Oeconomica
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Definitions
Definitions are extremely important for all essay response questions and is tested under the Learning Objective "Relevant economic terms are used appropriately throughout the response"
Below is a list of definitions pertaining to International topics that are frequently tested. This is not a comprehensive list and if you feel that we have left out any important definitions please do not hesitate to suggest it using the "Contact Us" form.
HL and SL
Free Trade
Absence of government intervention of any kind in international trade
Trade protection
Government intervention in international trade through imposition of trade restrictions
Tariff
Taxes on imported goods
Quota
A legal limit to the quantity of goods that can be imported over a particular time period
Production subsidies
Payment per unit output granted by the government to domestic firms that compete with imports
Export Subsidies
Payment per unit on exported good
Economic Integration
Economic cooperation between countries and coordination of their economic policies leading to increased economic links between them
Preferential Trade Agreement
An agreement between two or more countries to lower trade barriers on particular products
Bilateral Trade Agreement
Trade agreement between two countries
Multilateral Trade Agreement
Trade agreement between many countries
Regional Trade Agreement
Trade agreement between group countries within same geographical location
Trade Liberalisation
Freeing up of trade by reducing or eliminating trade barriers
Trading Bloc
A group of countries that have agreed to reduce barriers to trade for the purpose of encouraging trade
Free Trade Agreement
Group of countries that agree to gradually eliminate trade barriers between themselves. Each country still pursues unique policies to non-member countries
Custom Union
Group of countries that fulfil free trade agreement requirements and also adopt common policy towards non-members
Common Market
Countries in custom unions eliminate any remaining trade barriers and restrictions to mobility of Factors of Production
Monetary Union
A high form of economic integration involves the adoption by a group of countries of a single currency, in addition to a single central bank
Foreign Exchange
International transactions that involve the use of different national currencies
Exchange Rate
Value of one currency expressed in terms of another
Devaluation
Lowering value of currency
Revaluation
Increasing value of currency
Pegged Exchange Rate
A currency that is fixed against another currency
Managed Exchange Rate
Exchange rates are free for the most part over long periods of time however central banks periodically intervenes to keep it within certain bounds
Balance of Payment
Record of all transactions between residents of the country and all other countries
Credits
Payment received from other countries
Debits
Payments made to other countries
Sustainable Development
Development that meets the needs of the present without compromising the ability of future generations to meet their own needs
Economic Development
Rise in living standards and well being of the population
Current Account Balance
The net inflows of trade in goods and services, income and cash transfers
Capital Account Balance
The net inflows of funds for capital transfers and transactions in non produced, non financial assets
Financial Account Balance
Net inflows of funds for foreign direct investment, portfolio investment, reserve assets and official borrowing
Poverty Cycle
Arises when low incomes result in low savings, permitting only low investments in physical, human and natural capital, and therefore low productivity of labour and of land. This gives rise to low, if any growth in income and hence low incomes once again.
Foreign Direct Investment
Investment by firms based in one country in productive activities in another country with control of at least 10 per cent of the firm in the host country.
Multinational Corporation
A firm that undertakes foreign direct investment
Foreign Aid
The transfer of funds or goods and services to developing countries with the main objective to bring about improvements in their economic, social or political conditions
Humanitarian Aid
Aid extended in regions where there are emergencies caused by violent conflicts or natural disasters.
Development Aid
Aid intended to help developing countries achieve their economic growth and development objectives
Microfinance
Credit in small amounts to people who do not ordinarily have access to credit
Import Substitution
A growth and trade strategy in which a country begins manufacturing simple consumer goods oriented towards the domestic market in order to promote its domestic industry
Export Promotion
A growth and trade strategy where a country attempts to achieve economic growth by expanding its exports
Economic integration
Economic interdependence between countries, usually achieved by agreement between countries to reduce or eliminate trade and other barriers between them
HL Only
Specialization
Occurs when an individual, firm or a country concentrate production on one or a few goods and services
Absolute advantage
The ability of one country to produce a good using fewer resources than another country
Comparative advantage
Situation in which one country has a lower opportunity cost in the production of a good than another country
Expenditure Switching
Policies that involve switching consumption away from imported goods and towards domestically produced goods
Expenditure Reducing
Policies that involve reducing expenditures in the domestic economy so as to bring about a decrease in imports