year2 key terms

a country has an absolute advantage if it can produce more of a good than other countries from the same amount of resources

total planned spending on the goods and services produced within the economy in a particular time period

the aggregate level of real output that all the firms in the economy plan to produce at different average price levels

money, goods and services and 'soft' loans given by the gov of one country or a multilateral institution such as the World Bank to help another country. non-gov organisations (NGOs) such as Oxfam also provide aid

the record of all money flows or transactions between the residents of a country and the rest of the worl in a particular period, usually monthly, quarterly or annually

setting gov spending equal to gov revenue

the interest rate set by the Bank of England which it uses as a benchmark for setting the interest rates that it charges when lending to commercial banks and other financial institutions

financial securities sold by companied ot by govts which are a form of long-term borrowing. bonds usually have a maturity date on which they are redeemed, with the borrower ussually making a fixed interest payment each year until the bond matures

the part of the stick of money made of cash, other liquid assets such as bank and building society deposits, but also some less liquid assets. the measure of broad money used by the bank of england is called M4

M4

the amount by which gov spending exceeds gov revenue in a particular time period

the amount by which gov spending exceeds gov revenue in a particular time period

where securities such as shares and bonds are issued to raise medium- to long-term financing, and where shares and bonds are then traded on the 'second-hand' part of the market, e.g. the London Stock Exchange.

the amount of capital on a bank's balance sheet as a proportion of its loans

a national bank that provides financial and banking services for its country's government and commercial banking system, as well as implementing the government's monetary policy and issuing currency.

a financial institution which aims to make profits by selling banking services to its customers

the ability to produce a good at a lower opportunity cost than another producer

debt security issued by a company and sold as new issues to people who lend long-term to the company. They can usually be resold second-hand on a stock exchange

a barrier holding back economic growth

a rising price level caused by an increase in the costs of production, shown by a shift of the SRAS curve to the left.

the guaranteed fixed annual interest payment, often divided into two 6-month payments, paid by the issuer of a bond to the owner of the bond

when a bank makes a loan it gives credit. the loan results in the creation of an advance, which is an asset on the banks balance sheet, and a deposit, which is a liability

an agreement between a group of countries to share a common currency, and usually to have a single monetary and foreign exchange rate policy

measures all the currency flows into and out of a country in a particular time period in payment for exports and imports of goods and services, together with primary and secondary income flows

a trading bloc in which member countries enjoy internal free trade in goods and possibly services, with all the member countries protected by a common external tariff barrier

the part of the budget deficit which rises in the downswing of the economic cycle and falls in the upswing of the cycle

unemployment occurring in the downswing of the economic cycle or business cycle, caused by a lack of aggregate demand in the economy

money people owe

a persistently falling price level

a rising price level caused by an increase in aggregate demand, shown by a shift of the AD curve to the right.

a fall in the inflation rate

the rate of increase in the potential output of an economy

education develops individual knowledge and intellect, while training develops work skills. Both are necessary for economic growth and development

wealth, fairness or justness

an economic and partially political union established in in 1993 after the ratification of the Maastricht Treaty by the members of the European Community and since expanded to include numerous central and eastern European nations

the name used for the group of EU countries that have replaced their national currencies with the euro.

the external price of a currency, usually measured against another currency

a government policy which aims to reduce a current account deficit by reducing the demand for imports by reducing the level of aggregate demand in the economy. conversely, to reduce a current account surplus, aggregate demand would be increased and spending on imports would rise.

a government policy which aims to eliminate a current account deficit by switching domestic demand away from imports to domestically produced goods. conversely, to reduce a current account surplus, the policy would aim to switch domestic demand away from domestically produced goods toward imports.

money given to domestic firms by the government to encourage firms to sell their products abroad and to help make their goods cheaper in export markets

the part of the balance of payments that records purchases of assets a country has made abroad and foreign purchases of assets in the country

primarily responsible for macroprudential regulation. the FCA aims to make sure that financial markets work well so that consumers get a fair deal, by ensuring that the financial industry is run with integrity and that consumers can trust that firms have their best interests at hear, and by providing consumers with appropriate financial products and services

markets in which financial assets or securities are traded

the part of the Bank of England charged with the primary objective of identifying, monitoring and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system. hte committee's secondary objective is to support the economic policy of the government.

