IB Economics definitions Test Questions

question

Social Science
answer

the study of people in society and how they interact with each other.
question

Economics
answer

the study of how people use their limited resources to try to satisfy unlimited wants.
question

Microeconomics
answer

the study of the economic behaviour of households and firms and how prices of goods and services are determined.
question

Positive Statement
answer

a statement about what is. This is an expression that can be verified by observation.
question

Normative Statement
answer

a statement about what ought to be. This is an expression of an opinion that cannot be verified by observation
question

Ceteris Paribus
answer

the assumption that all other things are held equal, or constant, except those under study.
question

Scarcity
answer

the state in which wants exceed the amount that available resources can produce.
question

Factors of production
answer

inputs used in the production of the goods and services that are land, labour, capital and enterprise.
question

Land
answer

the natural resource that is available without alteration or effort on the part of labour. Land as a resource includes only original fertility and mineral deposits, topography, climate, water, and natural vegetation.
question

Labour
answer

the human resource involving productive contributions of persons who work, which involve both thinking and doing.
question

Capital
answer

factors of production that have themselves been produced by man (machines, factories, ships…).
question

Enterprise
answer

the factor of production involving human resources that performs the functions of raising capital, organising, managing, assembling other factors of production, and making basic business policy-decisions: the risk taker.
question

Rent
answer

return to the factors of production that is land.
question

Wages
answer

return of the factors of production that is labour
question

Profit
answer

the difference between total revenues and the opportunity cost of all factors of production.
question

Interest
answer

the payment for current rather than future command over resources, the cost of obtaining credits. Also, the return paid to owners of capital.
question

Revenue
answer

the income that a firm receives from selling its products, goods and services, over a certain time period.
question

Earnings
answer

revenue minus the costs of sales, operating expenses and taxes over a given period of time.
question

Income
answer

the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. Income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings received in a given period of time.
question

Choice
answer

people deciding between two alternative ways to allocate their limited financial resources because they do not have infinite incomes
question

Utility
answer

the measure of usefulness and pleasure.
question

Marginal Utility
answer

the extra utility gained from consuming one more unit of a product.
question

Total Utility
answer

the total satisfaction gained from consuming a certain quantity of a product.
question

Diminishing Marginal Utility
answer

a psychological generalization that the perceives value of, or satisfaction gained form, a good to a consumer declines with each additional unit acquired or consumed.
question

Opportunity Cost
answer

the cost of any activity measured in terms of the best alternative activity, which is forgone.
question

Free Goods
answer

any good or service that is available in quantities larger than are desired at a zero price.
question

Economics Goods
answer

any good or service that is scarce.
question

Public Good
answer

a good, which is non-excludable and non-rivalrous. A good which can be jointly consumed by many individuals simultaneously, at no additional cost, and with no reduction in the quality or quantity of the provision concerned.
question

Private Good
answer

a good (or service), each unit of which is consumed only one individual.
question

Capital Goods
answer

goods that are used in the production of other goods. Examples include ships, factories and tractors. Consumers do not directly consume capital goods.
question

Consumer goods
answer

: goods that are used directly by consumers to generate satisfaction. Compare with capital goods.
question

Production Possibility Curves
answer

are used by economist to show the concepts of scarcity, choice and opportunity cost, among other this. It shows the maximum combinations of goods and service that can be produces by an economy in a giver time period, if all the resources in the economy are being used fully and efficiently and the state of technology is fixed.
question

Production Possibility Frontier
answer

the boundary between attainable and unattainable levels of production.
question

Allocative Efficiency
answer

the situation that occurs when no resources are wasted—where no one can be made better off without making someone else worse off.
question

Technical Efficiency
answer

the situation where it is impossible for a firm to produce, with the given know how, a larger output from the same inputs or the same output with less of one or more inputs without increasing the amount of other inputs.
question

Pareto Efficiency
answer

the situation where one person cannot be better off without making someone else worse off.
question

Pareto Optimal
answer

when a market is in equilibrium, with no external influences and with no external effects.
question

Marginal Rate of Transformation
answer

the rate at which one good must be sacrificed in order to produce a single extra unit of another good, assuming that both goods require the same scarce inputs.
question

Actual Output
answer

the amount of a product that a production facility actually produces, as opposed to the amount that it could produce if it were the run at full theoretical capacity determining the output gap, in an important step in identifying sources of waste or defect that can be targeted for process improvement.
question

Potential Output
answer

the gross domestic product (GDP) that could be produced by an economy if all its resources were fully employed.
question

Economic Growth
answer

the value of all goods and services produced in an economy in a given time period.
question

Development
answer

a process to improve the lives of all the people in a country. This involves not only raising living standards i.e. the production of foods and services but the promotion of self esteem, dignity and respect and the enlarging of peoples freedom to choose and to take control of their own lives.
question

Merit Goods
answer

a good that is recognised as socially desirable. As it has positive externalities it will be underprovided in a few market.
question

