70 of the Economics glossary’s terms, each with the part of the syllabus where you first meet it.
A factor of production made up of man-made goods used to produce other goods and services, such as machinery, tools, buildings and infrastructure; its factor income is interest.
The part of the balance of payments that records capital transfers, such as debt forgiveness, and the buying and selling of non-produced, non-financial assets, such as brand names or land for embassies.
Government spending on investment in long-lasting productive assets, such as roads, railways, schools and hospitals, that add to the economy’s infrastructure.
The large-scale transfer of money and financial assets out of a country by residents or investors, often because of political or economic instability, expected depreciation, high taxes or the wish to hide illicit wealth.
A tax on the profit made when an asset, such as shares or property, is sold for more than it was bought for.
Income received from owning assets rather than from working, such as interest, dividends, rent and profit.
An economic system in which most factors of production are privately owned and goods and services are produced for profit and allocated mainly through markets.
The shift of production and emissions from a country with strict carbon pricing to countries with weaker rules, so that global emissions fall less than domestic emissions.
A tax on the carbon content of fossil fuels, or on each tonne of carbon dioxide emitted, intended to make polluters pay for the external cost of greenhouse gas emissions.
Borrowing in a currency with a low interest rate to buy assets in a currency with a higher interest rate, profiting from the interest rate difference as long as the exchange rate does not move against the trade.
A formal agreement between firms, or countries, to act together as if they were a single monopoly, usually by fixing prices or setting output quotas.
The institution that manages a country’s (or currency area’s) money supply and interest rates, issues its currency, acts as banker to the government and to commercial banks, and conducts monetary policy.
The situation where a central bank sets monetary policy free from day-to-day control by the government, so that decisions are not driven by short-term political goals.
Buying or selling of its own currency by a central bank on the foreign exchange market, using its reserves of foreign currency, to influence the exchange rate.
The interest rate at which the central bank lends to commercial banks, which sets the level of short-term interest rates in the economy; also called the base rate, policy rate, discount rate or refinancing rate.
The assumption that all other variables are held constant, so that the effect of a change in one variable on another can be studied on its own; Latin for “other things being equal”.
The key concept that the economy is never static: economic variables, institutions, technology and society constantly change, and economics studies the causes and effects of those changes.
The need to decide between alternative uses of scarce resources; because not every want can be met, every choice involves giving something up, which is its opportunity cost.
The way choices are presented to people, including the number and order of options, how they are described and which applies if a person does nothing, which influences decisions.
An economic system that designs out waste and pollution and keeps products and materials in use for as long as possible through reuse, repair, remanufacturing and recycling.
A model of the economy showing how money flows between households and firms as spending and factor incomes, with leakages from and injections into the flow.
The school of economic thought from Adam Smith to the mid-19th century, which held that free markets allocate resources efficiently and that the economy tends towards full employment on its own.
A good that is excludable but non-rivalrous, at least until it becomes congested, so it can be sold to members or subscribers, for example a streaming service.
A systematic, predictable error in thinking that leads people to make decisions different from those the rational choice model predicts.
The management of a common pool resource by its own users, who agree, monitor and enforce rules on its use without relying mainly on government or private ownership.
An agreement, formal or informal, between firms in a market to limit competition, for example by fixing prices, limiting output or sharing out customers.
Government rules backed by law that require or forbid certain behaviour by firms or consumers, such as bans, quotas, standards or age limits, enforced through penalties.
A word or phrase at the start of an exam question, such as define, explain or evaluate, that states exactly what kind of answer is wanted and how deep it must go.
A piece of writing of at most 800 words that applies economic theory, diagrams and one key concept to a recent news article and evaluates its economic implications.
A private financial institution that accepts deposits from households and firms and makes loans to them, earning profit from the difference between the interest it charges and the interest it pays.
A situation in which a country relies on one or a few primary commodities for a large share of its export earnings, output or government revenue, leaving it exposed to swings in world commodity prices.
Large and frequent rises and falls in the prices of primary commodities, caused mainly by shifts in demand or supply in markets where both are price inelastic.
The single set of tariffs that all members of a customs union apply to imports from countries outside the union.
