value of one currency expressed in terms of another currency.

Expenditure reducing

Policies implemented by the government that attempt to reduce overall expenditure in the economy, including expenditure on imports.

Expenditure switching

Policies implemented by the government that attempt to switch expenditure away from imports towards domestically produced goods and services.

Exports

Goods and services produced in one country and purchased by consumers in another country.

Export promotion

Strategies based on openness and increased international trade by focusing on increasing exports and export revenue.

Export revenue

The value of exports earned by producers.

External balance

The value of exports of goods and services minus the value of imports of goods and services.

Externalities

External costs or benefits to a third party when a good or service is produced or consumed.

Factors of production

The resources used to produce goods and services: land, labour, capital and entrepreneurship.

Foreign aid

The international transfer of capital, goods or services from one country or organization to another for development or humanitarian purposes.

Foreign direct investment (FDI)

A long-term investment by a multinational corporation in a foreign country where the investor owns more than 10% of the company.

Free trade

International trade that takes place without any barriers such as tariffs, quotas or subsidies.

Free trade agreement

An agreement between countries to trade freely with each other while maintaining independent trade policies with non-members.

Government (national) debt

The total outstanding borrowing of a government, including internal and external debt.

Government spending

Spending by governments on goods and services.

Gross national income (GNI)

The total value of goods and services produced in an economy in one year plus net income from abroad.

Humanitarian aid

Aid given to alleviate short-term suffering, including food aid, medical aid and emergency relief.

Imports

Goods and services purchased by consumers in one country that are produced in another country.

Inflation

A sustained increase in the general price level and a fall in the value of money.

Inflation rate

The percentage change in a price index over a given time period.

Inflationary gap

A situation where aggregate demand exceeds the full employment level of output.

International trade

The exchange of goods and services between countries.

Interest Rate

The price of borrowed money.

J-curve

The theory that a depreciation may initially worsen a current account deficit before improving it in the long run.

Managed exchange rate

An exchange rate that floats but is occasionally intervened in by the central bank.

Market

A place where buyers and sellers interact to exchange goods and services.

Marshall-Lerner condition

A condition stating that a depreciation or devaluation will improve the current account if the sum of the elasticities of demand for exports and imports is greater than one.

National income

The total value of final goods and services produced in a country in one year.

Necessity goods

Goods for which demand increases less than proportionally as income rises.

Net exports (X-M)

Export revenues minus import expenditure.

Non-produced, non-financial assets

Net international sales and purchases of assets such as land, patents and copyrights.

Official borrowing

International borrowing by a government to finance a current account deficit.

Official foreign aid

Aid provided by governments or multilateral agencies.

Opportunity cost

The next best alternative foregone when making a decision.

Portfolio investment

The purchase of financial assets such as shares and bonds to earn a return.

Preferential trade agreement

An agreement where countries grant reduced trade barriers to selected trading partners.

Primary commodities

Raw materials produced in the primary sector.

Public goods

Goods that are non-rivalrous and non-excludable and would not be provided by the market.

Public/private partnerships

A contractual agreement between a government and a private firm to provide goods or services.

Price elasticity of demand (PED)

A measure of the responsiveness of quantity demanded to a change in price.

Price expectations

Consumers’ views about future price movements that influence current demand.

Primary sector

The sector of the economy that extracts raw materials from the earth.

Quota

A limit on the quantity or value of imports allowed into a country.

Real Interest rates

Interest rates adjusted for inflation.

Remittances

Transfers of money by foreign workers to individuals in their home country.

Reserve Assets

Foreign currencies and precious metals held by central banks.

Revaluation

An increase in the value of a currency in a fixed exchange rate system.

Rivalry

A characteristic of goods where consumption by one person reduces availability for others.

Scarcity

The limited availability of resources relative to unlimited wants.

Social surplus

The sum of consumer surplus and producer surplus.

Subsidy

Financial assistance given by the government to firms to encourage production.

Substitute

Goods that can be used in place of each other.

Tariff

A tax placed on imports to protect domestic industries and raise revenue.

Trade liberalisation

The process of reducing barriers to international trade.

Tradable permit

A permit issued by a governing body allowing firms to emit a certain amount of pollution, which can be traded between firms.

Trade protectionism

Policies that restrict imports or promote exports using trade barriers.

Unemployment rate

The percentage of the labour force that is unemployed and actively seeking work.

Welfare loss

A loss of economic efficiency due to allocative inefficiency.

World Bank

An international organisation that provides financial and technical assistance to developing countries.

World trade organization

An international body that sets the rules for global trade and resolves trade disputes.