Demerit Goods
answer

the opposite of a merit good, one, which the political process had decided, is socially undesirable.
question

Rationing System
answer

the opposite of a merit good, one, which the political process had decided, is socially undesirable.
question

Mixed Economy
answer

: an economy system in which the decision on how resources should be used is made partly by the private sector and partly by the government.
question

Free Market Economy
answer

a system in which individuals own the factors of production and make economic decision through free interaction.
question

Command (Planned) Economy
answer

a system in which the government controls the factors of production and makes all decision about their use and about the distribution of income.
question

Economy In Transition
answer

an economy transitioning from being predominantly planned to free market or mixed economy.
question

Market
answer

an abstract concept concerning all the arrangements that individuals have for exchanging with one and other.
question

Perfect Competition
answer

a market structure in which the decisions of buyers and sellers have no effect on market price.
question

Monopoly
answer

a market structure with high barriers to entry where one firm dominates the entry.
question

Oligopoly
answer

a market type in which small numbers of producers compete with each other.
question

Monopolistic Competition
answer

a market type in which a large number of firms compete with each other by making similar buy slightly different goods or services.
question

Buyers
answer

a party, which acquires, or agrees to acquire, ownership (in case of goods), or benefit of usage (in case of services), in exchange for money or other consideration under a contract of sale.
question

Sellers
answer

a party that makes offers or contracts to make a sale to an actual or potential buyer.
question

Barriers To Entry
answer

barriers that make it difficult for firms to enter an industry and offer competition to existing producers or suppliers.
question

Homogenous
answer

goods or services either physically identical or viewed as identical to buyers.
question

Price Taker
answer

a firm that cannot influence the price of its output such as agricultural products, metals and energy goods.
question

Price Maker
answer

when a firm can determine it’s own price versus price TAKERS, where the firms in the industry must all have the price from the industry
question

Demand
answer

the quantity of a good or service that consumers are willing and able to consume at a given price during a given period of time.
question

Law Of Demand
answer

as the price of a product falls, the quantity demanded of the product will usually increase.
question

Demand Curve
answer

a graph showing the relationship between the quantity demanded of a good or service and its price, holding everything else constant.
question

Determinants Of Demand
answer

the factors the determine demand and lead to an actual shift of the demand curve to either the right or the left such as income and the price of other products.
question

Shift In The Demand Curve
answer

the effect income and price of other products have on a product’s demand curve.
question

Indirect Tax
answer

a tax imposed on spending.
question

Value added tax
answer

The value of a firms output minus the value of inputs bought from other firms.
question

Goods And Services Tax
answer

an example of the value added tax—a Canadian tax levied on most goods and services sold for domestic consumption paid by consumers and levied in order to provide revenue for the federal government.
question

Subsidy
answer

a payment made by the government to producers of foods and services.
question

Complements
answer

two goods are considered complements if a change in the price of one causes and opposite shift in the demand for the other. For example: if the price of computers goes up, the demand for computer game will fall; if the price of computer goes down, the demand for computer games will increase.
question

Substitutes
answer

a good or service that may be used in place of another.
question

Supply
answer

the quantity producers are willing and able to produce at a given price during a given period of time.
question

Supply Curve
answer

a graph showing the relationship between the quantity supplied and the price of a good or service, holding everything else constant.
question

Law Of Supply
answer

as the price of a product rises, the quantity supplied of the product will usually increase, ceteris paribus.
question

Determinants Of Supply
answer

the factors that determine supply and lead to an actual shift of the supply curve to either the right or the left such as the costs of factors of products and the price of other products, which the produces could produce instead of the existing product (the opportunity cost).
question

Shift Of The Supply Curve
answer

the effect that the cost of factors of products and the price of other products that could be produced instead of the existing product have on the product’s supply curve.
question

Movement Along The Supply Curve
answer

a change in the price of the good itself.
question

Price Signal
answer

message sent to consumers and producers the form of a price charged for a commodity, this is seen as indicating a signal for producers to increase supplies and/ or consumers to reduce demand.
question

Price Incentive
answer

anything that reduces the cost of an item in order to make it more attractive for consumers to purchase and to send a message to the producers to decrease the supply as revenue decreases.
question

Resource Allocation
answer

the assignment of resources to specific uses i.e. determining what will be produced, how it will be produce, and for whom it will be produced.
question

Equilibrium
answer

situations in which the plans of buyers and sellers exactly coincide so that there is no excess supply or excess demand.
question

Market Clearing Price
answer

: the price that clears the market where there is no excess quantity demanded or supplied and the price at which the demand curve intersects the supply curve.
question

Price Control
answer

a government regulation of free market prices such that a legal maximum price is specified.
question

Maximum Price
answer

the situation where the government sets a price below the equilibrium price, preventing the producers from raising the price above it in order to protect consumers. Also known as ceiling price.
question

Minimum Price
answer

the situation where the government sets a price above the equilibrium price preventing the price to fall below this level in order to protect the producers. Also known as a floor price.
question

Price Support
answer

a situation where the government intervenes in a market to stabiles prices
question

