Agricultural terms of
trade-The prices of agricultural outputs relative to the
prices of agricultural inputs. If agricultural output 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
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 U.S. 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.
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.
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 all final goods and services produced
inside a country in a given time period. It equals the sum of all
final goods spent for consumption, investment, government, and net
export (exports minus imports). For more information, see Measuring the Economy: A Primer on GDP and the
National Income and Product Accounts from
the U.S. Department of Commerce, Bureau of Economic Analysis.
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
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.
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 a
given amount of U.S. dollars 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.
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.