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AS MACRO KEY TERM GLOSSARY

AAA credit rating Accelerator effect Aggregate supply shock Animal spirits Appreciation Automatic stabilisers The best credit rating that can be given to a corporation's bonds, effectively indicating that the risk of default is negligible Where planned capital investment is linked positively to the past and expected growth of consumer demand Either an inflation shock or a shock to potential national output; adverse aggregate supply shocks of both types reduce output and increase inflation The state of confidence or pessimism held by consumers and businesses. A rise in the market value of one exchange rate against another Automatic fiscal changes arising automatically as the economy moves through different stages of the business cycle - for example a fall tax that the government takes out of the circular flow in a recession. When a substantial number of depositors suspect that a bank may go bankrupt and withdraw their deposits. Bank runs are rare but one happened with the Northern Rock in the autumn of 2007. Both companies and governments can issue bonds when they need to borrow money. The issue of new government debt is done by the central bank and involves selling debt to capital markets. The movement of highly skilled or professional people from their own country to another country where they can earn more money The BRIC grouping ± Brazil, Russia, India and China ± has become short hand for the rise of emerging markets in the global economy. The BRICs already have a bigger share of world trade than the USA. When the prices of securities or other assets rise so sharply and at such a sustained rate that they exceed valuations justified by fundamentals, making a sudden collapse likely (at which point the bubble "bursts"). Occurs when government spending is greater than tax revenues. The UK budget deficit in 2009-10 is forecast to be more than 12% of GDP Expectations about the future of the economy ± vital in business decisions about how much to spend on new capital goods Measures how much of the productive potential of the economy is being used. Utilisation falls during a recession. The rapid movement of large sums of money out of a country. There could be several possible reasons - lack of confidence in a country's economy and/or its currency and political turmoil The value of the total stock of capital inputs in the economy Replacing workers with machines in a bid to increase productivity. This can lead to structural unemployment. This is a scheme co-funded with the car industry that had the objective of increasing the demand for cars in the UK. This occurs when countries that start off poor tend to grow more rapidly than countries that start off rich. The result is some convergence in the standard of living as measured by per capita GDP. The number of people claiming unemployment-related benefits. Since October 1996 this has been defined as the number of people claiming Jobseeker's Allowance The classical LRAS curve is drawn as vertical because classical economists argue that a country¶s productive capacity is determined by factors other than price and demand such as investment and innovation. Comparative advantage refers to the relative advantage that one country or producer has over another. Countries can benefit from specializing in and exporting the product(s) for which it has the lowest opportunity cost of supply Constant prices tells us that the data has been inflation adjusted Expectations about the future including interest rates, incomes and jobs Products such as washing machines that are not used up immediately when consumed and which provide a flow of services over time

Bank run Bond Brain drain BRIC economies

Bubble

Budget deficit Business confidence Capacity utilisation Capital flight Capital stock Capital-labour substitution Car scrappage scheme Catch-up effect Claimant Count Classical LRAS