Buffer Stock Scheme
answer

an organisation, usually run by producers or the government, that attempts to smooth out fluctuations in prices and hence producer incomes by the purchase and sale of stocks.
question

Commodity Price Agreement
answer

when different countries work together to operate a buffer stock scheme for a particular commodity.
question

Elasticity
answer

a measure of the responsiveness of one variable to a change in another.
question

Price Elasticity Of Demand
answer

the responsiveness of quantity demanded of a good to a change in its price.
question

Inelastic
answer

a change in price of the product leads to a smaller change in the quantity demanded of it.
question

Elastic
answer

a change in the price of the product leads to a greater change in the quantity demanded of it.
question

Unitary
answer

a change in the price of the product leads to the same change in the quantity demanded of it.
question

Cross Price Elasticity of Demand
answer

the percentage change in the demand for one good divided by the percentage change in the price of a related good. Cross-price elasticity of demand is a measure of the responsiveness of one goods quantity demanded to changes in a related goods price.
question

Income Elasticity of Demand
answer

the responsiveness of quantity demanded of a good to change in incomes.
question

Price Elasticity of Supply
answer

a measure of how much the supply of a product changes when there is a change in the price of the product.
question

Total Revenue
answer

the amount received from the sale of a good or service. It equals the price of the good or service multiplied by the quantity sold.
question

Primary Sector
answer

extracts or harvests products from the earth. This includes production of raw material and basic goods such as agriculture, mining, forestry farming, grazing, and fishing.
question

Secondary Sector
answer

manufactures construction-finished goods. All of manufacturing, processing and construction lie within this sector such as metal working and smelting, automobile production, textile production, chemical and engineering industries and aerospace manufacturing.
question

Tertiary Sector
answer

the service industry. IT provides services to the general population and to businesses. This includes retail and wholesale sales, transportation and distribution, entertainment and restaurants.
question

Sectoral Change
answer

: the general trend for the percentage of a workforce in agriculture to decline over time and for the secondary and then tertiary sectors to become increasingly important.
question

Inferior Good
answer

a good for which consumption falls as income increases.
question

Luxury Good
answer

often more expensive goods and primarily purchased by people with more wealth and income. It exists if the income elasticity of demand is positive and greater than one; when consumers can devote an increasingly larger share of income to the good.
question

Normal Good
answer

a good (or service) for which demand increases when income increases.
question

Giffen Good
answer

unique type of inferior good, which contradicts the law of demand as it is a good that, as price increases, demand will increase.
question

Veblen Good
answer

as the price of a good rises, people with high incomes begin to buy more of the product.
question

Expectations
answer

when the quantity demanded of a product rises, because of expectations of what is going to happen to prices in the future.
question

Price mechanism (price system)
answer

a system of interdependence between supply of a good or service and its price. It generally sends the price up when supply is below demand, and down when supply exceeds demand. It also restricts supply when suppliers leave the market due to low prevailing prices, and increases it when more suppliers enter the market due to high obtainable prices.
question

Tastes
answer

a change in tastes in favour of a product will lead to more being demanded t every price.
question

Disposable Income
answer

gross income of an individual or a firm from which direct taxes have been deducted. The income the earner is free to spend or save after essential expenditure (such as food, clothing and shelter) have been deducted.
question

Advertising
answer

information provide about a company to promote or maintain sales, revenue and/or profit. It is often and explicit method of signalling that sellers use to provide information to buyers with the primary objective of increasing or a least maintaining demand for a product.
question

Long-run
answer

that time-period in which all factors of production can be varied.
question

Short-run
answer

a period of time in which at least one factor of production in fixed.
question

Ad Valorem Taxes
answer

a tax on a good or service whose amount depends on the value of the food or service.
question

Incidence Of Taxation
answer

the final money burden or resting place of a tax.
question

Burden Of Taxation
answer

the tax placed on a good or service, is paid either by the consumer or the produced. The tax can therefore either be a burden for the consumer or a burden for the producer, depending on who absorbs it.
question

Market Failure
answer

a situation in which a market leads to either an under-allocative or over-allocation of resources to specific economic activity.
question

Externality
answer

an effect of consumption or production which is not taken into account by the consumer or the producer and which affects the utility or costs of other consumers or producers.
question

Spillover Effect
answer

when the workings of the market for an innovative product create benefits to the consumer.
question

Sustainable Development
answer

: countries should not use up resources too quickly and should not harm the environment, since this will stop growth, which taking place in the future.
question

Tradable Permits
answer

regulators determining a tolerable activity, such as pollution, then allocating tradable rights, permits or quotas generating the pollution to a tolerable level.
question

Property Rights
answer

the exclusive authority to determine how a resource is used, whether that resource is owned by government, collective bodies or by individuals.
question

International cooperation
answer

cooperation between the countries in the world and not confined in one area.
question

Fixed Costs
answer

the costs that do not vary with output. Fixed costs included such things as rent on a building and the price of machinery. These costs are fixed for a certain period of time in the long-run they are variable.
question

