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Economy Terms - II

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EduAngel
28/01/2017 0 0

Defined Benefit Pensions: A pension plan that pays a specified monetary benefit, usually based on a pensioner’s years of service and their income at the time of retirement. 

Defined Contribution Pensions: A pension plan that makes no specified promise about the level of pension paid out after retirement. Instead, a pensioner’s income depends on the amount of money accumulated in a pre-funded retirement account, on investment returns, and on interest rates at the time of retirement. 

Deflation: A decline in the overall average level of prices. Deflation is the opposite of inflation.

Demand-Constrained: An economy is demand-constrained when the level of output and employment is limited by the amount of overall demand (or spending) on its products. The capitalist economy is usually demand-constrained. Only rarely is the economy supply constrained: that is, limited by the availability of workers and other productive resources. 

Depreciation: This represents the loss of value from an existing stock of real capital (for an individual company or for the whole economy), reflecting the normal wear-and-tear of machinery, equipment, and infrastructure. A company or country must invest continuously just to offset depreciation, or else its capital stock will gradually run down.

Depression: A depression is a very deep, long, and painful recession, in which unemployment rises to very high levels, and economic output does not bounce back. 

Derivatives: A derivative is a financial asset whose resale value depends on the value of other financial assets at different points in time. Its value is thus “derived” from the value of other financial assets, and is hence very difficult to predict. Examples of derivatives include futures, options, and swaps. 

Development: Economic development is the process through which a country’s economy expands and improves in both quantitative and qualitative terms. Economic development requires the coming together of several different processes and conditions: the accumulation of real capital; the development of education, skills, and human capacities; improvements in governance, democracy, and stability; and changes in the sectoral make-up of the economy. 

Discretionary Fiscal Policy: Some government taxing and spending programs can be adjusted by government in response to changing economic circumstances. These discretionary measures (increasing or decreasing particular taxes or spending) are usually used as a counter-cyclical policy. 8

Discrimination: As a result of racist and sexist attitudes, and deliberate efforts of employers to play off groups of workers against each other, different groups of people (defined and divided by gender, ethnicity, language, ability, or other factors) experience very different economic opportunities and incomes.

Distribution: The distribution of income reflects the process by which the real output of goods and services produced by the economy is allocated to different individuals and groups of people. Distribution can be measured across individuals (comparing high-income and low-income households), or across classes (comparing the incomes of workers, small businesses, and capitalists). 

Dividends: Many companies pay a cash dividend (quarterly or annually) to the owners of its shares. This is an enticement to investors to purchase that company’s shares, and represents away of distributing some of a company’s profits to its ultimate owners. Individual investors can capture profits in other ways, as well – such as through capital gains. 

Economic Growth: Economic growth is the expansion of total output produced in the economy. It is usually measured by the expansion of real GDP.

Economies of Scale: Most economic production requires the producing firm or organization to make an initial investment (in real capital, in engineering and design, in marketing) before even the first unit of production occurs. As total production then grows, the cost per unit of that initial investment shrinks. For this reason, most industries demonstrate economies of scale, whereby the unit cost of production declines as the level of output grows. Because of economies of scale, larger companies have an advantage in most industries, and the economy usually operates more efficiently when it is busy and growing (than when it is shrinking or stagnant).

Effective Demand: The theory of effective demand was developed separately in the 1930s by John Maynard Keynes and Michal Kalecki. It explains why the capitalist economy is normally limited by the total amount of spending (that is, the economy is demand-constrained), and hence why unemployment almost always exists.

Employment: Employment is a specific form of work, in which the worker performs their labour for someone else in return for a money wage or salary.

Employment Rate: This measures the share of working-age adults who are actually employed in a paying position. The employment rate can be a better indicator of the strength of labour markets than the unemployment rate (since the unemployment rate depends on whether or not a non-working individual is considered to be “in” the labour force).

Enclosures: A historic process in Britain and other European countries, in the very early years of capitalism, in which lands formerly held and used in common were fenced off and formally assigned to private owners. This painful and often violent process was essential to the creation of a landless, desperate new class of people who were compelled to work in the new industrial factories.

Environment: The natural environment is an essential aspect of the economy, whose influence is felt in several different ways. Everyone relies on the direct ecological benefits that come from nature: fresh air, clean water, space, climate. And every industry relies on natural resources which are used as necessary inputs to production (land, minerals, forestry and agriculture, energy, and other materials). Finally (and unfortunately), most economic activities involve the creation of some waste and pollution which is expelled back into the environment. 

Environmental Taxes: Taxes which are imposed on particular activities, or particular products, which are considered to be especially damaging to the environment, with the goal of changing economic behaviour and reducing pollution. A carbon tax is an important example of an environmental tax.

Equilibrium: In neoclassical economics, equilibrium exists when supply equals demand for a particular commodity. General equilibrium is a special (purely hypothetical) condition in which every market (including markets for both final products and factors of production, the latter including labour) is in equilibrium. 

Equity: The proportion of a company’s total assets which are “owned” outright by the company’s owners. A company’s equity is equal to its value less its debt owed to bankers, bondholders, and other lenders. 