Comparative advantage

Constant prices Consumer confidence Consumer durables

The financial markets of developing countries A policy by monetary authorities to expand money supply and boost economic activity. gas and foodstuffs. individuals and banks How we expect the future to unfold ± this can have powerful effects on the spending decisions of households. A persistent fall in the general price level of goods and services A decline in the share of national income from manufacturing industries A fall in the market value of one exchange rate against another Used to describe a severe recession which may become a prolonged downturn in the economy and where GDP falls by at least 10 per cent. resulting in an increase in the cost of obtaining credit. This restricts the flow of money around the economy and can result in less credit being available for consumers and businesses.Corporation Tax Credit crunch A tax on the profits made by companies Situation where banks across the economy reduce lending to each other due to falling confidence that loans will be repaid. Small rises in the general level of prices over a long period of inflation. Japan. Reducing barriers to entry in order to make a market more competitive. Germany. Italy. A group of seven major industrialized countries: Canada. the UK and the USA The monetary value of the output of goods and services produced inside a country ± regardless of ownership Creeping inflation Creeping protectionism Current account of the Balance of Payments Deflation De-industrialization Depreciation Depression Deregulation Discouraged workers Discretionary fiscal policy Discretionary income Double dip recession Dumping Ecological debt Economic cycle Economic shocks Economic stability Emerging markets Expansionary monetary policy Expectations Fine-tuning Fiscal stimulus Forecast Free trade Full capacity output Full employment G20 G7 GDP . investment income and transfers. prices and unemployment do not change much from one year to another. Disposable income adjusted for spending on essential bills such as fuel When an economy goes into recession twice without having undergone a full recovery in between When a producer in one country exports a product to another country at a price which is either below the price it charges in its home market or is below its costs of production Ecological debt is the concept that people¶s demands have exceeded the Earth¶s ability to cope with the rising consumption of its resources. normally involving increased public spending and lower taxation. trade in services. businesses and the government Changes in monetary policy or fiscal policy designed to gradually manage the level of aggregate demand and prices Government measures. the G20 is a forum for cooperation on key issues. People often out of work for a long time who give up on job search Deliberate attempts to affect aggregate demand using changes in government spending. Variations in the annual rate of growth of an economy over time Unpredictable events such as volatile prices for oil. France. aimed at giving a positive jolt to economic activity A prediction made about the likely future performance of an economy When trade between nations is allowed to occur without any form of import restriction A level of national output where all available factor inputs are fully employed ± this is a factor influencing the underlying growth rate When there enough job vacancies for all the unemployed to take work A group of finance ministers and central bank governors from 20 economies. mainly by keeping interest rates low to encourage borrowing by companies. A period of time where import tariff rates rise and where countries introduce quotas and barriers to the mobility of labour and capital The overall balance of credits minus debits for trade in goods. When the main indicators such as growth. direct and indirect taxation and borrowing.

The International Monetary Fund (IMF) is an organisation of 186 countries. In the short term. savings and pension fund assets Barriers to the movement of people between areas and between jobs Responsiveness of demand to a change in the real income of consumers The Government sets the Bank of England a CPI inflation target. It has provided help for several nations in the wake of the 2007-09 financial crises. international trade. sewage systems. When inflation rises or falls more than 1% above or below the target. The effect of currency depreciation on the trade deficit depends on price elasticity of demand for exports and imports. Gross National Income ± income generated from the resources owned by inhabitants and businesses of a given country A rule introduced by the Labour government which says that borrowing on state provided goods and services should be zero over the course of one economic cycle. Unemployment caused by a lack of aggregate demand in the economy Cut backs in employment often seen in a slowdown or a recession When businesses find it difficult to recruit the workers they need The number of people able. available and willing to work at prevailing wage rates Indicators which tend to follow economic cycles e. The transport links. the Governor of the Bank of England must write an open letter to the Chancellor of the Exchequer to explain why. demand is often inelastic and the J Curve effect says a trade deficit can actually worsen after depreciation.g. finished goods and goods for re-sale Spending on capital goods including plant & machinery and infrastructure Interest. shares. Occurrences likely to lead to price rises.g. work-in progress. profits and dividends from assets owned and located overseas. but get better in the medium term. property or shares) or simply be placed in an account offering the best real rate of interest. The value of assets owned by households ± including property. communications networks. The belief that the state can directly stimulate demand in a stagnating economy. consumer confidence The use of borrowed funds to increase your capacity to spend or invest Libor stands for the London Interbank Offered Rate and is used by banks world-wide to determine Hard landing Hot Money Household wealth Immobility of labour Income elasticity of demand Inflation target Inflationary pressures Infrastructure Innovation Interest elasticity of demand International Monetary Fund (IMF) Inventories Investment Investment income J Curve Effect Job search Keynesian economics Keynesian unemployment Labour shedding Labour shortages Labour supply Lagging indicators Leading indicators Leveraging LIBOR . The deepening of relationships between countries of the world reflected in an increasing level of overseas trade and investment. schools and hospitals. unemployment Indicators which predict future economic trends e. receive less than an equal share of income. Borrowing is allowed when it finances capital investment. employment and sustainable economic growth. from the bottom of the income distribution upwards.g. A full-scale recession shown by a decline in real national output Money that flows freely and quickly around the world economy looking to earn the best available rate of return. financial stability. This is relevant in discussing the effects of changes in monetary policy. The process by which workers find appropriate jobs given their tastes and skills The economics of John Maynard Keynes. energy plants and other facilities essential for the efficient functioning of a country and its economy Changes to products or production processes ± innovation is important in delivering improvements in dynamic efficiency The responsiveness of demand to a change in interest rates.Gini Coefficient Globalisation GNI Golden Rule The Gini coefficient is a measure of the overall extent to which groups of households. which is currently 2 per cent. For instance. It might be invested in any asset whose value is expected to rise (e. by borrowing money to spend on public works projects like roads. promoting global monetary cooperation. These can come from both the demand and the supply-side. These consist of materials and supplies which are stored for use in production.