Variable Costs
answer

a costs that varies with the output level.
question

Total Costs
answer

the sum of the costs of all the inputs used in production.
question

Average Total Costs
answer

total costs divided by the number of units produced.
question

Average Variable Costs
answer

total variable costs divided by the number of units produced.
question

Marginal Costs
answer

the change in total cost due to a one-unit increasing the variable input: the cost of using more of a factor of production.
question

Accounting Profit
answer

the difference between total revenues and total explicit costs.
question

Accounting Costs
answer

the actual outlays or expenses incurred in production that shows up a firm’s accounting statements or records.
question

Economic Costs
answer

the sacrifice in performing an activity, or following a decision or course of action. It may be expressed as the total opportunity cost and accounting costs
question

Diminishing Returns
answer

extra units of variable factor added to a gen quantity of fixed factor, the output from each additional unit of the variable factor will eventually diminish.
question

Diseconomies Of scale
answer

when an increase in output leads to an increase in long-run average costs.
question

Economies Of Scale
answer

when increasing the scale of production leads to a lower cost per unit of output.
question

Macroeconomics
answer

the study of the economy as a while and economy-wide issues, such as unemployment, inflation, and growth.
question

Circular Flow Of Income
answer

a model of the flows of resources, goods, and services, as well as money, receipts, and payments for them in the economy.
question

Income Method
answer

: a way of computer national income. This method seeks to measure national income at the phase of distribution. National income can be defined as the sum of all wages, rent, interest and profit.
question

Expenditure Method
answer

measures national income as total spending on final goods and services produced within nation during any given year. This approach to measuring national income is to add up all expenditures made for final goods and services at current market price by households, firms and government during a year.
question

Output Method
answer

measuring national income by adding up the value of all the final goods and services produced in the country during the year.
question

Gross Domestic Product (GDP)
answer

total value of all goods and services produces in an economy in a given year.
question

Gross National Product (GNP)
answer

the total income that is earned by a country’s factor of production regardless of where the assets are located
question

Nominal GDP
answer

value at current price, and adjusted to inflation to give the constant prices.
question

Real GDP
answer

the output of final goods and services valued at the prices of the base period.
question

Price Deflator
answer

a way of measuring the economy’s price level and inflation rate. It can either be CPI (consumer price index) price deflator or a GDP (gross domestic product) price deflator.
question

Aggregate Demand
answer

the relationship between the aggregate quantity of goods and services demanded-real GDP- and the price level-the GDP deflator-holding everything else constant.
question

Consumption
answer

the total spending by consumers on domestic goods and services.
question

Investment
answer

the addition of capital stock to the economy.
question

Government
answer

a variety of levels spent on a wide variety of goods and services.
question

Exports
answer

domestic goods and services bought by foreigners.
question

Imports
answer

goods and services bought by foreign producers.
question

Net exports
answer

exports minus imports
question

Short-run Aggregate Demand
answer

the relationship between the aggregate quantity of final goods and services (real GDP) supplied and the price level (the GDP deflator), holding everything else constant.
question

Full Employment Of National Income
answer

where a country obtains the maximum level of national income.
question

Equilibrium Level Of National Income
answer

the equilibrium point for AD and AS.
question

Inflationary Gap
answer

the level of aggregate demand cannot be satisfied given the existing resources.
question

Deflationary Gap
answer

the level of aggregate demand in the economy is not sufficient to buy up the potential output that could be produced by the economy at the full employment level of output.
question

Recessionary Gap
answer

the difference between the equilibrium real production achieved in the short-run aggregate market ad full employment real production that occurs when short-run equilibrium real production is less than full employment real production.
question

Keynesian AS Curve
answer

a curve that shows three possible phases in the long-run: low levels of economic activity (perfectly elastic) when producers in the economy can raise their levels of output without incurring higher average costs because of spare capacity; potential output (between perfectly elastic and perfectly inelastic) when producers can continue to try to increase output, but will have to bid for the increasingly scare factors—high prices for the factors of production mean higher costs for the producers and price level will rise—and full capacity (perfectly inelastic) when it is impossible to increase output any further because all factors of production are fully employed.
question

Neo Classical AS Curve
answer

a long-run curve that is perfectly inelastic at the full employment level of output. The potential output of the economy is dependent on the quantity of quality of the factors of production, not the price level.
question

Trade/Business Cycle
answer

the fluctuation of national income around its long term rend.
question

Demand Side Policy
answer

policies with the goal to change the level of aggregate demand in the economy. This can either be done by fiscal policies or monetary policies.
question

Fiscal Policy
answer

a set of government policies relating to its spending and taxation rates.
question

Interest Rate
answer

the price of borrowed money and the reward of saved money.
question

Monetary Policy
answer

a set of official policies governing the supply of money in the economy and the level of interest rates in an economy.
question

Supply Side Policy
answer

policies with the goal to increase the potential output of the economy by increasing the quantity of the factors of production and/or improving the quality of the production by either increasing the incentives for firms to increase productivity or government intervention.
question

