Global Economy
The principle that a country should specialise in producing the goods or services it can produce at the lowest relative opportunity cost, leading to gains from trade.
Comparative Advantage
Long-term shifts in the patterns of production and employment across industries
Structural Change
A measure of the distribution of income within a population, ranging from 0 (perfect equality) to 1 (perfect inequality).
GINI Coefficient
3 Objectives of Monetary policy
Price stability
Full Employment
Economic Prosperity
Derived demand
The demand for labour is derived from the demand for goods and services
The total market value of goods and services produced by the residents of a country, regardless of where production takes place.
Gross National Income
Question for Balance of Payments
CA + KAFA = 0
Graph that shows the trade-off between inflation and unemployment.
Phillips Curve
Redistribution of income
Reallocation of Resources
Stabilising economic activity
importance of government intervention in managing demand.
Keynesian Economic theory
Provides long-term loans and aid to support development and poverty reduction.
World Bank
A floating exchange rate that fluctuates due to changes in demand and supply but is influenced by central bank intervention.
Managed floating exchange (Dirtying the float)
The situation where an increase in aggregate demand leads to rising output and rising prices simultaneously.
Economic Development
The concept that short-term government borrowing can raise interest rates and reduce private investment, partially offsetting the intended stimulatory effect of fiscal policy.
Crowding-out effect
Productivity and efficiency as well as an unrestrained supply leading to long term growth
Classical Economic Theory
The theory that in the long run, exchange rates adjust so that identical goods cost the same across countries once currency values are accounted for.
Purchasing Power Parity
Savings-Investment Gap, Trade Dependence, Foreign Investment Reliance
Structural factors contributing to CAD
3 conditions for external stability
Stability of the currency
Sustainability of external accounts
Serviceability of foreign liabilities
Taxes to internalise negative externalities like pollution.
Piguovian taxes
economic growth (%) > (Productivity Growth (%) + Increase in labour force (%))
Okun's law
A government policy or program designed to encourage domestic businesses to increase the sale of goods and services to overseas markets, often through measures such as tax concessions, grants, subsidies, or marketing assistance.
Export Incentives
Long-term shifts in the patterns of production and employment across industries
Protectionist policies
Real / (1 + Inflation)
Deflator
A fiscal approach aimed at reducing public debt over time while maintaining economic growth, requiring trade-offs between short-term stimulus and long-term sustainability.
Fiscal Consolidation
Common resources are overused without regulation
Tragedy of the commons