Economic Terms

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Defini ons Flashcards Ques ons
Balance of payments
Record of all economic transac ons between the residents of the country and the rest of the world in a par cular period (over a quarter of a year or
more commonly over a year).
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The balance of payments, also known as balance of interna onal payments and abbreviated BoP, of a country is the record of all economic
transac ons between the residents of the country and the rest of the world in a par cular period (over a quarter of a year or more commonly
over a year). These transac ons are made by individuals, firms and government bodies. Thus the balance of payments includes all external visible
and non-visible transac ons of a country. It is an important issue to be studied, especially in interna onal financial management field, for a few
reasons. First, the balance of payments provides detailed informa on concerning the demand and supply of a country's currency. For example, if
the United States imports more than it exports, then this means that the supply of dollars is likely to exceed the demand in the foreign
exchanging market, ceteris paribus. One can thus infer that the U.S. dollar would be under pressure to depreciate against other currencies. On
the other hand, if the United States exports more than it imports, then the dollar would be likely to appreciate. Second, a country's balance-of-
payment data may signal its poten al as a business partner for the rest of the world. If a country is grappling with a major balance-of-payment
difficulty, it may not be able to expand imports from the outside world. Instead, the country may be tempted to impose measures to restrict
imports and discourage capital ou lows in order to improve the balance-of-payment situa on. On the other hand, a country experiencing a
significant balance-of payment surplus would be more likely to expand imports, offering marke ng opportuni es for foreign enterprises, and less
likely to impose foreign exchange restric ons. Third, balance-of-payments data can be used to evaluate the performance of the country in
interna onal economic compe on. Suppose a country is experiencing trade deficits year a er year. This trade data may then signal that the
country's domes c industries lack interna onal compe veness. To interpret balance-of-payments data properly, it is necessary to understand
how the balance of payments account is constructed. These transac ons include payments for the country's exports and imports of goods,
services, financial capital, and financial transfers. It is prepared in a single currency, typically the domes c currency for the country concerned.
Sources of funds for a na on, such as exports or the receipts of loans and investments, are recorded as posi ve or surplus items. Uses of funds,
such as for imports or to invest in foreign countries, are recorded as nega ve or deficit items.
When all components of the BoP accounts are included they must sum to zero with no overall surplus or deficit. For example, if a country is
impor ng more than it exports, its trade balance will be in deficit, but the shor all will have to be counterbalanced in other ways – such as by
funds earned from its foreign investments, by running down currency reserves or by receiving loans from other countries.
While the overall BoP accounts will always balance when all types of payments are included, imbalances are possible on individual elements of
the BoP, such as the current account, the capital account excluding the central bank's reserve account, or the sum of the two. Imbalances in the
la er sum can result in surplus countries accumula ng wealth, while deficit na ons become increasingly indebted. The term balance of
payments o en refers to this sum: a country's balance of payments is said to be in surplus (equivalently, the balance of payments is posi ve) by a
specific amount if sources of funds (such as export goods sold and bonds sold) exceed uses of funds (such as paying for imported goods and
paying for foreign bonds purchased) by that amount. There is said to be a balance of payments deficit (the balance of payments is said to be
nega ve) if the former are less than the la er. A BoP surplus (or deficit) is accompanied by an accumula on (or decumula on) of foreign
exchange reserves by the central bank.
Under a fixed exchange rate system, the central bank accommodates those flows by buying up any net inflow of funds into the country or by
providing foreign currency funds to the foreign exchange market to match any interna onal ou low of funds, thus preven ng the funds flows
from affec ng the exchange rate between the country's currency and other currencies. Then the net change per year in the central bank's
foreign exchange reserves is some mes called the balance of payments surplus or deficit. Alterna ves to a fixed exchange rate system include a
managed float where some changes of exchange rates are allowed, or at the other extreme a purely floa ng exchange rate (also known as a
purely flexible exchange rate). With a pure float the central bank does not intervene at all to protect or devalue its currency, allowing the rate to
be set by the market, and the central bank's foreign exchange reserves do not change, and the balance of payments is always zero.
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Balance of trade
Net Exports
Difference between the monetary value of a na on's exports and imports over a certain period.
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The commercial balance or net exports (some mes symbolized as NX), is the difference between the monetary value of a na on's exports and
imports over a certain period.
If a country exports a greater value than it imports, it is called a trade surplus, posi ve balance, or a "favourable balance", and conversely, if a
country imports a greater value than it exports, it is called a trade deficit, nega ve balance, "unfavorable balance", or, informally, a "trade gap".
Some mes a dis nc on is made between a balance of trade for goods versus one for services. Generally trade surplus is seen as posi ve
economic indicator however in excep onal circumstances trade deficit is due to government forex policy to achieve other macroeconomic goals.
Balanced budget
A balanced budget (par cularly that of a government) refers to a budget in which revenues are equal to expenditures.
