Terms in this set (79)
A standard of living that fails to provide basic needs, often measured by the number falling below a threshold level of income such as a $1 a day.
Automatic fiscal stabilisers
Government spending and tax revenues that change with the level of economic activity, dampening the economic cycle.
The flow of capital out of a country following a sharp fall in the confidence investors have in the future prospects of that country. This precipitates a sharp depreciation of the currency.
The purchase of assets by overseas residents: short-term flows such bond purchases and long-term flows such as foreign direct investment in physical capital.
The ease of switching capital from one use to another.
The ability of one country to produce a good at a lower opportunity cost than another country.
Rent-seeking behaviour by public decision makers that leads to a misallocation of resources.
Crowding-out effect (financial)
The reduction in private sector, interest-sensitive expenditure as a result of an increase in interest rates due to an increase in the demand for money to fund a fiscal deficit.
Crowding-out effect (resource)
The reduction in private sector economic activity as a result of the government demanding scarce factors of production and thereby pushing up factor prices.
An agreement between a group of countries to set a common external trade policy and to allow free trade within the membership countries.
Cyclical fiscal deficit
The component of the fiscal deficit that varies automatically with the level of economic activity. During an economic upturn, the fiscal position improves.
An agreement by the lender(s) to write off all or part of an outstanding debt.
An agreement by the lender(s) to defer or reduce interest payments on international loans. This is normally coupled by a debt rescheduling agreement which often lengthens the repayment period or reduces the interest rate.
The removal of legal restrictions on the activities of businesses. The objective is normally to increase competition or reduce business costs.
Taxes levied on the incomes of individuals and firms.
Policy made by judgemental methods rather than following rigid rules.
The European Central Bank that sets interest rates for the Euro zone based on a CPI inflation target of below 2%.
Effective exchange rate
An index number of the value of a country's currency relative to a weighted basket of other currencies.
The Economic and Monetary Union contains the member countries of the EU that adopted the Euro.
Exchange rate policy
The decision by government over how it wants the value of its currency to be determined: by the free market (floating exchange rate) or managed by intervening in the currency markets and restricting the flow of capital (fixed or pegged exchange rate).
External (exogenous) shocks
Events that through aggregate demand or aggregate supply have a major effect on an economy: e.g. significant increase in the oil price or sudden contraction in availability of credit (credit crunch).
The purchase of imported goods at prices above the world price in order to give the producers a 'fair' price.
Foreign Direct Investment is the purchase of foreign firms or the establishment of foreign subsidiaries.
A measurement of inequality in the distribution of income. The closer the coefficient is to one, the more unequal the income distribution in the country.
The process by which most economies have become more interdependent. This has been accompanied by rapid growth in global trade and capital movements.
Good governance is normally associated with the fair exercise of the rule of law, allowing for the enforceability of contracts, transparency, so institutions can be judged, and legitimate decision makers, normally elected through a democratic process.
A theory of economic growth that focuses on the savings rate and the capital output ratio.
Fairness defined as treating people in the same situation the same way.
Short term, speculative flows of money between countries seeking the best return.
Refers to the stock of knowledge and skills acquired by people through investment in their productive capacity.
The soft arm of the IBRD, the International Development Agency lends money at concessionary rates to the poorest countries.
The International Monetary Fund is an international lender of last resort, assisting countries that have acute balance of payments difficulties. Their loans come with conditions in order to achieve macroeconomic stability and structural adjustment.
Taxes levied on spending and output.
Refers to the disparity of household wealth and incomes within a society.
A new industry that is emerging in a country that will take time to become internationally competitive.
A form of monetary policy where monetary instruments (primarily interest rates) are manipulated by the central bank to keep inflation within a narrow range.
The degree to which domestic producers can compete on international markets for customers; often measured using relative unit labour costs.
Inward-looking trade strategy
A development strategy focussing on substituting imported goods and services with domestically produced goods, behind protective trade barriers.
The name given to a graph of the trade balance over time following a depreciation of the currency.
Lewis two-sector model
A theory that focuses on the wage differential between the traditional agricultural sector and the modern manufacturing sector, driving the migration of surplus workers into the latter leading to the transformation of the economy.
