Macro Economics

Macro Economic Definitons

Money is anything, which is generally accepted as a means of settling debt

Fiduciary issue (flat money) is paper money not backed by gold or silver

Legal tender is that which must be accepted as means of settling debt

Debased money is that whose intrinsic value is less than its face value

Bank deposit/ deposit liabilities are the amount standing in the credit of the account of a customer of a bank

M1- narrow money supply-currency outstanding (less notes and coins help by Commercial Banks) and current accounts in Commercial banks

M3- broad money supply- this M1 + deposit accounts in commercial banks and current accounts + deposit accounts in Non Associated Banks (less all inter bank balances)

Money and Other Liquid assets refer to M3 plus deposit accounts help in Post Office, Trustee savings Banks, Building societies etc.

[Increase in Cash x 1/(cash ratio)] increase in cash

Government Bonds is a method by which the back lend long term to the Government. Sold on stock exchange

Exchequer Bills/ Bills of Exchange are short-term loans to the government /private firms for a period of up to 90 days.

AMD is the total demand for goods and services in the economy

Injections are those items which cause the national income to increase

Leakages are those items which are not spent on domestic goods or services

The multiplies is a number which shows how many times a change in national income is greater than the injection or leakage which caused the change

The circular flow is the flow of income and expenditure between firms and households

The income method of determining national income includes the total flow of income paid out to households in return for the supply of productive services + plus profits retained as reserves

The output method, the total value of the outputs of all goods and services in the economy

The expenditure method involves the total expenditure on consumers goods and capital goods, government expenditure and expenditure on exports less domestic expenditure on imports

The law of absolute advantage states that countries gain if each specialises in the production (and export) of those goods in which it has an absolute advantage and obtains the others my means of imports

Near money is the term used to describe those assets which fulfill some of the functions of money but not all four of them

The law of comparative advantage sates that countries gain if each concentrates on the production and (export) of those goods in which it has the greatest comparative advantages 9 or least comparative disadvantage) and obtains its other requirements by importing

Terms of trade are the ration between the average price of imports and the average price of imports

Terms of trade are said to be favourable when they exceed a hundred

The balance of payments is a financial statements of all payments in to and out of the country in a year

Balance of trade is the difference between the import and the export of merchandise goods

Balance of invisible trade Is the difference between the export and import of the intangibles

Autonomous capital transfers happens when particular visible import s offset by a specific capital inflow in the capital account

Balance of Autonomous transactions: Balance of current account of balance of payments + capital inflows

Exports cause the demand for the punt increase

Imports cause the supply of the punts to increase

Speculation is the purchase or sale of foreign currencies in the hope of making a profit from changes in the value of a currency

Arbitrage is the buying of a currency on one foreign exchange and selling it an another at a profit due to the variations in the exchange rates of the exchange rates on the two markets

Euro currencies are currencies held outside the country of issue

With fixed exchange rates a unit of one currency can be exchanged for a fixed quantity of another currency

With floating exchange rates the exchange value of the currency is allowed to float freely up and down to determine its own level

Managed exchange rates involves choosing a basket of countries and setting the exchange rates between them, the rates are then allowed to fluctuate within limits above or below the fixed central exchange rate

Adjustable peg system- rates if exchange are fixed to each at certain values and the allowed to move up and down of those values by a certain percentage

Crawling exchange rates are the same but if a currency has a natural tendency to increase or decrease in value, due to the stat of the economy, then it is permitted to in stages over a certain length of time.

Devaluation id a deliberate decrease by the government in the official exchange rate of its currency

The Marshall Lerner criterion states that the demand for exports and imports must sum to greater than unity if the Balance of Payments is to improve

The purchasing power theory states that the exchange rates between countries is in equilibrium when the domestic purchasing powers at that rate of exchange are equivalent

Gold standard, when a countries currency is coverable into a fixed amount of gold

The sterling areas a group of countries that hold their foreign reserves are sterling

Hard currency is one traded in a foreign exchange market for which there is persistently high demand relative to supply

Inflation is an increase in the average price level

Demand-pull inflation is when there is excess demand in the economy due to expansionary monetary or fiscal policy

Cost pull inflation occurs when the manufacturer increases prices to cover increased costs of production