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A balanced budget (par cularly that of a government) refers to a budget in which revenues are equal to expenditures. Thus, neither a budget
deficit nor a budget surplus exists (the accounts "balance"). More generally, it refers to a budget that has no budget deficit, but could possibly
have a budget surplus. A cyclically balanced budget is a budget that is not necessarily balanced year-to-year, but is balanced over the economic
cycle, running a surplus in boom years and running a deficit in lean years, with these offse ng over me.
Balanced budgets and the associated topic of budget deficits are a conten ous point within academic economics and within poli cs. Most
economists agree that a balanced budget decreases interest rates, increases savings and investment, shrinks trade deficits and helps the
economy grow faster in the longer term.
Bank of England
The Bank of England
Central bank of the United Kingdom and the model on which most modern central banks have been based.
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The Bank of England, formally the Governor and Company of the Bank of England, is the central bank of the United Kingdom and the model on
which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world, a er the Sveriges
Riksbank, and the world's 8th oldest bank. It was established to act as the English Government's banker and is s ll one of the bankers for the
Government of the United Kingdom. The Bank was privately owned by stockholders from its founda on in 1694 un l it was na onalised in
1946.
In 1998, it became an independent public organisa on, wholly owned by the Treasury Solicitor on behalf of the government, with independence
in se ng monetary policy.
The Bank is one of eight banks authorised to issue banknotes in the United Kingdom, but has a monopoly on the issue of banknotes in England
and Wales and regulates the issue of banknotes by commercial banks in Scotland and Northern Ireland.
The Bank's Monetary Policy Commi ee has devolved responsibility for managing monetary policy. The Treasury has reserve powers to give
orders to the commi ee "if they are required in the public interest and by extreme economic circumstances" but such orders must be endorsed
by Parliament within 28 days. The Bank's Financial Policy Commi ee held its first mee ng in June 2011 as a macro pruden al regulator to
oversee regula on of the UK's financial sector.
The Bank's headquarters have been in London's main financial district, the City of London, on Threadneedle Street, since 1734. It is some mes
known by the metonym The Old Lady of Threadneedle Street or The Old Lady, a name taken from the legend of Sarah Whitehead, whose ghost
is said to haunt the Bank's garden. The busy road junc on outside is known as Bank junc on.
As a regulator and central bank, the Bank of England has not offered consumer banking services for many years, but it s ll does manage some
public-facing services such as exchanging superseded bank notes. Un l 2016, the bank provided personal banking services as a popular privilege
for employees.
Bank reserves
Commercial banks' holdings of deposits in accounts with a central bank (for instance the European Central Bank or the applicable branch bank of the
Federal Reserve System, in the la er case including federal funds), plus currency that is physically held in the bank's vault ("vault cash").
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Bank reserves are a commercial banks' holdings of deposits in accounts with a central bank (for instance the European Central Bank or the
applicable branch bank of the Federal Reserve System, in the la er case including federal funds), plus currency that is physically held in the
bank's vault ("vault cash"). Some central banks set minimum reserve requirements, which require banks to hold deposits at the central bank
equivalent to at least a specified percentage of their liabili es such as customer deposits. Even when there are no reserve requirements, banks
o en opt to hold some reserves—called desired reserves—against unexpected events such as unusually large net withdrawals by customers or
bank runs.
In rela on to bookkeeping, the term is a misnomer. Reserves are ordinarily part of the equity of the company and are therefore liabili es. Bank
reserves, on the other hand, are part of the bank's assets. In a bank's annual report, bank reserves are referred to as "cash and balances at central
banks".
Bond (finance)
Foreign bond
Instrument of indebtedness of the bond issuer to the holders.
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In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. The most common types of bonds include municipal bonds
and corporate bonds. It is a debt security, under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to
pay them interest (the coupon) and/or to repay the principal at a later date, termed the maturity date. Interest is usually payable at fixed
intervals (semiannual, annual, some mes monthly). Very o en the bond is nego able, that is, the ownership of the instrument can be transferred
in the secondary market. This means that once the transfer agents at the bank medallion stamp the bond, it is highly liquid on the second
market.
Thus, a bond is a form of loan or IOU: the holder of the bond is the lender (creditor), the issuer of the bond is the borrower (debtor), and the
coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds,
to finance current expenditure. Cer ficates of deposit (CDs) or short term commercial paper are considered to be money market instruments
and not bonds: the main difference is in the length of the term of the instrument.
Bonds and stocks are both securi es, but the major difference between the two is that (capital) stockholders have an equity stake in the
company (i.e., they are owners), whereas bondholders have a creditor stake in the company (i.e., they are lenders). Being a creditor, bondholders
have priority over stockholders. This means they will be repaid in advance of stockholders, but will rank behind secured creditors in the event of
bankruptcy. Another difference is that bonds usually have a defined term, or maturity, a er which the bond is redeemed, whereas stocks are
typically outstanding indefinitely. An excep on is an irredeemable bond, such as a consol, which is a perpetuity, that is, a bond with no maturity.
