Economic Terms

A flow variable is measured over an interval of time. For example, UK nominal GDP refers to the total number of pounds spent over a time period, such as a year. Therefore it is a flow variable, and has units of pounds/year.

Below highlights the idea of a flow in contrast to a stock. This shows that Real GDP is continually changing and this then gets added to the stock of real GDP to measure the size of an economy. In this instance the cumulative real GDP exceeds the current value of real GDP.

An investment made by an overseas business (not investment funds) into a company in another country. This generates a positive cash flow into the country receiving the investment. For the purpose of national trade accounts investments must acquire at least 10% of a company to be categorised as foreign direct investment.

The market where currencies around the world are readily bought and sold at a price determined by the market i.e. the exchange rate. This is one of the main financial markets.

A contract that buys the right to trade at a given exchange rate at a specified date in the future. These contracts help eliminate foreign exchange risk and currency uncertainty in planned transactions.

A concept that says the presentation or context in which a choice is placed affects people's decisions. For instance a gym membership offering an annual payment of £480 a year is likely to be not as well received compared to if it was advertised at just the equivalent of £1.32 a day. This is why a lot of big ticket purchases such as phones and cars are paid in installements as most consumers either cannot or will not pay this extortionate price.

Is a good that is not scarce, and therefore is available without limits^. A free good is available in as great a quantity as desired with zero opportunity cost to society. It's important to note a good that is made available at zero price is not necessarily a free good. For example, a shop might give away its stock for free, but producing these goods would still have required the use of scarce resources. An example of a free good would be air.

A good that is not associated with any opportunity cost as they are unlimited in supply, do not cost anything to produce and are freely available e.g. air.

Believe that there should be no government intervention as the forces of demand and supply will achieve more efficient outcomes in the long run.

A policy perspective that argues that government intervention should be strictly prohibited, on the grounds that it creates an inefficient allocation of resources.

Free market policies ensure the freedom of buyers and sellers to make their own decisions about producing, selling and buying products and services. As a result of these policies it leads to the LRAS curve shifting 

The type of free market policies include:

• Deregulation
• Privatisation
• FDI
• Free Trade
• Export-Led Growth

The resulting impact of a free market policy is for the LRAS curve to shift to the right and this reduces inflationary pressures in the economy, whilst expanding real output. This is shown below

A person that is able to consume a good without actually purchasing it e.g. flood defences