Econ

Term	Definition	Example Sentence
Absolute poverty	People living below the minimum income necessary to satisfy basic physical needs (food, clothing, and shelter); as of October 2015, the World Bank international poverty line is set at US$1.90 PPP per day.	Many countries targeted by the Sustainable Development Goals still face absolute poverty where people live on less than $1.90 per day.
Appropriate technology	Technology that relies mostly on the relatively abundant factor an economy is endowed with.	Solar-powered irrigation systems are examples of appropriate technology used to boost rural development.
Bilateral trade agreement	An agreement between two countries to phase-out or eliminate trade-related barriers.	Vietnam has signed bilateral trade agreements to encourage trade and economic growth.
Circular flow of income	A simplified illustration that shows the flows of income and expenditures in an economy.	The circular flow of income helps students understand how households, firms and government interact.
Customs union	An agreement between countries to phase out or eliminate tariffs and other trade barriers and establish a common external barrier toward non-members.	The East African Community is an example of a customs union aiming to increase regional trade.
Development aid	Aid aimed at assisting developing countries in their development efforts. Includes project aid, program aid and debt relief. It is concessional meaning there are low interest rates and long repayment periods.	Development aid to Nepal has supported access to education and clean water.
Economically least developed countries (ELDCs)	According to the UN these are low-income countries facing severe structural constraints to sustainable development, with low levels of human assets, highly vulnerable to economic and environmental shocks.	São Tomé and Príncipe is an ELDC that faces barriers like poor infrastructure and health challenges.
Economic development	A multidimensional concept involving a sustained increase in living standards that implies higher levels of income and thus greater access to goods and services, better education and health, a better environment to live in as well as individual empowerment.	Bangladesh shows economic development through both higher incomes and improved healthcare.
Economic growth	Refers to increases in real GDP over time.	Vietnam has achieved rapid economic growth through manufacturing and export promotion.
Economic integration	Economic interdependence between countries usually involving agreements between two or more countries to phase-out or eliminate trade and other barriers between them.	ASEAN is an example of economic integration that supports development across Southeast Asia.
Economics	Economics is the study of how to make the best possible use of scarce or limited resources to satisfy unlimited human needs and wants.	In this unit, we study how economics helps countries make choices about growth, trade and sustainability.
Exports	Goods and services produced in one country and purchased by consumers in another country.	Mexico relies on exports like cars and electronics to support economic growth.
Export promotion	Growth policies aiming at expansion of export revenues as the vehicle of economic growth; often contrasted to import substitution.	Export promotion helped Vietnam grow its textile industry.
Factors of production	Resources used in the production of goods and services; include land (natural resources), labour, capital and entrepreneurship.	Sustainable growth requires efficient use of the factors of production.
Firms	Productive units that transform inputs (factors of production) into output (goods and services), usually aiming at earning profits.	Firms hire labour and produce goods, contributing to economic output.
Foreign aid	Refers to flows of grants or loans from developed to developing countries that are non-commercial from the point of view of the donor and for which the terms are concessional (that is, the interest rate is lower than the market rate and the repayment period longer).	Foreign aid often supports post-disaster recovery and long-term development.
Free trade	International trade that is not subject any kind of trade barriers, such as tariffs or quota.	Free trade encourages countries to specialise and exchange goods.
Free trade area/agreement	An agreement between two or more countries to phase-out or eliminate trade barriers between them; members of the agreement are free to maintain their own trade policy towards non-members.	The North American Free Trade Agreement (NAFTA) is a free trade area.
Government spending (G)	Refers to all spending by the government that is distinguished into current expenditures, capital expenditures and transfer payments.	Increased government spending on schools boosts long-term development.
Gross domestic product (GDP)	The value of all final goods and services produced within an economy over a period of time, usually a year or a quarter.	GDP is a key indicator used to measure economic activity.
Growth in production possibilities	When the production possibilities of a country increase because of more/better resources and/or better technology becoming available; illustrated by a shift outwards of the PPC.	Investment in education leads to growth in production possibilities.
Household indebtedness	The money that households owe.	High household indebtedness may limit consumer spending in the economy.
Households	Groups of individuals in the economy who share the same living accommodation, who pool their income and jointly decide the set of goods and services to consume.	In the circular flow model, households provide labour and receive income.
Human capital	The education, training, skills, experience and good health embodied in the labour force of a country.	Improving human capital is essential for development.
Human Development Index (HDI)	A composite index of development that reflects the three basic goals of development: a long and healthy life, improved education, and a decent standard of living.	HDI is used to compare development levels between countries.
Humanitarian aid	Aid given to alleviate short-term suffering, consisting of food aid, medical aid, and emergency relief aid usually as a result of a natural catastrophe or war.	Humanitarian aid was delivered to Nepal after the earthquake.
Imports	The value of goods and services purchased domestically that are produced abroad.	Australia imports oil, electronics and many manufactured goods.
Import substitution	A growth strategy where domestic production is substituted for imports in an attempt to shift production away from the primary sector and industrialize. This strategy requires that the domestic industry is protected from import competition.	Some countries use import substitution to build up domestic industry.
Income	A flow of earnings from using factors of production to produce goods and services. Wages and salaries are the factor reward to labour and interest is the flow of income for the ownership of capital.	Rising income allows families to improve their standard of living.
Informal economy	Refers to the part of an economy where activity is not officially recorded, regulated or taxed. The activities of the informal economy are not included in a country’s national income figures.	Many workers in developing countries are employed in the informal economy.
Infrastructure	Physical capital typically financed by governments that is essential for economic activity to take place, including roads, power, telecommunications and sanitation, generating significant positive externalities.	Infrastructure investment supports long-term development.