Bond market
Bond markets
Financial market where par cipants can issue new debt, known as the primary market, or buy and sell debt securi es, known as the secondary
market.
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The bond market (also debt market or credit market) is a financial market where par cipants can issue new debt, known as the primary market,
or buy and sell debt securi es, known as the secondary market. This is usually in the form of bonds, but it may include notes, bills, and so on.
Its primary goal is to provide long-term funding for public and private expenditures. The bond market has largely been dominated by the United
States, which accounts for about 44% of the market. As of 2009, the size of the worldwide bond market (total debt outstanding) is an es mated
at $82.2 trillion, of which the size of the outstanding U.S. bond market debt was $31.2 trillion according to Bank for Interna onal Se lements
(BIS), or alterna vely $35.2 trillion as of Q2 2011 according to Securi es Industry and Financial Markets Associa on (SIFMA).
The bond market is part of the credit market, with bank loans forming the other main component. The global credit market in aggregate is about
3 mes the size of the global equity market. Bank loans are not securi es under the Securi es and Exchange Act, but bonds typically are and are
therefore more highly regulated. Bonds are typically not secured by collateral (although they can be), and are sold in rela vely small
denomina ons of around $1,000 to $10,000. Unlike bank loans, bonds may be held by retail investors. Bonds are more frequently traded than
loans, although not as o en as equity.
Nearly all of the average daily trading in the U.S. bond market takes place between broker-dealers and large ins tu ons in a decentralized over-
the-counter (OTC) market. However, a small number of bonds, primarily corporate ones, are listed on exchanges. Bond trading prices and
volumes are reported on FINRA's Trade Repor ng and Compliance Engine, or TRACE.
An important part of the bond market is the government bond market, because of its size and liquidity. Government bonds are o en used to
compare other bonds to measure credit risk. Because of the inverse rela onship between bond valua on and interest rates (or yields), the bond
market is o en used to indicate changes in interest rates or the shape of the yield curve, the measure of "cost of funding". The yield on
government bonds in low risk countries such as the United States or Germany is thought to indicate a risk-free rate of default. Other bonds
denominated in the same currencies (U.S. Dollars or Euros) will typically have higher yields, in large part because other borrowers are more likely
than the U.S. or German Central Governments to default, and the losses to investors in the case of default are expected to be higher. The
primary way to default is to not pay in full or not pay on me.
Broad money
Measure of the money supply that includes more than just physical money such as currency and coins (also known as narrow money).
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In economics, broad money is a measure of the money supply that includes more than just physical money such as currency and coins (also
known as narrow money). It generally includes demand deposits at commercial banks, and any monies held in easily accessible accounts.
Components of broad money are s ll very liquid, and non-cash components can usually be converted into cash very easily.
One measure of broad money is M3, which includes currency and coins, and deposits in checking accounts, savings accounts and small me
deposits, overnight repos at commercial banks, and non-ins tu onal money market accounts. This is the main measure of the money supply, and
is the economic indicator usually used to assess the amount of liquidity in the economy, as it is rela vely easy to track.
However broad money can have different defini ons depending on the situa on of usage, usually it is constructed as required to be the most
useful indicator in the situa on. More generally, broad money is just a term for the least liquid money defini on being considered and less a
fixed defini on across all situa ons. As such broad money may have different implica ons in the United States than it does in Australia, and
even from academic paper to paper. The term broad money will usually be more exactly defined before a discussion, when it is not sufficient to
assume a wider defini on of money.
Building society
Building Socie es
Financial ins tu on owned by its members as a mutual organiza on.
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A building society is a financial ins tu on owned by its members as a mutual organiza on. Building socie es offer banking and related financial
services, especially savings and mortgage lending. These ins tu ons are found in the United Kingdom (UK) and several other countries.
The term "building society" first arose in the 18th century in Great Britain from coopera ve savings groups. In the UK today, building socie es
ac vely compete with banks for most consumer banking services, especially mortgage lending and savings accounts.
Every building society in the UK is a member of the Building Socie es Associa on. At the start of 2008, there were 59 building socie es in the
UK, with total assets exceeding £360 billion. The number of socie es in the UK fell by four during 2008 due to a series of mergers brought
about, to a large extent, by the consequences of the financial crisis of 2007-2010. With three further mergers in each of 2009 and 2010, and a
demutualisa on and a merger in 2011, there are now 44 building socie es.
Capital account
In macroeconomics and interna onal finance, the capital account (also known as the financial account) is one of two primary components of the
balance of payments, the other being the current account.
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In macroeconomics and interna onal finance, the capital account (also known as the financial account) is one of two primary components of the
balance of payments, the other being the current account. Whereas the current account reflects a na on's net income, the capital account
reflects net change in ownership of na onal assets.
A surplus in the capital account means money is flowing into the country, but unlike a surplus in the current account, the inbound flows
effec vely represent borrowings or sales of assets rather than payment for work. A deficit in the capital account means money is flowing out of
the country, and it suggests the na on is increasing its ownership of foreign assets.
