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A2 Macro Key Term Glossary

A2 Macro Key Term Glossary

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Published by: WHGS LRC on Apr 29, 2010
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AAA credit rating The best credit rating that can be given to a corporation's bonds,effectively indicating that the risk of default is negligibleAccelerator effectWhere planned capital investment is linked positively to the past andexpected growth of consumer demandAccommodatory policy A neutral macroeconomic policy stance in the face of an economicshock. For fiscal policy, generally means keeping tax and governmentexpenditure rates unchanged. For monetary policy, generallymeanskeeping (real) interest rates unchanged.Aggregate supply shock Either an inflation shock or a shock to potential national output;adverse aggregate supply shocks of both types reduce output andincrease inflationAnimal spiritsThe state of confidence or pessimism held by consumers and businessesAutomatic stabilisers Automatic fiscal changes arising automatically as the economy movesthrough different stages of the business cycle - for example a fall taxthat the government takes out of the circular flow in a recessionBank run When a substantial number of depositors suspect that a bank may gobankrupt and withdraw their deposits. Bank runs are rare but onehappened with the Northern Rock in the autumn of 2007Beggar my Neighbour This is an economic policy that seeks to promote a country's economy atthe expense of another country. An obvious example is the use of tariffbarriers. A country may place tariff on imports to help promote localdomestic industry. This may help local unemployment, but, be at theexpense of the other country's export sectorBehavioural economics Branch of economic research that adds elements of psychology totraditional models in an attempt to better understand decision-makingby investors, consumers and other economic participantsBond Both companies and governments can issue bonds when they need toborrow money. The issue of new government debt is done by thecentral bank and involves selling debt to capital marketsBrain drain The movement of highly skilled or professional people from their owncountry to another country where they can earn more moneyBRIC economies The BRIC grouping ² Brazil, Russia, India and China ² has become shorthand for the rise of emerging markets in the global economy. The BRICsalready have a bigger share of world trade than the USA.Bubble When the prices of securities or other assets rise so sharply and at sucha sustained rate that they exceed valuations justified by fundamentals,making a sudden collapse likely (at which point the bubble "bursts").Budget deficitOccurs when government spending is greater than tax revenues. The UKbudget deficit in 2009-10 is forecast to be more than 12% of GDPBusiness confidenceExpectationsabout the future of the economy ² vital in businessdecisions about how much to spend on new capital goodsCapacity The amount that can be produced by a plant, company, or economy(industrial capacity) over a certain period, if current resources(including capital, workers, etc.) are used to their fullest extentCapacity utilisation Measures how much of the productive potential of the economy is beingused. Utilisation falls during a recessionCapital flight The rapid movement of large sums of money out of a country. Therecould be several possible reasons - lack of confidence in a country's
economy and/or its currency and political turmoilCapital flows Movements of capital between countries. Outward capital flows aremovements of domestically-owned capital abroad; inward capital flowsare movement of foreign-owned capital to the domestic economyCapital stock The value of the total stock of capital inputs in the economy ² affectedby the rate of net investment spendingCapital-laboursubstitutionReplacing workers with machines in a bid to increase productivity andreduce unit costs. This can lead to structural unemploymentCarry trade A strategy in which an investor borrows money at a low interest rate inorder to invest in an asset that is likely to provide a higher return.Car scrappage scheme This is a scheme co-funded with the car industry that had the objectiveof increasing the demand for cars in the UK.Catch-up effect This occurs when countries that start off poor tend to grow more rapidlythan countries that start off rich. The result is some convergence in thestandard of living as measured by per capita GDPClaimant Count The number of people claiming unemployment-related benefits. SinceOctober 1996 this has been defined as the number of people claimingJobseeker's AllowanceClassical LRAS The classical LRAS curve is drawn as vertical because classicaleconomists argue that a country·s productive capacity is determined byfactors other than price and demand such as investment and innovationClassical unemployment Classical unemployment is the result of real wages being above theirmarket clearing level leading to an excess supply of labourClean float A currency exchange rate that varies (or floats) according to marketforces, free from government interventionComparative advantageComparative advantage refers to the relative advantage that onecountry or producer has over another. Countries can benefit fromspecializing in and exporting the product(s) for which it has the lowestopportunity cost of supplyCompetitive devaluation When a country tries to devalue its currency to increase itsinternational competitiveness. However, this often encourages othercountries to also devalue leading to only temporary increases in thecompetitiveness of exports.Consumer confidenceExpectations about the future including interest rates, incomes andjobs  Counter-cyclical Not following the normal pattern of business activity, for exampleincreasing when other activities are decreasingCountervailing tariffs Tariffs (duties) that are imposed by a country to counteract subsidiesprovided to a foreign producerCredit crunchWhen creditors become reluctant to lend money to businesses orindividuals because of the increased risk of default due to adverseeconomic or political conditionsCreeping inflation Small rises in the general level of prices over a long period of inflation.Creeping protectionism A period of time where import tariff rates rise and where countriesintroduce quotas and barriers to the mobility of labour and capitalCurrency union A group of countries (or regions) using a common currency ² for examplethe 16 countries that have entered the single European currencyCurrent account deficit The amount by which money relating to trade, investment etc going outof a country is more than the amount coming in
Cyclically adjusted Adjusting the value of an economic variable e.g. the budget deficit forthe effects of the business cycleDebt burden The amount of debt that a business or country has normally expressedas a share of GDPDebt deflation High levels of debt leading to falling asset pricesDebt forgiveness The cancelling by a creditor of a debt to a country or a companyDe-industrialization A decline in the share of national income from manufacturing industriesDeflation A persistent fall in the general price level of goods and servicesDepression Used to describe a severe recession which may become a prolongeddownturn in the economy and where GDP falls by at least 10 per centDiscouraged workers People often out of work for a long time who give up on job searchDiscretionary fiscalpolicyDeliberate attempts to affect aggregate demand using changes ingovernment spending, direct and indirect taxation and borrowing.Discretionary income Disposable income adjusted for spending on essential bills such as fuelDisequilibriumunemploymentDisequilibrium unemployment comes about when the aggregate demandfor labour is less than the aggregate supply of labour at the current realwage rate and market forces are failing to correct the problemDouble dip recession When an economy goes into recession twice without having undergone afull recovery in betweenDumping When a producer in one country exports a product to another country ata price which is either below the price it charges in its home market oris below its costs of productionEconomic nationalism The idea that a country's economy will perform best if its industries areprotected from competition, for example by taxes on imported goodsEconomic shocksUnpredictable events such as volatile prices for oil, gas and foodstuffs.Economic stability When the main indicators such as growth, prices and unemployment donot change much from one year to another.Emerging markets The financial markets of developing countriesExpansionary monetarypolicyA policy by monetary authorities to expand money supply and boosteconomic activity, mainly by keeping interest rates low to encourageborrowing by companies, individuals and banksExpectationsHow we expect the future to unfold ² this can have powerful effects onthe spending decisions of households, businesses and the governmentFine-tuning Changes in monetary policy or fiscal policy designed to graduallymanage the level of aggregate demand and pricesFiscal drag The tendency of income from taxation to rise when an economy isgrowing. This helps to slow consumer spending and corporate activity,and thus acts as a counterbalance to unrestrained growthFiscal stimulus Government measures, normally involving increased public spendingand lower taxation, aimed at giving a positive jolt to economic activityFixed exchange rate An exchange rate that is fixed against other major currencies throughaction by governments or central banks, usually within small margins offluctuation around the central rate. Likely to involve periodicintervention in the foreign exchange market by one or more centralbanks to buy or sell the currency in question if it moves below or aboveits margins.

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