Constant tax price index holds the indirect tax content of the price of a good at its base level

The Philips curve states that the aims of low employment and low inflation ma be inconsistent, because particular level of employment will imply a particular level of wage increase

Quantity theory of Money


Supply Siders are those that feel the problem of inflation should be remedied from the supply side rather than the demand side

Economics development is the process of growth in total and per capita income of developing countries

Economic growth is the steady process of increasing the productive capacity of the economy and hence its national income

The demonstration effect raises societies expectations of possible benefits of economic growth

Capital/ output ration- the ratio of net investment to changes in the output in the economy

Capital widening v capital deepening: capital widening occurs when the capital increase s at the same rate as the increase in labour. Capital deepening occurs when the capital increases at a faster rate than increase in labour

Balanced growth plan occurs when investment and demand grow at a similar pace

Export led growth is economic growth due to an increase in foreign trade, especially the import of manufactured goods

Field aid is foreign aid given to developing countries in return for some favour.

The Natural increase is the difference between the birth rate and the death rate in a year/thousand

Net migration is the difference between the numbers of emigrants (in) and immigrants in a given period

Over population occurs when an increase in the population results in the decrease in GNP/capita

Under population occurs when an increase in the population results in an increase in GNP/capita

Optimum population is that population which is best suited to the factors of production available

Labour force is that part of the population which is employed OR available for employment.

The participation rate is the percentage of the populations who are of working age and who are part of the labour force i.e. the percentage of active age group in the labour force

The dependency ratio is the ratio of the population who are dependent on the population who are working.

Monetary policy is any government action which is designed to influence the money supply, the rates of interest and the availability of credit in the economy

Fiscal policy is any deliberate action taken by the government which affects the magnitude , composition and timing of government revenue and expenditure

Current expenditure are those items of expenditure on good and services that are used up during the year

Central funds service are those items of current expenditure that constitute a proper charge on the revenue of the state

Supply services are the costs of the service which are provided by the different government departments

Current revenue is regular income which arises from the day to day workings of the economy

Capital expenditure is the expenditure on those items that are not used up during the year

Capital receipts are revenue to finance the capital expenditure (and the current budget deficit)

The total exchequer borrowing requirement is expressed a percentage of GNP

The national debt is the accumulated total of outstanding government borrowing

Direct taxes are those levied on individuals, firms, companies and paid directly through employers to the revenue commissioners

Indirect taxes are taxes on expenditure

It can be ad valorem or specific

Progressive taxes take a higher percentage of income as income increases

A regressive tax takes a higher percentage of income from poorer sections of the economy

Collective goods are goods and services which the government provides to the general public without direct charge

Merit wants are goods and services which the government considers to be basic to life and so undertakes to provide to its citizens minimum standard irrespective of income

Social over head capital is the national infrastructure of the economy

Negative taxation is an incentive to invest provided by the government

Built in automatic stabilizers are those which increase budget deficits during recession and which increase surpluses during expansion of the economy without any change in government policy s regards to rates of taxation or welfare entitlements.

Fiscal drag is the delay between the government receiving extra taxation and increasing its current expenditure as a result

Primary surplus is a the budget surplus that results from the taking away of national debt interest charges

EBR = Exchequer Borrowing requirement for capital purposes + current budget deficit

PSBR = EBR + borrowing by state sponsored bodies and local authorities

DCE = Monetary financing of the PSBR + increase in bank lending to ht private sector

The tax wedge is the deviation from equilibrium price/quantity as a result of a tax, which results in consumers paying more, and suppliers receiving less.

This “full employment” unemployment rate is sometimes termed the “natural rate of unemployment” or the “inflation-threshold unemployment rate”: if actual unemployment falls below the NAIRU, the inflation rate is likely to rise quickly (accelerate). Non Accelerating Inflation Rate of Unemployment

Velocity of Circulation is the average number of times a unit of currency is used annually; often measured as the value of GDP divided by the money stock.

A composite price index is one that does not give equal importance to each good. Each good is given a weight, which reflects percentage of total income spent on it.

The CPI measures the change in the average level of prices paid for consumers goods and services by all private households in the country

N.B: some rather obscure definitions are in the textbook, not included in this list.

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