The term "capital account" is used with a narrower meaning by the Interna onal Monetary Fund (IMF) and affiliated sources. The IMF splits
what the rest of the world calls the capital account into two top-level divisions: financial account and capital account, with by far the bulk of the
transac ons being recorded in its financial account.
Capital adequacy ra o
Ra o of a bank's capital to its risk. Na onal regulators track a bank's CAR to ensure that it can absorb a reasonable amount of loss and complies with
statutory Capital requirements.
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Capital Adequacy Ra o (CAR), also known as Capital to Risk (Weighted) Assets Ra o (CRAR), is the ra o of a bank's capital to its risk. Na onal
regulators track a bank's CAR to ensure that it can absorb a reasonable amount of loss and complies with statutory Capital requirements.
It is a measure of a bank's capital. It is expressed as a percentage of a bank's risk weighted credit exposures.
This ra o is used to protect depositors and promote stability and efficiency of financial systems around the world.
Two types of capital are measured: er one capital, which can absorb losses without a bank being required to cease trading, and er two capital,
which can absorb losses in the event of a winding-up and so provides a lesser degree of protec on to depositors.
Capital gain
Profit that results from a sale of a capital asset, such as stock, bond or real estate, where the sale price exceeds the purchase price.
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A capital gain is a profit that results from a sale of a capital asset, such as stock, bond or real estate, where the sale price exceeds the purchase
price. The gain is the difference between a higher selling price and a lower purchase price. Conversely, a capital loss arises if the proceeds from
the sale of a capital asset are less than the purchase price.
Capital gains may refer to "investment income" that arises in rela on to real assets, such as property; financial assets, such as shares/stocks or
bonds; and intangible assets.
Capital good
Durable good (one that does not quickly wear out) that is used in the produc on of goods or services.
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A capital good is a durable good (one that does not quickly wear out) that is used in the produc on of goods or services. Capital goods are one
of the three types of producer inputs, the other two being land and labor, which are also known collec vely as primary factors of produc on. In
the study of economic systems and in Marxian economics, the term means of produc on is o en used with the same meaning as capital goods.
This classifica on originated during the classical economic period and has remained the dominant method for classifica on.
Capital goods are acquired by a society by saving wealth which can be invested in the means of produc on. In terms of economics one can
consider capital goods to be tangible. They are used to produce other goods or services during a certain period of me. Machinery, tools,
buildings, computers, or other kind of equipment that is involved in produc on of other things for sale represent the term of a Capital good. The
owners of the Capital good can be individuals, households, corpora ons or governments. Any material that is used in produc on of other goods
also is considered to be capital good.
Many defini ons and descrip ons of capital goods produc on have been proposed in the literature. Capital goods are generally considered one-
of-a-kind, capital intensive products that consist of many components. They are o en used as manufacturing systems or services themselves.
Examples include ba leships, oil rigs, baggage handling systems and roller coaster equipment. Their produc on is o en organized in projects,
with several par es coopera ng in networks (Hicks et al. 2000; Hicks and McGovern 2009; Hobday 1998). A capital good lifecycle typically
consists of tendering, engineering and procurement, manufacturing, commissioning, maintenance and (some mes) decommissioning (Blanchard
1997; Hicks et al. 2000; Hobday 1998; Vianello and Ahmed 2008).
Capital ou low
Economic term describing capital flowing out of (or leaving) a par cular economy.
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Capital ou low is an economic term describing capital flowing out of (or leaving) a par cular economy. Ou lowing capital can be caused by any
number of economic or poli cal reasons but can o en originate from instability in either sphere.
Regardless of cause, capital ou lowing is generally perceived as always undesirable and many countries create laws to restrict the movement of
capital out of the na ons' borders (called capital controls). While this can aid in temporary growth, it o en causes more economic problems than
it helps.
Massive capital ou low is usually a sign of a greater problem, not the problem itself.
Countries with ou low restric ons can find it harder to a ract capital inflows because firms know if an opportunity goes sour they won't be
able to recover much more of their investment.
Governments that ins tute capital controls inevitably send a signal to its ci zens that something might be wrong with the economy, even if the
laws are merely a precau onary measure.
Argen na experienced rampant and sudden capital ou lows in the 1990s a er its currency underwent drama c pressure to adjust in light of the
fixed exchange rate, leading to a recession. Modern macro-economists o en cite the country as a classic example of the difficul es of
developing fledgling economies.
Capital requirement
Capital adequacy
Amount of capital a bank or other financial ins tu on has to hold as required by its financial regulator.
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Capital requirement (also known as regulatory capital or capital adequacy) is the amount of capital a bank or other financial ins tu on has to
hold as required by its financial regulator. This is usually expressed as a capital adequacy ra o of equity that must be held as a percentage of
risk-weighted assets. These requirements are put into place to ensure that these ins tu ons do not take on excess leverage and become
insolvent. Capital requirements govern the ra o of equity to debt, recorded on the liabili es and equity side of a firm's balance sheet. They
should not be confused with reserve requirements, which govern the assets side of a bank's balance sheet—in par cular, the propor on of its
assets it must hold in cash or highly-liquid assets.