Term is most commonly used in connection with property prices and describes a situation where the market value of a house is less than the existing mortgage debt. prices. The basic concept is that if people save more in a recession. This is the monetary value of all goods and services produced in the economy expressed at current prices. Libor rates are set daily and released at the same time everyday . global trade and living standards.a free trade area agreement signed by the US. The MPC is a Bank of England committee of nine people which meets every month to set interest rates. Saving because of fears of a loss of real income or employment Net investment Net inward migration Net Trade Nominal GDP Non-inflationary growth Output gap Overseas assets Paradox of thrift Peak Per capita incomes Phillips Curve Policy asymmetry Precautionary saving . The proportion of any change in income that is spent rather than saved The change in total saving as a result of a change in income The rate of tax on the next unit (£) of income earned A measure of welfare calculated by adding together the unemployment rate and the rate of inflation.g. Gross investment minus an estimate for capital depreciation When the number of migrants coming into a country is greater than those leaving in a given time period The balance between the value of exports and imports. E.g. in fact.whether that¶s receiving or giving loans (including 24 hour . shares. a rise in exports) into the economy then the final increase in AD and Real GDP will be greater. property which are owned in overseas countries and which might generate a flow of investment income which is a credit item on the current account of the balance of payments. When an insured party decides to take higher risks because they perceive their losses will be covered ± often linked to the excessive risk-taking by banks knowing that central banks might rescue them If there is an initial injection (e. it will reduce consumption and thus aggregate demand will fall. coins. lowering the general level of savings The high point of the economic cycle beyond which a recession starts Income per head of the population ± a measure of average living standards A statistical relationship between unemployment and inflation When a given change in interest rates affects different groups or different countries to a lesser or greater degree. in 2009 the UK ran a trade deficit in goods and services of £40bn. jobs. loans. such as a company or property. and other liquid instruments in the economy.5 year loans). North American Free Trade Agreement .the rate at which they lend to each other . credit. Sustained growth of real national output whilst maintaining price stability The difference between actual and potential national output. under state control Negative equity occurs when the value of an asset falls below the outstanding debt left to pay on that asset.11am London time Life-cycle model Liquidity Macroeconomic performance Marginal propensity to consume Marginal propensity to save Marginal rate of tax Misery index Monetary Policy Committee Money supply Moral hazard Multiplier effect NAFTA National debt Nationalisation Negative equity A theory that says that savings rates depend on how old someone is Liquidity refers to the ease with which something can be converted to cash with little or no loss of value The overall performance of an economy in terms of output. Canada and Mexico The total amount of debt that the government owes the private sector The act of bringing a privately owned asset. The entire quantity of a country's commercial bills. impeding economic growth and. Assets such as businesses. A negative output gap after a recession implies that an economy has a large margin of spare productive capacity.