the use of government spending, taxation and the govts budgetary position to achieve the governments policy objectives.

the stock of money in the economy multiplied by the velocity of circulation of money equals the price level multiplied by the velocity of circulation of money equals the price level multiplied by the quantity of real output in the economy. mv=pq

an exchange rate fixed at a certain level by the country's central bank and maintained by the central bank's intervention in the foreign exchange market

investment by capital assets, such as manufacturing and service industry capacity in a foreign country by a business with headquarters in another country. very often the overseas company establishes subsidiary companies in the countries in which it is investing

decentralised markets for the trading of currencies. the main participants in this market are large international commercial banks. collectively, foreign exchange markets are the largest markets in the global economy.

attempts to send signals to financial markets, businesses and individuals,a bout the Bank of England's interest rate policy in the months and years ahead, so that economic agents are not surprised by a sudden and unexpected change in policy

member countries abolish tariffs on mutual trade, but each partner determines its own tariffs on trade with non-member countries

the exchange rate is determined solely by the interplay of demand for, and supply of, the currency.

occurs when the number of the people wishing to work equals the number of workers whom employers wish to hir

short-term transitional unemployment or 'between jobs' unemployment

incentivises banks and building societies to boost their lending to the UK real economy, FLS is skewed towards small and medium-sized enterprises

the process of growing economic integration of the world's economies

debt security, in the UK known as gilt-edged securities or gilts, issued by a government and sold as new issues to people who lend long-term to the government. they can be resold second-hand on a stock exchange.

the sume of all goods and services, or the value of output, produced in an economy over a period of time

the accumulated stock of skills and knowledge, relevant to work, embodied human being

these include GDP per head, information on the distribution of income, mortality rates and health statistics.

a continuous and persistent rise in price level and a fall in the value of money

the result of past investment into fixed captial goods that are needed for the economy to operate efficiently

investment, government spending, exports

rules, regulations, policies, and informal structures, which may constrain or promote recommended behaviors

a bank which does not generally accept deposits from ordinary members of the general public. traditional 'investment banking' refers to financial advisory work, such as advising private companies on how to become a public company by floating on the stock market, or advising public companies on how to buy up another company. Investment banks also deal directly in financial markets for their own account.

countries considered behind in terms of their economy, human capital, infrastructure and industrial base

measures the ease with which an asset can be converted into cash without loss of value. cash is the most liquid of all assets

the ratio of a bank's cash and other liquid assets to its deposits

the real output that can be supplied when the economy is on its production possibility frontier. This is when all the available factors of production are employed and producing at their 'normal capacity' level of output

occurs when the productive capacity of the economy is increasing, it is used to refer to the trend rate of growth of real national output in an economy over time

a vertical Phillips curve, developed by Milton Friedman and Edmund Phelps, along which trade-offs between reducing inflation and reducing unemployment are not possible, also called the L-shaped Phillips curve

occurs in a circular flow diagram when injections into the circular flow of income equal withdrawals from the circular flow. It can also be shown in an AD/AS diagram as the level of real national income at which AD = AS. Also known as the equilibrium level of national income.

government policy aimed at achieving macroeconomic objectives such as a satisfactory and sustainable rate of economic growth, full employment of low unemployment, control of inflation and a satisfactory balance of payments

the date on which the issuer of a dated security, such as a glit edged security or a Treasury bill, pays the face value of the security to the security's owner.

an economist who argues that a prior increase in the money supply is always the cause of inflation

implemented by the government and the central bank to achieve policy objectives

primarily a medium of exchange or means of payment, but also a store of value

provide a means for lenders and borrowers to satisfy their short-term financial needs. assets that are bought and sold on money markets are short term, with maturities ranging from a day to a year, and are normally easily convertible into cash. the term 'money market' is an umbrella that covers several markets, including the markets for Treasury bills and commercial bills

the stock of money in the economy at a particular time

the tendency of individuals and firms, once protected against some contingency, to behave so as to make that contingency more likely

countries with a high degree of economic development, high average income per head, high standards of living, usually with service industries dominating manufacturing, and investment having taken place over many years in human capital and infrastructure.