Central bank
Central banks
Ins tu on that manages a state's currency, money supply, and interest rates.
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A central bank, reserve bank, or monetary authority is an ins tu on that manages a state's currency, money supply, and interest rates. Central
banks also usually oversee the commercial banking system of their respec ve countries. In contrast to a commercial bank, a central bank
possesses a monopoly on increasing the monetary base in the state, and usually also prints the na onal currency, which usually serves as the
state's legal tender.
The primary func on of a central bank is to control the na on's money supply (monetary policy), through ac ve du es such as managing interest
rates, se ng the reserve requirement, and ac ng as a lender of last resort to the banking sector during mes of bank insolvency or financial
crisis. Central banks usually also have supervisory powers, intended to prevent bank runs and to reduce the risk that commercial banks and
other financial ins tu ons engage in reckless or fraudulent behavior. Central banks in most developed na ons are ins tu onally designed to be
independent from poli cal interference. S ll, limited control by the execu ve and legisla ve bodies usually exists.
Cer ficate of deposit

Cer ficates of deposit
Time deposit, a financial product commonly sold in the United States and elsewhere by banks, thri ins tu ons, and credit unions.
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A cer ficate of deposit (CD) is a me deposit, a financial product commonly sold in the United States and elsewhere by banks, thri ins tu ons,
and credit unions.
CDs are similar to savings accounts in that they are insured "money in the bank" and thus virtually risk free. In the USA, CDs are insured by the
Federal Deposit Insurance Corpora on (FDIC) for banks and by the Na onal Credit Union Administra on (NCUA) for credit unions. They differ
from savings accounts in that the CD has a specific, fixed term (o en one, three, or six months, or one to five years) and, usually, a fixed interest
rate. The bank intends that the customer hold the CD un l maturity, at which me they can withdraw the money and accrued interest.
In exchange for the customer deposi ng the money for an agreed term, ins tu ons usually grant higher interest rates than they do on accounts
that customers can withdraw from on demand—though this may not be the case in an inverted yield curve situa on. Fixed rates are common,
but some ins tu ons offer CDs with various forms of variable rates. For example, in mid-2004, interest rates were expected to rise—and many
banks and credit unions began to offer CDs with a "bump-up" feature. These allow for a single readjustment of the interest rate, at a me of the
consumer's choosing, during the term of the CD. Some mes, financial ins tu ons introduce CDs indexed to the stock market, bond market, or
other indices.
Some features of CDs are:
A larger principal should/may receive a higher interest rate.
A longer term usually earns a higher interest rate, except in the case of an inverted yield curve (e.g., preceding a recession).
Smaller ins tu ons tend to offer higher interest rates than larger ones.
Personal CD accounts generally receive higher interest rates than business CD accounts.
Banks and credit unions that are not insured by the FDIC or NCUA generally offer higher interest rates.
CDs typically require a minimum deposit, and may offer higher rates for larger deposits. The best rates are generally offered on "Jumbo CDs"
with minimum deposits of $100,000.
The consumer who opens a CD may receive a paper cer ficate, but it is now common for a CD to consist simply of a book entry and an item
shown in the consumer's periodic bank statements. That is, there is o en no "cer ficate" as such. Consumers who want a hard copy that verifies
their CD purchase may request a paper statement from the bank, or print out their own from the financial ins tu on's online banking service.
Commercial bank
Commercial banks
Type of financial ins tu on that provides services such as accep ng deposits, making business loans, and offering basic investment products.
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A commercial bank is a type of financial ins tu on that provides services such as accep ng deposits, making business loans, and offering basic
investment products. Commercial bank" can also refer to a bank, or a division of a large bank, which more specifically deals with deposit and
loan services provided to corpora ons or large/middle-sized business - as opposed to individual members of the public/small business - retail
banking, or merchant banks.
Conver bility
Quality that allows money or other financial instruments to be converted into other liquid stores of value.
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Conver bility is the quality that allows money or other financial instruments to be converted into other liquid stores of value. Conver bility is an
important factor in interna onal trade, where instruments valued in different currencies must be exchanged.
Cost of goods sold

Produc on cost
Cost of goods sold (COGS) refers to the carrying value of goods sold during a par cular period.
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Cost of goods sold (COGS) refers to the carrying value of goods sold during a par cular period.
Costs are associated with par cular goods using one of several formulas, including specific iden fica on, first-in first-out (FIFO), or average cost.
Costs include all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present loca on and
condi on. Costs of goods made by the business include material, labor, and allocated overhead. The costs of those goods not yet sold are
deferred as costs of inventory un l the inventory is sold or wri en down in value.
Current account
In economics, a country's current account is one of the two components of its balance of payments, the other being the capital account (some mes
called the financial account).