and UK inflation rose at one point to nearly 30 per cent. Businesses may have to offer higher wages to attract and keep the workers they need. When demand for labour is high and there are shortages of labour. when world oil prices rose dramatically. Income after taxes and benefits. The external value of sterling calculated using a weighted index of a basket of currencies ± the weightings are based on the pattern of trade between the UK and other countries Growth which meets the needs of the present without compromising the ability of future generations to meet their own needs. in order to increase the supply of money.Price stability Productive potential Productivity Propensity to import Propensity to save Protectionism Quantitative easing Price stability occurs when there is low inflation and the price changes that do occur have little impact on day-to-day decisions of people. sends a signal to the rest of the financial markets about a desired change in the direction of other borrowing and savings interest rates. a change in interest rates to affect other variables e. short run aggregate supply tends to be elastic. It is used to calculate increases in wages.g. A combination of slow economic growth and rising inflation. When an economy has plenty of spare capacity. The productive capacity of the economy ± boosted by high quality investment A measure of efficiency e. The RPI is broadly similar to the CPI but includes mortgage repayments and some taxes. The time it takes for one change e. The most notable recent period of stagflation occurred during the 1970s. A quota imposes a physical limit on the quantity of a good that can be imported into a country in a given period of time. Exhibiting a dislike of uncertainty. often seen in a recession The percentage of disposable income that is saved rather than spent A fall in the rate of growth of an economy but not a full-scale recession A sustained decrease in real GDP and a persistent rise in unemployment A slowdown in economic activity but which does not result in a recession When a business is not making full use of its available capacity ± there are spare factors of production including land. Economic growth that can continue over the long-term without damage to the environment.g. or the exhaustion of non-renewable resources. Repo is the rate of interest at which the Bank of England is prepared to lend to banks. and excludes the top 4 per cent of earners. labour and capital. state benefits and pensions. consumer confidence and spending Quota Real disposable income Real income Real interest rate Real wage Recession Redundancy Remittances Repo Rate (policy rate) Retail Price Index (RPI) Risk averse Saving ratio Slowdown Slump Soft landing Spare capacity Stagflation Sterling exchange rate index Sustainable growth Target Tariff Tight labour market Time lags .g. measured by output per person employed or output per person-hour The proportion of any change in income that is spent on overseas products The proportion of any change in income that is saved rather than spent Restricting trade through tariffs and other forms of import controls Central banks flood the economy with money by printing new notes.g. A target is an objective of government policy e. can lead to stagflation. adjusted for the effects of inflation Nominal income adjusted for the effects of price changes (inflation) and expressed at constant prices The nominal rate of interest adjusted for inflation The nominal wage adjusted for the effects of inflation A period of at least six months when an economy suffers a fall in output Making someone redundant is to end their employment due to a lack of work available for them Sending of money to people in another country The official 'base' rate of interest that is set by the Monetary Policy Committee and which. low inflation A tax on imported products which may be ad valorem (%) or a specific tax (a set amount per unit imported). The idea is to add more money into the system to avert deflation and encourage banks/people to borrow and spend. when changed.

infrastructure. negotiations and disputes between member countries Trade deficit Trade-off Tragedy of the Commons Transmission mechanism Trend growth Trough Under-employment Unemployment trap Unit wage costs Unsecured credit Wage price spiral Wealth effect World Bank World Trade Organisation . The supposed link between changes in wealth and household spending World Bank is a source of financial and technical assistance to developing countries. if one home loan on one street goes bad. public administration. For example. WTO oversees trade agreements. financial and private sector development. money borrowed on credit cards A situation where workers bid for higher wages because they have seen their real income eroded by rising prices. health. agriculture and environmental and natural resource management. A trade deficit occurs when a country imports a greater value of goods and services than it exports. They are especially scary because of the risk that one toxic debt may poison other loans that were previously OK. How a change in interest rates affects the various sectors of the economy The long run average growth rate ± mainly determined by changes in the stock of available factor inputs and also improvements in productivity The low point of the economic cycle beyond which a recovery starts When people want to work full time but find that they can only get part-time work ± the result is a loss of hours that the economy can use When the prospect of the loss of unemployment benefits dissuades those without work from taking a new job ± creates a disincentives problem Labour costs per unit of output Credit not secured by another asset ± i.e. It can provide loans and grants for a wide array of purposes that include investments in education.Toxic debt Loans that may not be repaid. A trade-off implies that choices have to be made between different objectives of economic policy A conflict over finite resources between individual interests and the common good which can lead to irreversible damage to the stock of natural resources available to current and future generations. This can lead to a further burst of cost-push inflation in an economy. it might make people think that all the loans on the street will go bad.