List of the Most Important Definitions for Chapter 6: Macroeconomic Problems (CIE-AS)

Some helpful definitions:

 
1. Accelerating inflation: It is where the average prices increase at a faster rate say from 5% to 25% and is beginning to pose a serious threat to the economy

2. Agflation: A sustained increase in the general price level due to higher food prices

3. Anticipated inflation: The expected future rate of inflation in an economy

4. Appreciation: An increase in the value of an exchange rate which operates under floating system

5. Cost-push inflation: A sustained increase in the general price level due to significant rise in the costs of production and this can be represented by a leftward shift of AS curve

6. Creeping inflation/ mild inflation: It is when the average prices increase by 3% or less

7. Deflation: A sustained decrease in the general price level over a period of time/ A fall in the level of aggregate demand (AD) in an economy

8. Demand-pull inflation: A sustained increase in the general price level due to excessive spending into the economy and this can be represented by a rightward of AD curve

9. Depreciation: A fall in the value of an exchange rate which operates under the floating system

10. Devaluation: A fall in the value of a currency which operates under fixed exchange rate system

11. Exchange rate: It is where the value of one currency is expressed in terms of another

12. Fiscal drag: An idea where inflation and earnings growth may push more tax payers into higher tax brackets and it has the effect of raising tax revenue without explicitly raising the tax rates

13. Fixed exchange rate: An exchange rate system whereby the value of one currency is pre-determined by the government

14. Floating exchange rate: An exchange rate system whereby the value of a currency is fully determined by market forces

15. Hot money: Flows of money that move from one country to another to take advantage of different interest rates offered by different countries

16. Hyperinflation: It is where prices rise at an alarming rate and become increasingly hard to measure, usually 1000% per annum

17. Imported inflation: A sustained increase in the general price level which is primarily caused by higher price of imports and this can be represented by a leftward shift of AS curve

18. Inflation: A sustained increase in the general price level over a period of time

19. J-curve effect: The period of time after a depreciation, where the current account of the balance of payments gets worse before it gets better

20. Leather shoe costs: One of the implications of having high inflation where people are forced to travel around more frequently either to look for the banks that offer the highest interest rate or shops which offer more value for their money

21. Managed (dirty) float exchange rate: An exchange rate system whereby the value of a currency is allowed to freely float against another but within a narrow/ pre-fixed band

22. Marshall-Lerner condition: The requirement that for a depreciation to be successful in reducing the BOP deficit, the sum of PED for exports and PED for imports must be greater than one

23. Monetary inflation: A sustained increase in the general price level due to an excessive increase in the money supply and this can be represented a rightward shift of AD curve

24. Menu costs: One of the implications of having high inflation where firms have to continuously bear the costs of printing new catalogues and menus to reflect frequent price changes

25. Purchasing power parity (PPP): The value of a currency in terms of what it would be able to buy in other countries

26. Quantity theory of money: A theory which states that money supply and price level in an economy are in direct proportion to one another

27. Revaluation: The rise in the value of a currency which operates under fixed exchange rate system

28. Reflation: An increase in the level of aggregate demand (AD) in an economy

29. Running inflation: It is when the average prices increase at a rate between 10% and 20% a year

30. Stagflation: It is where an economy is experiencing inflation and stagnant economic growth

31. Unanticipated inflation: The actual rate of inflation in an economy minus the anticipated or expected rate of inflation

32. Velocity of circulation: The average number of times one particular unit of money is used over a given period of time

33. Trade-weighted exchange rate: It is where the value of a currency is expressed in terms of a basket of other currencies

34. Walking inflation: It is when the average prices increase at a rate between 3% and 10% a year