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In economics, a country's current account is one of the two components of its balance of payments, the other being the capital account
(some mes called the financial account). The current account consists of the balance of trade, net primary income or factor income (earnings on
foreign investments minus payments made to foreign investors) and net cash transfers, that have taken place over a given period of me. The
current account balance is one of two major measures of a country's foreign trade (the other being the net capital ou low). A current account
surplus indicates that the value of a country's net foreign assets (i.e. assets less liabili es) grew over the period in ques on, and a current
account deficit indicates that it shrank. Both government and private payments are included in the calcula on. It is called the current account
because goods and services are generally consumed in the current period.
Defla on
Decrease in the general price level of goods and services.
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In economics, defla on is a decrease in the general price level of goods and services. Defla on occurs when the infla on rate falls below 0% (a
nega ve infla on rate). Infla on reduces the real value of money over me; conversely, defla on increases the real value of money – the
currency of a na onal or regional economy. This allows one to buy more goods and services than before with the same amount of money.
Economists generally believe that defla on is a problem in a modern economy because it may increase the real value of debt, especially if the
defla on was unexpected. Defla on may also aggravate recessions and lead to a defla onary spiral.
Defla on is dis nct from disinfla on, a slow-down in the infla on rate, i.e. when infla on declines to a lower rate but is s ll posi ve.
Demand for money
Desired holding of financial assets in the form of money: that is, cash or bank deposits.
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The demand for money is the desired holding of financial assets in the form of money: that is, cash or bank deposits. It can refer to the demand
for money narrowly defined as M1 (non-interest-bearing holdings), or for money in the broader sense of M2 or M3.
Money in the sense of M1 is dominated as a store of value by interest-bearing assets. However, money is necessary to carry out transac ons; in
other words, it provides liquidity. This creates a trade-off between the liquidity advantage of holding money and the interest advantage of
holding other assets. The demand for money is a result of this trade-off regarding the form in which a person's wealth should be held. In
macroeconomics mo va ons for holding one's wealth in the form of money can roughly be divided into the transac on mo ve and the asset
mo ve. These can be further subdivided into more microeconomically founded mo va ons for holding money.
Generally, the nominal demand for money increases with the level of nominal output (price level mes real output) and decreases with the
nominal interest rate. The real demand for money is defined as the nominal amount of money demanded divided by the price level. For a given
money supply the locus of income-interest rate pairs at which money demand equals money supply is known as the LM curve.
The magnitude of the vola lity of money demand has crucial implica ons for the op mal way in which a central bank should carry out monetary
policy and its choice of a nominal anchor.
Condi ons under which the LM curve is flat, so that increases in the money supply have no s mulatory effect (a liquidity trap), play an important
role in Keynesian theory. This situa on occurs when the demand for money is infinitely elas c with respect to the interest rate.
A typical money-demand func on may be wri en as
Md=P∗L(R,Y)
where
Md
is the nominal amount of money demanded, P is the price level, R is the nominal interest rate, Y is real output, and L(.) is real money demand. An
alternate name for
L(R,Y)
is the liquidity preference func on.
Deposit account
Bank deposit
Savings account, current account or any other type of bank account that allows money to be deposited and withdrawn by the account holder.
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A deposit account is a savings account, current account or any other type of bank account that allows money to be deposited and withdrawn by
the account holder. These transac ons are recorded on the bank's books, and the resul ng balance is recorded as a liability for the bank and
represents the amount owed by the bank to the customer. Some banks may charge a fee for this service, while others may pay the customer
interest on the funds deposited.
Deregula on
Process of removing or reducing state regula ons, typically in the economic sphere.
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Deregula on is the process of removing or reducing state regula ons, typically in the economic sphere. It is the undoing or repeal of
governmental regula on of the economy. It became common in advanced industrial economies in the 1970s and 1980s, as a result of new
trends in economic thinking about the inefficiencies of government regula on, and the risk that regulatory agencies would be controlled by the
regulated industry to its benefit, and thereby hurt consumers and the wider economy.
Devalua on
Reduc on in the value of a currency with respect to those goods, services or other monetary units with which that currency can be exchanged.
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Devalua on in modern monetary policy is a reduc on in the value of a currency with respect to those goods, services or other monetary units
with which that currency can be exchanged. "Devalua on" means official lowering of the value of a country's currency within a fixed exchange
rate system, by which the monetary authority formally sets a new fixed rate with respect to a foreign reference currency. In contrast,
deprecia on is used to describe a decrease in a currency's value (rela ve to other major currency benchmarks) due to market forces, not
government or central bank policy ac ons. Under the second system central banks maintain the rates up or down by buying or selling foreign
currency, usually but not always USD. The opposite of devalua on is called revalua on.
Deprecia on and devalua on are some mes incorrectly used interchangeably, but they always refer to values in terms of other currencies.
Infla on, on the other hand, refers to the value of the currency in goods and services (related to its purchasing power). Altering the face value of
a currency without reducing its exchange rate is a redenomina on, not a devalua on or revalua on.