A customs union that also allows the free movement of factors of production, mainly labour and capital, between member countries.
A natural resource that is rivalrous but non-excludable, such as fish in the open sea, groundwater or forests, so that it tends to be overused and depleted.
The ability of a country to produce a good at a lower opportunity cost, in terms of other goods given up, than another country.
The situation where producers can use the same resources to make one good or another, such as wheat or barley, so that producing more of one means producing less of the other.
Goods that are used together, so that a rise in the price of one reduces the demand for the other.
A single index that combines several different measures, such as income, health and education, into one number, so that a many-sided idea such as poverty or development can be measured.
The combined market share of the largest firms in a market, for example the four-firm concentration ratio (CR4), used to measure how far a market is dominated by a few firms.
A loan made on terms more favourable than market loans, with a below-market interest rate, a long repayment period or a grace period, often given to developing countries as aid.
A regular cash payment to low-income households made only if they meet conditions, such as sending their children to school or attending health clinics.
The conditions attached to loans from the IMF, the World Bank or other lenders, requiring the borrowing government to carry out specified policies, such as cutting a budget deficit or privatising firms.
The situation where each extra unit of one good costs the same amount of the other good given up, because resources are equally suited to both; shown by a straight-line PPC.
The degree of optimism households feel about the economy and their own future incomes and jobs, which affects how much of their income they spend rather than save.
An index measuring the change in the cost of a fixed, weighted basket of goods and services bought by a typical household, compared with a base year set at 100.
The difference between the highest price consumers are willing and able to pay for a good and the price they actually pay; the area below the demand curve and above the price.
Spending by households on final goods and services, both durable and non-durable; the largest component of aggregate demand in most economies.
An arrangement in which the government pays a private firm, usually chosen by competitive tender, to supply a good or service that the government still funds and is responsible for.
A cut in government spending, an increase in taxes, or both, intended to reduce aggregate demand or a budget deficit; when aimed mainly at the deficit it is often called austerity.
Monetary policy that raises interest rates or reduces the money supply to lower aggregate demand, used to close an inflationary gap and reduce inflation.
A measure of inflation that excludes the most volatile prices, usually food and energy, to show the underlying trend in the general price level.
A direct tax on the profits of companies.
A statistical relationship in which two variables tend to move together; correlation alone does not prove that a change in one causes the change in the other.
The abuse of public office or entrusted power for private gain, such as bribery, embezzlement of public funds, or giving contracts and jobs to friends and relatives.
Inflation caused by increases in costs of production, such as wages, energy, raw materials or imported inputs, which shift the short-run aggregate supply curve to the left.
A method of appraising a project by placing money values on all its expected private and external costs and benefits over time, used to decide whether, and how much of, a public good to provide.
The payments a firm makes for the factors of production and other inputs it uses, such as wages, rent, raw materials and energy.
A demand-side policy that acts against the business cycle, raising aggregate demand in a downturn and reducing it in a boom, to reduce fluctuations in output.
A transaction recorded with a plus sign in the balance of payments because it brings money into the country, such as export revenue or an inflow of foreign investment.
An assessment by a rating agency of how likely a borrower, such as a government, is to repay its debts in full and on time; a lower rating raises borrowing costs.
The fall in private sector spending, especially investment, that occurs when increased government borrowing raises interest rates, reducing the effect of expansionary fiscal policy on aggregate demand.
The part of the balance of payments that records trade in goods, trade in services, income flows and current transfers between a country’s residents and the rest of the world.
The situation where the debits on the current account (payments for imports, income paid abroad and transfers sent abroad) are greater than its credits over a period of time.
The situation where the credits on the current account (export revenue, income received from abroad and transfers received) are greater than its debits over a period of time.
Government spending on the day-to-day running of the public sector and on goods and services used up within the year, such as public sector wages and medicines.
Payments between countries for which nothing is received in return and that are not for investment, such as workers’ remittances, foreign aid for consumption and contributions to international organisations.
A trading bloc whose members eliminate trade barriers between themselves and apply a common external tariff to imports from non-members.
Unemployment caused by a fall in aggregate demand in the downturn of the business cycle, when firms need fewer workers to produce a lower level of output.