Econ theme 4 definitions

Absolute Advantage

When a country can produce something cheaper than anyone else.

Absolute Poverty

When people don't have enough money for basic needs (living on less than $1.90 per day!).

Aid

When one country helps another with money, resources, or loans with low interest.

Appreciation

When a currency gains value compared to others.

Asymmetric Information

When one side in a deal knows more than the other, leading to unfairness.

Automatic Stabilisers

Economic policies that help balance the economy without government action (e.g., taxes and benefits adjust automatically).

Balance of Payments

A record of all the money moving in and out of a country.

Buffer Stock Systems

A way to keep prices stable by setting a price ceiling and floor.

Capital Account

Tracks big financial transactions like debts and asset sales between countries.

Capital Expenditure

Government spending on things that last a long time, like roads, hospitals, and schools.

Capital Flight

When investors take their money out of a country due to economic instability.

Central Bank

The bank that controls a country's money supply, interest rates, and currency.

Common Market

A trade agreement where member countries allow free trade and a shared tariff on outsiders.

Comparative Advantage

When a country is better at making one thing than another, so they focus on that and trade.

Current Account

Tracks trade, income from abroad, and financial transfers.

Customs Union

A group of countries that remove trade barriers and have a common external tariff.

Depreciation

When a currency loses value compared to others.

Devaluation

When a country deliberately lowers the value of its currency.

Developed Country

A wealthy country with high living standards.

Developing Country

A poorer country with lower living standards.

Discretionary Fiscal Policy

When the government changes its spending or taxes to influence the economy.

Economic Development

Improvements in people's living standards and quality of life.

Emerging Economies

Fast-growing countries that are not yet fully developed.

Exchange Rate

The value of one currency compared to another.

Financial Account

Tracks foreign investments and currency reserves.

Financial Markets

Where people trade money-related assets like stocks and bonds.

Fiscal Deficit

When the government spends more than it earns in a year.

Fixed Exchange Rate

When a country's currency value is set and does not fluctuate freely.

Foreign Direct Investment (FDI)

When businesses invest in companies in another country.

Free Trade

Trade without restrictions like tariffs or quotas.

Free Trade Agreements

Deals between countries to lower or remove trade barriers.

Gini Coefficient

A number that shows how unequal income distribution is in a country.

Globalisation

The world becoming more connected through trade, technology, and finance.

Harrod-Domar Model

A theory that says economic growth depends on savings and investments.

Human Capital

The value of skills, experience, and education people bring to the economy.

Human Development Index (HDI)

Measures a country's development based on income, health, and education.

Infrastructure

Physical systems like roads, railways, and power grids that help the economy run.

International Competitiveness

How well a country's products compete in global markets.

J-Curve

When a country's trade balance gets worse before improving after a currency depreciation.

Laffer Curve

A theory that suggests raising taxes too much can reduce government revenue.

Lewis Model

A theory that says developing countries grow by shifting workers from farming to industry.

Lorenz Curve

A graph showing how income is distributed in a country.

Market Bubbles

When asset prices rise way above their actual value, leading to crashes.

Market Rigging

When companies or traders manipulate prices unfairly.

Microfinance Schemes

Small loans given to low-income people to help them start businesses.

Managed Floating Exchange Rate

When a currency's value is mostly determined by market forces, but the central bank steps in if needed.

Monetary Unions

When two or more countries share the same currency (e.g., the Eurozone).

Moral Hazard

When people take bigger risks because they don't face the full consequences (like banks taking risky bets knowing they might get bailed out).

National Debt

The total amount of money a government owes.

Primary Product Dependency

When a country relies too much on raw materials (like oil or crops) rather than finished products.

Progressive Taxation

Higher earners pay a bigger percentage of their income in taxes.

Proportional Taxation

Everyone pays the same percentage of their income in taxes.

Protectionism

When governments use tariffs, quotas, or bans to limit imports and protect local industries.

Quota

A limit on how much of a good can be imported.

Regressive Taxation

When lower-income earners pay a higher percentage of their income in taxes.

Relative Poverty

When someone earns significantly less than the average person in their country.

Revaluation

When a country raises the value of its currency in a fixed exchange rate system.

Speculation

Buying financial assets hoping to sell them later for a profit.

Structural Deficit

The government's deficit even when the economy is running well.

Tariffs

Taxes on imported goods to make them more expensive.

Terms of Trade

A measure of how much exports can buy in relation to imports.

Trade Liberalisation

Removing barriers to trade, like tariffs and quotas.

Trading Bloc

A group of countries that remove trade barriers among themselves.

Transfer Payments

Government payments like welfare or pensions that don't buy goods or services.

Transfer Pricing

When companies adjust prices between their own divisions to lower taxes.

Unit Labour Costs

The cost of paying workers to produce each unit of a good.