Enterprises operating in several countries but with their headquarters in one country

the relationship between an initial change in aggregate demand and the resulting usually larger change in national income.

the part of the stock of money made of cash and liquid bank and building society deposits

the amount of accumulated debt, resulting from past govt borrowing, that is owed by the UK govt. it is the stock of debt owed by the UK govt both to UK residents and financial institutions, and also to overseas-based individuals and financial institutions. it has built up over many years as many uk govts have run buget deficits

the rate of unemployment when the aggregate labour market is in equilibrium

occurs when the current level of real GDP is below the potential output of the economy

advisory public body that provides independent economic forecasts and analysis of the public finances as background to the preparation of the UK budget

the difference between the current level of real GDP and the potential output of the economy

based on evidence from the economy, a curve showing the apparent relationship between the rate of inflation and the rate of unemployment

the purchase of one country's securities e.g. bonds and shares, by the residents of financial institutions of another country

occurs when the current level of real GDP is above the potential output of the economy

inward primary income flows comprise income flowing into the economy in the current year, which is generated by UK-owned capital assets located overseas. outward primary income flows comprise income flowing out of the economy in the current year, which is generated by overseas-owned capital assets located in the UK

criteria for judging whether a tax is a good tax or a bad tax. Also known as canons of taxation.

the state or condiiton of yielding a financial profit or gain

when the proportion of income paid in tax stays the same as income increases

the part of the Bank of England responsible for the microprudential regulation and supervision of banks, building societies, credit unions, insurers and mjor investment firms

an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply.

theory assumes inflation is cuased by a prior increase in the money supply

physical limits on the quantities of imported goods allowed into a country

wages that have been adjusted for inflation

unemployment caused by real wages being stuck above the equilibrium real wage resulting in excess supply of labour

6 months or more of negative economic growth or decling real national output

when the proportion of income paid in tax falls as income increases

current transfers, such as gifts of money, international aid and transfers between the UK and EU, flowing into or out of the UK economy in a particular year

secured loans, such as mortgage loans secured against the value of property, are less risky for banks than unsecured loans

undated financial assets, sold initially by a company to raise financial capital. Shares sold by public companies or PLCs are marketable on a stock exchange, but shares sold by private companies are not marketable. Unlike a loan, a share signifies that the holder owns part of the enterprise.

the quantities of real outut that businesses plan to produce and sell at different price levels when total productive capacity is fixed but when variable factors of production can be changed

occurs when an increase in aggregate demand brings spare capacity into production

the original downward sloping Phillips curve

the SEM was intended to establish the 'four freedoms' - free movement of goods, services, workers and capital between the EU member states - from 1993 onward. However, the SEM is only partially complete

the part of the budget deficit which is not affected by the economic cycle but results from structural change in the economy affecting the govts finances

occurs when certain industries decline because of long-term changes in the market conditions. it is joblessness caused not by lack of aggregate demand, but by changes in the pattern of demand or technological change

reforms underaken by the private sector to increase productivity so as to reduce costs and to become more efficient and comeptitive. supply side improvement often results from more investment an dinnovation, often underaken by firms wihtout prompting from the govt

govt economic policies which aim to make markets more competitive and efficient, increase production potential, and shift the LRAS curve to the right. supply-side fiscal policy is arguably the most-important type of supply side policy, but there are also non-fiscal supply side policies

the risk that the failure of one financial institution can bring down other institutions as well caused by inter-linkages within the financial system.

taxes imposed on imports

compulsory levies charged by central and local govt to raise revenue, primarily to finance govt spending

exports and imports of visible, or tangible, items such as cars, oil and tea

exports and imports of services such as financial services, tourism and shipping

occurs when people who are actively searching for employment are unabl to find work

an index that calculates a country's level of well-being, based on a formula of factors that considers income adjusted to PPP, data on life expectancy at birth, and data on educational attainment

saving, tax revenue and imports

An international body whose purpose is to promote free trade by persuading countries to abolish import tariffs and other barriers to trade. As such, it has become closely associated with globalisation.