Direct tax
Direct taxes
Tax imposed upon a person or property as dis nct from a tax imposed upon a transac on, which is described as an indirect tax.
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Though the actual defini ons vary between jurisdic ons, in general, a direct tax is a tax imposed upon a person or property as dis nct from a tax
imposed upon a transac on, which is described as an indirect tax. The term may be used in economic and poli cal analyses, but does not itself
have any legal implica ons. However, in the United States, the term has special cons tu onal significance because of a provision in the U.S.
Cons tu on that direct taxes imposed by the na onal government be appor oned among the states on the basis of popula on. In the European
Union direct taxa on remains the sole responsibility of member states.
Disposable and discre onary income

Disposable income
Disposable income is total personal income minus personal current taxes.
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Disposable income is total personal income minus personal current taxes. In na onal accounts defini ons, personal income minus personal
current taxes equals disposable personal income. Subtrac ng personal outlays (which includes the major category of personal [or private]
consump on expenditure) yields personal (or, private) savings, hence the income le a er paying away all the taxes is referred to as disposable
income.
Restated, consump on expenditure plus savings equals disposable income a er accoun ng for transfers such as payments to children in school
or elderly parents’ living and care arrangements.
The marginal propensity to consume (MPC) is the frac on of a change in disposable income that is consumed. For example, if disposable income
rises by $100, and $65 of that $100 is consumed, the MPC is 65%. Restated, the marginal propensity to save is 35%.
For the purposes of calcula ng the amount of income subject to garnishments, United States' federal law defines disposable income as an
individual's compensa on (including salary, over me, bonuses, commission, and paid leave) a er the deduc on of health insurance premiums
and any amounts required to be deducted by law. Amounts required to be deducted by law include federal, state, and local taxes, state
unemployment and disability taxes, social security taxes, and other garnishments or levies, but does not include such deduc ons as voluntary
re rement contribu ons and transporta on deduc ons. Those deduc ons would be made only a er calcula ng the amount of the garnishment
or levy. The defini on of disposable income varies for the purpose of state and local garnishments and levies.
Discre onary income is disposable income (a er-tax income), minus all payments that are necessary to meet current bills. It is total personal
income a er subtrac ng taxes and typical expenses (such as rent or mortgage, u li es, insurance, medical, the, transporta on, property
maintenance, child support, food and sundries, etc.) to maintain a certain standard of living. It is the amount of an individual's income available
for spending a er the essen als (such as food, clothing, and shelter) have been taken care of:
Discre onary income = gross income - taxes - all compelled payments (bills)
Despite the defini ons above, disposable income is o en incorrectly used to denote discre onary income. For example, people commonly refer
to disposable income as the amount of "play money" le to spend or save. The Consumer Leverage Ra o is the expression of the ra o of total
household debt to disposable income.
Effec ve exchange rate
Index that describes the strength of a currency rela ve to a basket of other currencies.
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The effec ve exchange rate is an index that describes the strength of a currency rela ve to a basket of other currencies. Suppose a country has
N
trading partners and denote
Tradei
and
Ei
as the trade and exchange rate with country
i
respec vely. Then the effec ve exchange rate is calculated as:
Eeffective=E1Trade1Trade+...+ENTradeNTrade
Although typically that basket is trade-weighted, the trade-weighted effec ve exchange rate index is not the only way to derive a meaningful
effec ve exchange rate index. Ho (2012) proposed a new approach to compiling effec ve exchange rate indices. It defines the effec ve
exchange rate as the ra o of the "normalized Exchange Value of Currency i against the US dollar" to the normalized exchange value of the
"benchmark currency basket" against the US dollar. The US dollar is here used as numeraire for convenience, and since it cancels out, in principle
any other currency can be used instead without affec ng the results. The benchmark currency basket is a GDP-weighted basket of the major
fully conver ble currencies of the world.
Bilateral exchange rate involves a currency pair, while an effec ve exchange rate is a weighted average of a basket of foreign currencies, and it
can be viewed as an overall measure of the country's external compe veness. A nominal effec ve exchange rate (NEER) is weighted with the
inverse of the asympto c trade weights. A real effec ve exchange rate (REER) adjusts NEER by the appropriate foreign price level and deflates
by the home country price level. There are four aspects for alterna ve measures of REER which are (a) using end-of-period or period averages of
the nominal exchange rate. (b) choosing price indexes. (c) in obtaining the real effec ve exchange rates, deciding upon the number of trading
partners in calcula ng the weights. (d) deciding upon the formula to use in aggrega on. Considering all these aspects together led to the
calcula on of a great number of alterna ve series.
The Bank for Interna onal Se lements provides four sets of effec ve exchange rates, updated monthly. One pair uses a "narrow" set of 27
countries with data going back to 1964, both in nominal terms and as a "real" effec ve exchange rate adjusted using consumer price infla on.
The "broad" set covers 61 economies, but with data only from 1994, again available both as a nominal series and adjusted for rela ve infla on.
