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Agricultural terms of trade—The prices of agricultural
outputs relative to the prices of agricultural inputs. If agricultural
prices rise relative to input prices, we say that there is a positive
agricultural terms of trade effect.
Balance of agricultural trade—The value of agricultural
exports less the value of agricultural imports. If agricultural
export value is higher than agricultural import value, there is
a positive agricultural balance of trade. This concept is the counterpart
of a general balance of trade specific to agriculture.
Capital flight—The movement of savings and liquid financial
assets from one country to another and from one currency to another.
Often during financial crises, residents of the crisis country will
transfer savings and other liquid assets into dollar-denominated
assets, often in the United States. This has the effect of putting
pressure on the exchange rate and often leads to devaluation and
the draining of liquidity out of the crisis country's banking and
financial system.
Consumer income—Often,
the term "consumer
income" is used synonymously with a country's gross domestic
product (GDP). In technical national income account terms, consumer
income
should more specifically refer to disposable income or household
income, which would be approximately 70 percent of GDP.
Consumer price index (CPI)—A price index that measures
the cost of a fixed basket of consumer goods with weights based
on consumption shares of urban consumers. It is published by the
Bureau of Labor Statistics (BLS)
for the United States. CPIs are published regularly in the United
States and many other countries
around the world. There are many component
indexes of the CPI, as
well as international comparisons, which are available from BLS.
Country terms of trade—The relative value of a country's
export prices divided by the relative value of a country's import
prices, measured as an index. We say a country's terms of trade
are improving if export prices are rising relative to import prices.
Depository institutions—Commercial banks, credit unions,
savings and loan associations, mutual savings banks, and federal
savings banks.
Exchange rate—The price
that one currency converts to another. For example, on April 16,
2002, 3.8 Malaysian ringgits
were equal to one U.S. dollar. In the Agricultural
Exchange Rate Data Set, all exchange rates are given as foreign
currency to the U.S. dollar. Nominal exchange rates are the current
value of the foreign currency in terms of U.S. dollars. Real exchange
rates are the nominal exchange rates adjusted for relative rates
of inflation fixed to a given base year. The U.S. trade-weighted
exchange rate is an index of exchange rates across countries
where
relative exports determine the weight of the country's exchange
rate in the overall index. The sum of the weights equals one.
Fiscal policy—The government's program determining
the amount of taxes and government expenditures to be made in a
year. When an economy is moving into recession, an expansionary
economic policy would dictate that the government should provide
an economic stimulus by increasing expenditures or reducing taxes.
This is referred to as a stimulative fiscal policy. During periods
with low unemployment and rising inflation, constraining fiscal
policy is often suggested, involving increased taxes or reduced
government expenditures.
Gross domestic product (GDP)—The
value of the total final output produced inside a country during
a given year. It equals gross national product (GNP) less overseas
remittances. In most instances, the difference between GDP and
GNP is relatively small, representing less than 1 percent of GNP.
In
some countries, such as Pakistan, where overseas remittances are
quite large, the difference can be as large as 5 percent. For a
more detailed definition of GDP accounts, see the Updated
Summary NIPA Methodologies from the U.S. Department of Commerce,
Bureau of Economic Analysis.
Gross national product (GNP)—The
value of all final goods and services produced during a year by
the factors of production in a country. It is the sum of expenditures
by consumers and governments, gross investment spending, and total
merchandise exports less imports. It is a measure of the gross value
added by all of the economic agents in the economy. A related concept
is net national product, which subtracts out depreciation of investment
and thus is equal to net value added of all consumption, government
spending, net investment, and exports minus imports. Gross national
income (GNI) is equal to gross national product, but measures the
income produced by the gross national product rather than the value
of the product itself. Thus GNI is equal to wages and salaries,
rents, and profits from all economic entities in an economy.
Income elasticity—The percent
change in quantity demanded induced by a percent change in income.
If a 1-percent change in income induces a change in quantity demanded
by more than 1 percent, then the demand is said to be elastic. If
the response is less than 1 percent, the demand is said to be inelastic.
Since elasticity is a relative measure, it is independent of scale
and thus provides a useful measure of comparison across all ranges
and scales of quantities.
Macroeconomics—The study of aggregate economic
variables such as national income, employment, interest rates,
exchange
rates, and prices. Often because of aggregation, index numbers
are used to represent macroeconomic variables. Examples are the
unemployment
rate, trade-weighted exchange rates, and the consumer price index.
Monetary policy—The set of policies determined
by the Board of Governors of the Federal Reserve System involving
influence over the money supply, short-term interest rates, and
credit market conditions. During periods of recession, lower interest
rates and higher money growth can help stimulate the economy. During
periods of declining unemployment and increasing inflation, monetary
restraint by raising interest rates and slowing the growth of money
is usually indicated.
Purchasing power parity—A concept in which the dollar
equivalent will purchase the same bundle of goods in all economies.
In calculating purchasing power parity, adjustments are made to
exchange rates to raise or lower the relative value of currencies
to equilibrate purchasing power. The basis for the calculation is
the dollar. The end result is to raise currency values of low-income
countries while maintaining currency values of high-income countries.
Real federal funds rate—The nominal federal funds rate
minus the near-term expected rate of inflation. The federal funds
rate is the rate that one depository institution charges another
on borrowings of funds held at Federal Reserve Banks. The Federal
Reserve targets the federal funds rate and sets the discount rate,
the rate the Federal Reserve charges on Federal Reserve lending
to depository institutions.
Transmission elasticity (or
exchange rate pass-through)—Because markets are imperfect and
there are barriers to trade, a change in international prices or
exchange rates does not necessarily translate perfectly into a change
in domestic prices. The transmission elasticity measures the rate
of transmission and varies between 0 and 1. A transmission elasticity
of 1 indicates that international price changes and exchange rate
changes are perfectly transmitted to the domestic economy. A transmission
elasticity of 0 implies no change in domestic prices from a change
in international prices or exchange rates. Countries with highly
imperfect markets and significant trade barriers have low transmission
elasticities while countries with open international markets have
high transmission elasticities.
Unemployment rate—The percentage of the total work
force of people actively seeking employment who are currently
unemployed.
The nonaccelerating inflationary rate of unemployment (NAIRU) is
the rate of unemployment that will not lead to increasing
inflation
in the economy. In the United States, that rate has been estimated
to be approximately 5 percent.
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