Exchange Rate: The “price” at which the currency of one country can be converted into the currency of another country. A country’s currency is “strong,” or its exchange rate is “high,” if it can purchase more of another country’s currency. A country’s currency appreciates when its value (compared to other currencies) grows; it depreciates when its value falls.

Exports: An export is the sale of a product from one country (either a good or a service) to a purchaser in another country. 

Externalities: Many economic activities have collateral effects (sometimes positive, but more often negative) on other people who are not directly involved in that activity. Examples of externalities include pollution (which imposes a cost on the natural environment and everyone who uses it), congestion (which slows down travel and productivity), and the spill-over impacts of major investment or plant closure decisions.

Factors of Production: The basic productive resources (labour, capital, and natural resources) that are essential inputs to every economic activity.

Feudalism: A type of economy (such as that in Europe in the Middle Ages) that is primarily agricultural, but productive enough to support a class of artisans and merchants. Feudal societies are composed of two main social classes: nobles and peasants. The nobility extracted the agricultural surplus from peasants through a system of tradition, mutual obligation, and (when necessary) brute force.

Final Products: Products (either goods or services) which are intended for final consumption. They are distinct from intermediate products, which are products used in the production of other products (such as raw materials, capital goods, or producer services). 

Finance: Monetary purchasing power, typically created by a bank or other financial institution, which allows a company, household, or government to spend on major purchases (often on capital assets or other major purchases).

Financialization: The trend under neoliberalism through which real production in the economy is accompanied by an increasing degree of financial activity and intermediation (including various forms of lending, financial assets, and securitization). One way to measure financialization is by the ratio of total financial assets to real capital assets in an economy. 

Fiscal Policy: The spending and taxing activities of government constitute its fiscal policy. Fixed Capital: Real capital which is installed permanently in a specific location, including buildings, infrastructure, and major machinery and equipment. 

Flat-Rate Tax: A form of income tax in which every taxpayer pays the same rate of tax on their personal income, regardless of their income level. It differs from a progressive tax, in which higher-income individuals pay a higher rate of tax. 

Foreign Direct Investment: An investment by a company based in one country, in an actual operating business, including real physical capital assets (like buildings, machinery and equipment), located in another country. 

Foreign Exchange: The process by which the currency of one nation is converted into the currency of another country. 

Formal Economy: The sector of the economy which produces goods and services in return for monetary payment, and is fully integrated into the formal structures (including tax systems) of the economy. It is distinct from the informal economy, in which production and exchange occurs on a non-monetary, subsistence, or barter basis. 

Fractional Reserve System: A banking system in which private banks are required to hold a specified proportion of assets on hand in their banks, to underpin a much larger amount of lending to the bank’s customers.

Free Trade Agreements: An agreement between two or more countries which eliminates tariffs on trade between the countries, reduces non-tariff barriers to trade, cements rights and protections for investors and corporations, and takes other measures to guarantee a generally liberalized, pro-business economic environment.

Full Employment: A condition in which every willing worker is able to find a paying job within a very short period of time, and hence unemployment is near zero.

General Equilibrium: Neoclassical economics assumes that production, employment, investment and income distribution are all determined by a condition of equilibrium (with demand equalling supply) in every single market (including markets for both factors of production and produced goods and services).

Gini Coefficient: A statistical measure of inequality. A Gini score of 0 implies perfect equality (in which every individual receives the same income). A Gini score of 1 implies perfect inequality (in which one individual receives all of the income). 

Globalization: A generalized historical process through which more economic activity takes place across national borders. Forms of globalization include international trade (exports and imports), foreign direct investment, international financial flows, and international migration.

Goods: Tangible products which are produced in the economy – including agricultural products, natural resources, manufactured goods, and construction. 

Government Production: Some production in the economy is undertaken directly by governments (or various kinds of government agencies) in order to meet public needs (as distinct from the production for profit which is undertaken by private companies). Examples of government production include education, health care, policing, and other public services. 

Greenhouse Gases: Greenhouse gases trap more heat from the sun near the earth’s surface. Carbon dioxide is the major greenhouse gas, but other forms of pollution (including methane and nitrous oxide) also contribute to global warming. Because of the long-run accumulation of greenhouse gases after centuries of industrial pollution, the planet’s average temperature is rising notably, causing climate change, severe weather, rising sea levels, and other major effects. 

Gross Domestic Product: The value of all the goods and services produced for money in an economy, evaluated at their market prices. Excludes the value of unpaid work (such as caring reproductive labour performed in the home). GDP is calculated by adding up the value-added at each stage of production. 

Gross Domestic Product, Deflator: A price index which adjusts the overall value of GDP according to the average increase in the prices of all output. The GDP deflator equals the ratio of nominal GDP to real GDP.

Gross Domestic Product, Per Capita: The level of GDP divided by the population of a country or region. Changes in real GDP per capita over time are often interpreted as a measure of changes in the average standard of living of a country, although this is misleading (because it doesn’t account for differences in the distribution of income across factors of production and individuals, and it doesn’t consider the value of unpaid labour).


Heterodox Economics: Various schools of thought (including post-Keynesian, structuralist, Marxian, and institutionalist economics) which reject the precepts of dominant neoclassical theory.

Hoarding: A situation in which financial investors, companies, or individual consumers choose to hold hoard

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