Money
answer

a medium of exchange.
question

Money Supply
answer

the total amount of money in an economy at a specific time.
question

Multiplier
answer

the change in equilibrium real GDP divided by the change in autonomous expenditure, which causes GDP to change.
question

Accelerator
answer

the level of investment depends upon the rate of growth of demand. A given percentage change in demand may require a larger percentage change in investment. The accelerator shows by how much the rate of growth of investment exceeds the rate of growth of demand (and of output).
question

Crowding Out
answer

the tendency for an increase in government purchases of goods and services to increase interest rates thereby reducing—or crowing out—investment expenditure.
question

Philips Curve
answer

a curve showing the relationship between unemployment and changes in wages or prices. The Philips curve gives the trade-off between unemployment and inflation.
question

Natural Rate Of Unemployment
answer

: the unemployment rate when the economy is at full employment and the labour market clears. Frictional, structural and seasonal unemployment may exist at the natural rate of unemployment.
question

Laffer Curve
answer

a graphical representation of the relationship between tax rates and total tax revenues raised by taxation.
question

Lorenz Curve
answer

the representation of income inequality.
question

Gini Coefficient
answer

the ration of the area between the line of equality in the Lorenz curve and the total area under the line of equality. It is needed in order to create progressive tax plus transfer payments that help make society more equal.
question

Unemployment
answer

the number of adult workers who are not employed and whoa re seeking jobs.
question

Inflation
answer

a sustained rise in prices, formally measured by the retail price index.
question

Full Employment
answer

the state of economy in which as eligible people who want to work can find employment and prevailing wage rates. However, it does not imply 100 percent employment because allowances must be made for frictional unemployment and seasonal factors.
question

Underemployed
answer

a workforce condition whereby employees are being utilized at less than full capacity. In this scenario, a company is typically not generating adequate business to keep worker s occupied at full-time wages or at appropriate skill levels. Unemployment rate: unemployment expressed as a percentage of the labour force.
question

Structural Unemployment
answer

unemployment resulting from fundamental changes in the structure of the economy.
question

Frictional Unemployment
answer

temporary unemployment arising out of the inevitable time lags in the functioning of labour markets, such as the time taken in movie from one job to another.
question

Seasonal Unemployment
answer

temporary unemployment arising out of the inevitable time lags in the functioning of labour markets, such as the time taken in movie from one job to another.
question

Cyclical/Demand Deficient Unemployment
answer

unemployment resulting from business recessions that occur when total demand is insufficient to create full employment.
question

Real Wage Unemployment
answer

when real wages for a job are set above the market-clearing level, causing the number of job seekers to exceed the number of vacancies.
question

Deflation
answer

a sustained fall in the price level, often accompanied by a fall in output and employment OR government policies used to reduce the level of aggregate demand in order to reduce inflation.
question

Cost-push Inflation
answer

inflation that has its origin in costs increases.
question

Demand-pull Inflation
answer

inflation that results from an increase in aggregate demand.
question

Imported Inflation
answer

inflation due to an increase in price of imports. Price of imports increases, prices of domestic goods using imports as raw materials also increase, causing an increase in the general price of all goods and services. Imported inflation may be caused by foreign price increases or depreciation of country’s exchange rate.
question

Excess monetary Growth
answer

when money supply and price increase.
question

Income Distribution
answer

the distribution of wages earned across a company, industry or country. Income distribution reveal what percentage of individuals are at various wage levels, information that can reveal more about overall wage patterns than average income can.
question

Direct Taxes
answer

taxes imposed on peoples’ income or wealth, and on the firms’ profits.
question

Indirect Taxation
answer

a tax imposed upon expenditure. A tax placed upon the selling price of a product, so it raises the firm’s costs and shift the supply curve for the product vertically upwards by the amount of the tax.
question

Progressive Income Tax
answer

an income tax where the portion of the income paid in tax is higher for people on high incomes than for people on low incomes. The marginal rate of tax is greater than the average rate of tax.
question

Proportional Income Tax
answer

an income tax where the portion of income paid in tax is the same for people on high incomes as it is for people on low incomes. The marginal rate of tax is equal to the average rate of tax.
question

Regressive Income Tax
answer

an income tax where the portion of income paid in tax is lower for people on high incomes than for people on low incomes. The marginal rate of tax is lower than the average rate of tax.
question

Transfer Payments
answer

tax revenues used to redistribute income and provide different types of assistance to groups in the economy to improve their living standards.
question

Frictional Unemployment
answer

unemployment arising from new entrants in to the labour market and from job turnover caused by technological change or geographic movement of workers.
question

Patent
answer

the right a firm has to be the only producer of its product for a period of time.
question

World Trade Organization
answer

formerly knows as GATT (the general agreement on tariffs and trade). Formed in 1947 with headquarters in Geneva GATT currently (April 2003) has 146 member countries. It is an international agreement committee to free multilateral trade through the reaction of trade barriers.
question

