Glossary
Contractionary Fiscal Policy
Government actions to decrease aggregate demand by decreasing government spending or increasing taxes.
Example:
To combat high inflation, a government might use contractionary fiscal policy by raising income taxes, reducing consumer spending.
Contractionary Monetary Policy
Central bank actions to decrease the money supply and raise interest rates, curbing inflation and slowing economic growth.
Example:
If inflation is soaring, the central bank might implement contractionary monetary policy by selling government bonds, pulling money out of circulation.
Currency Appreciation
An increase in the value of one currency relative to another, meaning it can buy more of the foreign currency.
Example:
If the U.S. dollar strengthens from 1 USD = 100 JPY to 1 USD = 110 JPY, the dollar has experienced currency appreciation.
Currency Depreciation
A decrease in the value of one currency relative to another, meaning it can buy less of the foreign currency.
Example:
If the British pound falls from 1 GBP = 1.30 USD to 1 GBP = 1.20 USD, the pound has undergone currency depreciation.
Expansionary Fiscal Policy
Government actions to increase aggregate demand by increasing government spending or decreasing taxes.
Example:
During a recession, a government might implement expansionary fiscal policy by funding a large infrastructure project to stimulate the economy.
Expansionary Monetary Policy
Central bank actions to increase the money supply and lower interest rates, stimulating investment and aggregate demand.
Example:
The Federal Reserve might engage in expansionary monetary policy by buying government bonds, which injects money into the banking system.
Foreign Exchange (FOREX) Market
A global marketplace where national currencies are traded, determining exchange rates between them.
Example:
When a tourist exchanges U.S. dollars for Euros to travel in Europe, they are participating in the Foreign Exchange (FOREX) Market.
Protective Tariffs
Taxes on imported goods that are also produced domestically, designed to shield domestic industries from foreign competition.
Example:
The U.S. might impose protective tariffs on imported steel to help American steel manufacturers compete against cheaper foreign steel.
Quotas
A quantitative limit on the amount of a specific good that can be imported into a country over a given period.
Example:
A government might set quotas on imported textiles, allowing only a certain number of units to enter the country each year.
Revenue Tariffs
Taxes on imported goods not produced domestically, primarily intended to generate government income.
Example:
A small island nation might impose revenue tariffs on imported luxury yachts, as it doesn't produce them itself but wants to collect tax from wealthy buyers.
Tariffs
Taxes imposed on imported goods and services, increasing their price in the domestic market.
Example:
A country might impose tariffs on imported cars to make domestically produced cars more competitive.
Trade Barriers
Government-imposed restrictions on the free flow of goods and services between countries.
Example:
Countries sometimes use trade barriers like tariffs to protect their domestic industries from foreign competition.