International Monetary Fund (IMF)	An international financial institution of 189 countries whose objectives include to improve global monetary cooperation and secure financial stability by monitoring the economic and financial policies of its members and providing them with advice and with loans, if they face balance of payments difficulties.	The IMF provided loans to help stabilize the economy during a crisis.
International trade	Trade that involves the exports and imports of goods or services between countries.	International trade creates interdependence between economies.
Investment (I)	Spending by firms on capital goods such as machines, tools, equipment and factories.	Investment increases a country’s productive capacity.
Labour	One of the four factors of production that refers to the physical and mental contribution of workers to the production process.	Educated labour is more productive and can drive economic development.
Land	One of the four factors of production that refers to the natural resources with which an economy is endowed; also referred to as “gifts of nature”.	Access to fertile land is essential for agricultural economies.
Leakages	Income not spent on domestic goods and services. It includes savings, taxes and import expenditure.	High levels of imports can act as leakages from the economy.
Long-term growth	Growth over long periods of time. In the PPC model this is shown by outward shifts of the PPC.	Long-term growth requires sustained investment in people and infrastructure.
Multilateral development assistance	Assistance provided by multilateral organizations such as the World Bank when they lend to developing countries for the purpose of helping them in their development objectives.	The World Bank offers multilateral development assistance to reduce poverty.
Multilateral trade agreement	An agreement between many countries to lower tariffs or other protectionist measures, currently carried out within the framework of the WTO.	The WTO promotes multilateral trade agreements to encourage free trade.
Net exports (X – M)	Export revenues minus import expenditure.	A country with more exports than imports has positive net exports.
Nominal gross domestic product	The total money value of all final goods and services produced in an economy in a given time period, usually one year, at current values (not adjusted for inflation).	Nominal GDP may increase even if real output hasn’t grown, due to inflation.
Non-governmental organization (NGO)	Organizations that are not part of the government that promote economic development and/or humanitarian ideals and/or sustainable development.	NGOs play a key role in delivering aid and supporting communities.
Official Development Assistance (ODA)	Aid that is provided to a country by another government or multilateral agency. It is the most important part of foreign aid.	ODA is tracked globally as a key tool for development financing.
Per capita	Per person. Per capita values are found by dividing the variable by the size of the population.	GDP per capita is often used to compare living standards between countries.
Potential output	Output produced by an economy when it is at full employment equilibrium, or long-run equilibrium according to the monetarist/new classical model.	Potential output represents the productive limit of an economy.
Poverty	Arises when the lack of material possessions or money prevent an individual or a family from achieving a minimum satisfactory standard of living.	Poverty remains a significant barrier to development in low-income countries.
Poverty line	A level of income determined by a government or international body (such as the World Bank) that is just enough to ensure a family can satisfy minimum needs in terms of food, clothing and housing.	Governments use the poverty line to identify who needs welfare support.
Poverty trap/cycle	Any circular chain of events starting and ending in poverty—for example, low income leads to low savings, leads to low investment, leads to low growth, leads to low income.	The poverty cycle can trap families for generations without access to education.
Preferential trade agreement	Where a country agrees to give preferential access (for example, reduced tariffs) for certain products to one or more trading partners.	Some developing countries receive preferential access to developed country markets.
Primary commodities	Raw materials that are produced in the primary sector. Examples include agricultural products, metals and minerals.	Many developing economies rely on exporting primary commodities.
Primary sector	Anything derived from the factor of production land. Includes agricultural products, metals and minerals.	Overdependence on the primary sector can limit diversification.
Production possibilities curve (PPC)	A curve showing the maximum combinations of goods or services that can be produced by an economy in a given time period, if all the resources in the economy are being used fully and efficiently and the state of technology is fixed.	An outward shift of the PPC represents economic growth.
Productive capacity	The greatest capability of an economy to produce, usually measured by maximum possible output of an economy.	Increasing productive capacity helps countries achieve growth.
Real GDP	The total value of all final goods and services produced in an economy in a given time period, usually one year, adjusted for inflation.	Real GDP is a more accurate measure of growth than nominal GDP.
Real GDP per person (per capita)	Real GDP divided by the population of the country.	Real GDP per capita is used to compare living standards.
Real GNI per person (per capita)	Real GNI divided by the population of the country.	Remittances can raise a country’s real GNI per capita.
Regional trade agreement	An agreement between a group of countries usually within a geographical region to lower or eliminate trade barriers.	ASEAN is a regional trade agreement that promotes cooperation in Asia.
Relative poverty	A comparative measure of poverty according to which income levels do not allow people to reach a standard of living that is typical of the society in which they live. It is defined as a percentage of society’s median income.	Relative poverty exists even in high-income countries like Australia.
Sustainable debt	Refers to a level of government debt such that the borrowing government can make its payments of interest and debt repayment while at the same time being able to meet the economy’s growth objectives.	Maintaining sustainable debt ensures governments can fund essential services.
Sustainable development	Refers to the degree to which the current generation is able to meet its needs today but still conserve resources for the sake of future generations.	Sustainable development balances economic growth and environmental care.
Sustainable Development Goals (SDGs)	The UN set out 17 global goals including those that aim to end all forms of poverty, fight inequalities and tackle climate change.	The SDGs guide development policy across the world.
Tariff	A tax that is placed on imports to protect domestic industries from foreign competition and to raise revenue for the government.	Tariffs increase the price of imported goods.
Trade liberalisation	The process of reducing barriers to international trade.	Trade liberalisation helps countries access global markets.
World Bank	An international organization that provides loans and advice to economically less developed countries for the purpose of promoting economic development and reducing poverty.	The World Bank funds infrastructure and poverty-reduction projects.
World Trade Organization (WTO)	An international body that sets the rules for global trading and resolves disputes between its member countries. It also hosts negotiations concerning the reduction of trade barriers between its member nations.	The WTO promotes free and fair trade globally.