Balance Of Payments
answer

an account of a country’s transactions with the rest of the world.
question

Current Account
answer

: the part of the balance of payments, which records the day-by-day transactions of goods (visible) and services (invisibles).
question

Balance Of Trade
answer

the difference between the value of visible exports and the value of visible imports.
question

Invisible Balance
answer

the balance of all items on the current account of the balance of payments except for exports and imports of goods.
question

Capital Account
answer

the measure of the buying and selling of assets between countries.
question

Exchange Rates
answer

the value of one currency expressed in terms of another currency.
question

Fixed Exchange Rate
answer

an exchange rate regime where the value of a currency is fixed, or pegged, to the value of another currency, or to the average value of a selection of currencies, or to the value of some other commodity such as gold.
question

Floating Exchange Rate
answer

exchange rates that are allowed to fluctuate in the open market in response to changes in supply and demand. Sometimes call free exchange rates or floating exchange rates.
question

Managed Exchange Rate
answer

a system of exchange rates where governments intervene in the foreign exchange market to fix the value of the their national currency in terms of the other national currencies.
question

Depreciation
answer

reduction of the value of capital goods over a one-year period due to physical ear and tear and also to obsolescence or a lessening of value of a domestic currency of in terms of foreign currencies.
question

Appreciation
answer

an increase in the value of a domestic currency in terms of other currencies.
question

Devaluation
answer

depreciation under a regime of fixed exchange rates.
question

Revaluation
answer

if the value of the currency in a fixed exchange rate regime is raised, then we say this is a revaluation of the currency.
question

Trade Flow
answer

the trade between countries
question

Capital Flow
answer

the movement of money for the purpose of investment, trade or business production. Capital flows occur within corporations in the form of investment capital and capital spending on operations and search and development.
question

Inflation
answer

a sustained rise in prices, formally measured by the retail price index.
question

Speculation
answer

deliberate assumption of above average short-term risks of financial loss, in expectation os above average gain from an anticipated change in prices
question

Foreign Currency Reserves
answer

foreign money held by a government to support its own currency and pay its debts.
question

Specialization
answer

an agreement within a community, group, or organization under which the members most suited (by virtue of their natural aptitude, location, skill or other qualification) for a specific activity or task assume greater responsibility for its execution or performance.
question

Factor Endowments
answer

amount of labour, land money and entrepreneurship that could be exploited for manufacturing within a country. Countries with large factor endowments are often financially better off than countries with less factor endowment.
question

Free Trade
answer

: takes place between countries when there are no barriers to trade put in place by governments or international organizations. Goods and services are allowed to move freely between countries.
question

Protectionism
answer

the restriction of international trade by government.
question

Tariff
answer

a tax that is imposed by the importing country when a good crosses an international boundary.
question

Quota
answer

a limit on the quantity of some sort of activity. Two of the more noted quotas are for employment and imports. Employment quotas have been used as a means of providing increased opportunities to blacks, Hispanics, women and other groups that have been historically subject to discrimination.
question

Subsidy
answer

a payment made by the government to producers of foods and services.
question

Voluntary Export Restraint
answer

a self-imposed restriction by an exporting country on the volume of its exports of a particular good.
question

Administrative Barriers
answer

the administrative process goods have to undertake when they are being imported.
question

Health And Safety Standards
answer

where various restrictions are placed upon the types of goods that can be sold in the domestic market, or on the methods used in the manufacture of certain goods.
question

Environment Standards
answer

the conditions necessary to protect aquatic plant and animal communities.
question

Infant Industry Argument
answer

an argument for protecting a newly established industry to enable it to grow and gain economies of scale. It is claimed that without protective barriers small industries in LDC’s would not survive the low cost competition from large first world producers.
question

Diversification
answer

: a portfolio strategy designed to reduce exposure to risk by combining a variety of investments, such as stocks, bonds, and real estate, which are unlikely to all move in the same direction. The goal of diversification is to reduce the risk in a portfolio. Volatility is limited by the fact that not all assets classes or industries of individual companies move up and down in value at the same time or at the same rate.
question

Stategic
answer

decisions that are concerned with the whole environment in which the firm operates, the entire resources and the people who form the company and the interface between the two.
question

Disequilibrium
answer

: a state of the market that exists when the opposing forces of demand and supply do not balance out and there is an inherent tendency for change. It is indicated by an existence of either a surplus or a shortage. The inherent tendency to change occurs because a surplus causes prices to decline and a shortage causes the price to rise.
question

Anti-dumping
answer

a tariff levied by an imported country being the target of foreign dumping. Its intent is to offset the ‘unfair’ advantage of dumping. It raises the domestic price of the good to the level that the foreign producer would charge if true costs were considered
question

Dumping
answer

the export of products at a price below it’s cost of production.
question

Economic Integration
answer

an economic arrangement between different regions marked by the reduction or elimination of trade barriers and the coordination of monetary and fiscal policies. The aim of economic integration is to reduce costs for both consumers and producers, as well as to increase trade between the countries taking part in the agreement.
question