Long-run Phillips curve
The relationship between unemployment and inflation in the long run - i.e. when markets are in equilibrium. Advocates of the vertical LRPC maintain that attempts by the government to reduce unemployment below its natural rate will simply lead to accelerating inflation through increasing inflationary expectations.
A graphical representation of inequality. The closer the curve is to the line of perfect equality, the more equal the society's distribution of income.
A depreciation of the currency will only lead to an improvement in the trade balance if the sum of import and export price elasticities exceeds one.
Refers to the provision of financial services to low income households and small businesses in developing countries.
Natural rate of unemployment
The rate of unemployment that exists when labour markets are in equilibrium and hence the economy is producing at potential output. Attempts by government to reduce unemployment below the NRU will end in accelerating inflation.
Non-Governmental Organisations are associated neither with governments nor with firms and yet play a major role in developing countries through the provision of aid and by influencing the development policy agenda.
Protectionist measures including quotas, technical regulations on imported goods and domestic subsidies.
Outward-looking trade strategies
A development strategy focusing on increasing exports. It is often associated with a laissez-faire approach to imports.
The hypothesis that the terms of trade for primary product dependent developing countries tends to deteriorate over time reducing their gains from trade.
Primary product dependence
A nation that relies on the export of one or two primary products for the majority of its FOREX earnings, leaving it vulnerable to fluctuating world prices.
A tax that takes a larger percentage of household income the larger their income.
Any departure from free trade designed to give some protection to domestic industries from international competition.
A trade barrier that places a limit on the quantity of a good that can be imported.
Real interest rate
The interest rate adjusted for inflation, revealing the opportunity cost of deferring consumption.
A tax that takes a smaller percentage of household income the larger their income.
Relative inflation rates
A key determinant of competitiveness between two countries over the long term.
Relative interest rates
Changes in interest rates of one country relative to another may lead to flows of hot money and therefore movement in the exchange rate.
A standard of living that falls significantly below the average experienced in the society concerned.
The minimum wage rate an economic agent is willing to accept employment. It is based on the opportunity cost of employment.
Rostow's model suggests an economy passes through five stages of economic development: traditional society, transitional stage, take-off, drive to maturity and high mass consumption. The model suggests certain conditions need to met before the economy can move to the next stage.
The difference between the level of savings and the desired level of investment in a country.
An industry that is facing persistent declining demand.
Short-run Phillips curve
The relationship between unemployment and inflation in the short run - i.e. some markets may be in disequilibrium.
Structural Adjustment Policies
A set of policies associated with the World Bank and IMF that aim to stabilise and structurally adjust a nation in order to improve economic development.
Structural fiscal deficit
The component of a fiscal deficit which would occur even if the economy was operating at full employment. It is unrelated to the level of national income.
Taxes levied on imports to increase their price domestically.
Terms of trade
The ratio of the average price of a country's exports to the average price of its imports.
Policies designed to protect domestic industries from international competition such as tariffs, quotas, subsidies and technical restrictions.
The increased amount of trade due to the reduction in trade barriers between countries. Often seen as an advantage of reducing trade barriers.
The diversion of trade away from countries where trade barriers are faced to countries where trade barriers are lower.
An agreement between a group of countries to allow free trade within the membership countries but to allow individual members to independently set their external trade policy beyond the trading bloc.
Unit labour costs
The cost of the labour needed to produce one more unit of output. Commonly used as an indicator of a nation's productivity and a critical factor in the choice of location for FDI.
Fairness defined as those with a greater ability to pay should pay more.
The International Bank of Reconstruction and Development (IBRD) lends money to developing nations at commercial rates in order to provide funds for development projects considered too risky by commercial banks. IBRD loans are often conditional on the recipient country adopting certain policies.
The World Trade Organisation oversees and regulates the international trading environment of its 153 members. Its
primary objective is to reduce trade barriers.
Free Trade Areas
Trade barriers are removed between member countries but individual members can still impose tariffs and quotas on countries outside the area.
Free trade between member states and a common external tariff on goods imported from outside the bloc.
Not only goods and services allowed to move freely but also factors of production (labour)
Customs unions that adopt a single currency