IB Economics - Paper 2 definitions

list two responsibilities of a country's central bank

1. banker to the government 2. control of interest rates 3. control of money supply

list two components of the financial account

1. direct investment (net) 2. portfolio investment (net) 3. reserve assets (funding)

list two Millennium Development Goals

1. eradicate extreme poverty and hunger 2. promote gender equality and empower women 3. reduce child mortality

two reasons why the government might wish to protect the domestic poultry indsutrcy

1. to project jobs 2. to ensure higher revenue for domestic chicken producers

multinational corporations

a company that carries out foreign direct investment in another country

customs union

a form of trade agreement where members trade freely amongst themselves and have common external trade policies with non-members

micro-credit

a loan from the government allows poor people to set up a small scale business

quota

a physical limit on the number or value of a good that can be imported into a country

price floor

a price (set by the government) above the equilibrium price

diversification

a strategy used to increase the variety of foods and services produced in order to avoid (the risks associated with( over-specialisation

deflation

a sustained decrease in the average level of prices in an economy

inflation

a sustained increase in the average (general) price level

tariff

a tax on imports

bilateral trade agreements

a trade agreement between two countries which aims to lower trade barriers, or to increase trade

preferential trade agreement

a type of economic integration that removes (or reduces) trade barriers for certain products to countries that are in the agreement

official development assistance (ODA)

aid (financial assistance) given from a government for the purposes of development and/or welfare

investment

an addition to the capital stock of the economy

appreciation

an increase in the value (price) of a currency in terms of another country

foreign direct investment

an investment by a multinational corporation or a long term investment in another country

investment

any addition to the capital stock of the economy or expenditure by firms on a capital

poverty trap

any linked combination of factors which causes poverty to be self-perpetuating with low income as the cause

sustainability

development that meets the needs of the present generation without comprising the ability of future generations to meet their needs

business confidence

expectations of businesses about the future of economic conditions and affects the level of investment

monetary policy

is a policy that is carried out by the central bank and involves changes in interest rates

infrastructure

large scale public systems (services and facilities) of a country that are necessary for economic activity

fiscal policy

policy that involves changes in government spending and taxation

consumption

spending by households (consumers) on goods and services

subsidies

sums of money given by the government to firms in order to lower their costs of production

two examples of trade protection

tariff, quota, subsidy

direct taxes

taxes (paid to the government) on income (households and firms)

negative externalities

the costs (harmful effects) suffered by a third party as a result of an economic transaction (when a good or service is produced or consumed)

economic growth

the growth in the value of real output (over time)

current account

the measure of the flow of funds from trade in goods and services (value of exports minus imports), plus the net income flows (e.g. profits, interest, wages) and net transfers of money (e.g. foreign aid, grants)

financial account

the net balance arising from flows of foreign direct investment, flows of portfolio investment or changes in reserve assets

interest rate

the price or cost of borrowed money (credit) or the reward for saving

gross domestic product

the total value of all goods and services produced in an economy (in a given time period)

exchange rate

the value (price) of one currency expressed in terms of another country

why the GNI per capita is higher than GDP per Canada

there must be a positive figure (balance) for net property income (current transfers)

main function of the IMF

to ensure the stability of the international monetary system

comparative advantage

when a country can produce a product at a lower opportunity cost than another country

fixed exchange rate

when a country's currency is fixed against the value of another currency

recession

when an economy experiences two consecutive quarters of falling output

inflationary gap

when an economy is (in equilibrium) at a level of output that is greater than the full employment level of output or above the potential ouput

privitization

when the government sells state-owned enterprises (assets) to the private sector