Globalization
answer

the increase integration of national economies into global, rather than national market, prompted by liberalized capital flows, liberalized trade flows, significant advances in formation technology and marked decrease in the costs of international transport.
question

Trading Blocks
answer

a group of countries that join together in some form of agreement in order to increase trade between them and/or to gain economic benefits from cooperation on some level.
question

Free Trade Areas
answer

a group of countries that invoke little or no price control in the form of tariffs or quotas between each other. Free trade areas allow the agreeing nations to focus on their competitive advantage and to freely trade for the goods they lack the experience at making, thus increasing the efficiency and profitability of each country.
question

Customs Union
answer

an agreement made between countries, where the countries agree to trade freely among themselves, and they also agree to adopt common external barriers against any countries attempting to import in to the customs union.
question

Common Market
answer

customs union with common polices on product regulation, and free movement of goods, services, capital, and labour.
question

Current Account Deficit
answer

when a country’s total imports of goods, services and transfers is greater than the country’s total export of goods, services and transfers. This situation makes a country a net debtor to the rest of the world.
question

Current Account Surplus
answer

when a country’s total imports of goods, services and transfers is less than the country’s total export of goods, services and transfers.
question

Expenditure reduction
answer

concretionary macro-economic policies designed to reduce incomes and so reduce spending on imports and on goods, which could be exported.
question

Expenditure switching
answer

policies, which lead to a fall in spending on imports and a rise in spending on domestically produced goods in both export and domestic markets.
question

Capital Account Deficit
answer

when a country’s balance of payments capital account in which payments made by the country for purchasing foreign assets exceeds the payments received by the country for selling domestic assets. Investment by the domestic economy in foreign assets is less than foreign investment in domestic assets.
question

Capital Account Surplus
answer

when a country’s balance of payments capital accounts in which payments made by the country for purchasing foreign assets is less than the payments received by the country for selling domestic assets.
question

Terms Of Trade
answer

the ration of export prices to import prices expressed as index.
question

Adverse/Deterioration Terms of Trade
answer

a terms of trade that is considered unfavourable relative to some benchmark or to past experiences. Developing countries specialized in primary products are sometimes said to suffer from adverse terms of trade.
question

Absolute Advantage
answer

a country has an absolute advantage when it can produce a good with fewer resources than another.
question

Comparative Advantage
answer

a country has a comparative advantage in producing a good over another if the opportunity cost of producing that good is lower.
question

Trade Diversion
answer

when the entry of a country into a customs union leads to the production of a good or service transferring from a low-cost producer to a high-cost producer.
question

Trade Creation
answer

when the entry of a country into a customs union leads to the production of a good or service transferring from a high cost producer to a low cost producer.
question

Political Sovereignty
answer

the right to regulate economic and commercial activities of that territory.
question

Single Currency
answer

a system of money shared by several countries. (eg. The euro in the EU).
question

Purchasing Power Parity
answer

a situation that occurs when money has equal value across countries.
question

Marshal Lerner Condition
answer

: a rule that tells us how successful a depreciation or devaluation of a currency’s exchange rate will be as a means to improve a current account deficit in the balance of payments.
question

J-curve
answer

the way in which the trade balance may initially worsen after an exchange rate depreciation.
question

Adult Literacy
answer

knowing how to read, write and function in the language of commerce as an adult.
question

Life Expectancy
answer

the number of years individuals in a specific country or region are expected to live determined by statistics.
question

Living Standards
answer

the level of wealth, comfort, material goods and necessities available to certain socioeconomic class in a certain geographic area. This includes factors such as income, quality and availability of employment, class disparity, poverty rate, quality and affordability of house, hours of work required to purchase necessities, GDP, inflation rate…
question

Purchasing Power Parity
answer

a situation that occurs when money has equal value across the countries.
question

Welfare
answer

health, happiness, good fortune, well-being, prosperity, aid provided by the government and others.
question

Natural Factors
answer

the quality and/or quantity of land or raw materials.
question

Human Factors
answer

the quality and/or quantity of human resources.
question

Physical Factors
answer

the quality and /or quantity of non-living resources.
question

Sustainable Development
answer

development that meets the needs of the present without compromising the ability of future generations to meet their own needs.
question

Poverty Cycle
answer

: the seemingly endless continuation of poverty. Once a person or community falls below a certain level of resourcefulness, a chain of events starts to occur that tend to perpetuate the situation.
question

Property Rights
answer

the exclusive authority to determine how a resource is used, whether that resource is owned by government, collective bodies or by individuals.
question

Corruption
answer

decay of values in a countries government such as bribery.
question

Informal Markets
answer

transactions with retailers in unauthorized settings, such as street vendors, open-air markets, peddlers on foot and other unregistered business establishments.
question

Black Market
answer

illegal free market, which flourishes in economics where consumer goods are scarce or are heavily taxed. In the first kind, black market prices are higher than the “official” or controlled prices. In the second kid, prices are lower than the “legitimate” or taxed prices, due to tax evasion.
question

Infrastructure
answer

internal facilities of a country that make business activity possible, such as communication, transportation, and distribution networks, financial institutions and markets, and energy supply systems.
question

Primary Products
answer

raw material and resources used in the productive process. Examples include: metals, agricultural products and minerals.
question

Financial Barriers
answer

when someone is unable to afford to access something because they are unable payments needed to pay it.
question

Indeptedness
answer

a country’s financial statement that summarizes its levels of assets and liabilities, as compared with those of other countries.
question

Non-convertible Currencies
answer

any currency that is used primarily for domestic transactions and is not openly traded on a forex market. This usually is a result of government restrictions, which prevent it from being exchanged for foreign currencies.
question

Capital Flight
answer

the movement of financial capital overseas following domestic problems. This has significantly deepened the problem of Third World debt.
question

Social Cultural Barriers
answer

subjective factors in development in countries that prevent the economy from growing.
question

Harror-Domar Growth Model
answer

a growth model original created to analyse the business cycle but also used to identify factors affecting the rate of growth of GDP.
question

Structural Change/Dual Sector Model
answer

a growth model that main focus is on structural change but also attempts to explain how an underdeveloped economy moves from being a tradition agrarian economy, with small manufacturing sector, to an economy where there is a more modern balance with a larger manufacturing and service sector.
question

Bilateral Aid
answer

aid that is given directly from one country to another.
question

Multilateral Aid
answer

aid that is given by rich countries to international aid agencies, such as the World Bank Groups’ International Bank for Reconstruction and Development. It is then up to the agencies to decide where the aid is most needed and will be most effectively used.
question

Tied Aid
answer

grants or loans that are given to a developing country, but only on the condition that the funds are used to buy goods and services from the donor country.
question

Project Aid
answer

money given for a specific project in a country and is often given in the form of grand aid that require no repayment. The projects are often to improve infrastructure. The World Bank main is a supplier of it.
question

Technical Assistance Aid
answer

aid with the aim to raise the level of technology in developing countries by bringing in foreign technology and technicians who can instruct on its use and to raise the quality of human capital by the provision of training facilities and expert guidance. This is sometimes included in project aid.
question

Commodity Aid
answer

grand aid given by countries to increase productivity in developing economies.
question

Grant Aid
answer

short-term aid provided as a gif and does not have to be repaid.
question

Soft Loans
answer

a loan with an element of concession or aid in it i.e. the conditions are more favorable than market conditions.
question

Official Aid
answer

aid provided by governments on concessional terms, sometimes as simple donations. It may be provided by individual countries, through their official aid agencies, or through multilateral organisations such as the many branches of the United Nations.
question

Export Led Growth
answer

an outward-oriented growth strategy, based on openness and increased international trade. Growth is achieved by concentrating on increasing exports and export revenue, as a leading factor in the aggregate demand of the country.
question

Import Substitution
answer

inward-oriented strategy. It states that a developing country should, wherever possible, produce goods domestically rather than import them. This should mean that the industries producing the goods domestically will be able to grow, as will the economy, and will then be able to be competitive on world markets in the future as they gain from economies of scale.
question

Commercial Loans
answer

a debt-based funding arrangement that a business can set up with a financial institution. The proceeds of commercial loans may be used to fund large capital expenditures and/or operations that business may otherwise be unable to afford.
question

Fair Trade Organization
answer

organisation that attempt to ensure that producers of food and some non-food, products in developing countries receive a fair deal when they are selling their products. If consumers are aware of the harsh and often unfair condition facing the farmers, then perhaps they may be willing to buy form producers who pay a fair price to the farmers.
question

Micro-credit Schemes
answer

extremely small loans given to impoverished people to help them become self-employed.
question

Foreign Direct Investment
answer

a long-term investment by private multinational corporations (MNCs) in countries overseas. It usually occurs through MNCs building new plants or expanding their existing facilities in foreign countries.
question

Sustainable Development
answer

development that meets the needs of the present without compromising the ability of future generations to meet their own needs.
question

International Monetary Fund
answer

an international organization set up originally to monitor members’ balance of payments and exchange rate activities in the era of managed exchange rate, 1946-1971. Now mostly involved n arranging credit and advising LDCs.
question

World Bank
answer

formerly known as IBRD. An international financial institution owned by its 184 member countries responsible for channelling interest bearing loans and technical assistance to poor countries. The World Bank borrows in turn from world markets.
question

Non-government Organization
answer

different organizations that play a major role in international development, with the priority to promote economic development, humanitarian ideas, and sustainable development. Examples include Oxfam, CARE, Mercy Corps, Greenpeace, Amnesty International, Global 2000 and Doctors without Borders.
question

Multinational Corporations
answer

companies that produce in more than one country, creating global advantage of the cost difference in those countries.
question

Transnational Corporations
answer

companies with headquarters in one country but production units in one or more foreign counties.

Get instant access to
all materials

Become a Member