The trade weights are not updated monthly; as of March 2016, the base period was the average over 2011-13.
Effec ve exchange rates are useful for gauging whether a currency has appreciated overall rela ve to trading partners. For example, in 2015 the
Chinese RMB depreciated about 8% against the US dollar. However, more of China's trade is with Asia and Europe than with the United States,
and the dollar appreciated against those currencies. The net effect was that once weighted by trade shares the value of the Chinese currency
actually appreciated approximately 10% rela ve to its trading partners.
EER are s ll vola le over short periods of me and a poor guide for comparing standards of living across countries. For that purpose Purchasing
Power Parity measures are more appropriate.
Fiat money
Print money
Currency established as money by government regula on or law.
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Fiat money is a currency established as money by government regula on or law. The term derives from the La n fiat ("let it become", "it will
become") used in the sense of an order or decree. It differs from commodity money and representa ve money. Commodity money is created
from a good, o en a precious metal such as gold or silver, which has uses other than as a medium of exchange (such a good is called a
commodity), while representa ve money simply represents a claim on such a good.
The first use of fiat money was recorded in China around 1000 AD. Since then, it has been used by various countries, concurrently with
commodity currencies.
Financial crisis
Financial Panic
The term financial crisis is applied broadly to a variety of situa ons in which some financial assets suddenly lose a large part of their nominal value.
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The term financial crisis is applied broadly to a variety of situa ons in which some financial assets suddenly lose a large part of their nominal
value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these
panics. Other situa ons that are o en called financial crises include stock market crashes and the burs ng of other financial bubbles, currency
crises, and sovereign defaults. Financial crises directly result in a loss of paper wealth but do not necessarily result in significant changes in the
real economy (e.g. the crisis resul ng from the famous tulip mania bubble in the 17th century).
Many economists have offered theories about how financial crises develop and how they could be prevented. There is no consensus, however,
and financial crises con nue to occur from me to me.
Fiscal drag
Fiscal drag happens when the government's net fiscal posi on (spending minus taxa on) fails to cover the net savings desires of the private
economy, also called the private economy's spending gap (earnings minus spending and private investment).
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Fiscal drag happens when the government's net fiscal posi on (spending minus taxa on) fails to cover the net savings desires of the private
economy, also called the private economy's spending gap (earnings minus spending and private investment). The resul ng lack of aggregate
demand leads to defla onary pressure, or drag, on the economy, essen ally due to lack of state spending or to excess taxa on.
One cause of fiscal drag may be bracket creep, where progressive taxa on increases automa cally as taxpayers move into higher tax brackets
due to infla on. This tends to moderate infla on, and can be characterized as an automa c stabilizer to the economy. Fiscal drag can also be a
result of a hawkish stance towards government finances.
Fiscal policy
Fiscal policies
Use of government revenue collec on (mainly taxes) and expenditure (spending) to influence the economy.
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In economics and poli cal science, fiscal policy is the use of government revenue collec on (mainly taxes) and expenditure (spending) to
influence the economy. According to Keynesian economics, when the government changes the levels of taxa on and government spending, it
influences aggregate demand and the level of economic ac vity. Fiscal policy o en a empts to stabilize the economy over the course of the
business cycle.
Changes in the level and composi on of taxa on and government spending can affect the following macroeconomic variables, amongst others,
in an economy:
Aggregate demand and the level of economic ac vity;
Savings and investment in the economy;
Income distribu on.
Fiscal policy can be dis nguished from monetary policy, in that fiscal policy deals with taxa on and government spending and is o en
administered by an execu ve under laws of a legislature, whereas monetary policy deals with the money supply, lending rates and interest rates
and is o en administered by a central bank.
Fixed asset
Fixed assets
Term used in accoun ng for assets and property that cannot easily be converted into cash.
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Fixed assets, also known as tangible assets or property, plant, and equipment (PP&E), is a term used in accoun ng for assets and property that
cannot easily be converted into cash. This can be compared with current assets such as cash or bank accounts, which are described as liquid
assets. In most cases, only tangible assets are referred to as fixed.IAS 16 (Interna onal Accoun ng Standard) defines Fixed Assets as assets
whose future economic benefit is probable to flow into the en ty, whose cost can be measured reliably. Fixed assets belong to one of 2 types:
"Freehold Assets" - assets which are purchased with legal right of ownership and used, and "Leasehold Assets" - assets used by owner without
legal right for a par cular period of me.
Moreover, a fixed/non-current asset can also be defined as an asset not directly sold to a firm's consumers/end-users. As an example, a baking
firm's current assets would be its inventory (in this case, flour, yeast, etc.), the value of sales owed to the firm via credit (i.e. debtors or accounts
receivable), cash held in the bank, etc. Its non-current assets would be the oven used to bake bread, motor vehicles used to transport deliveries,
cash registers used to handle cash payments, etc. While these non-current assets have value, they are not directly sold to consumers and cannot
be easily converted to cash.
These are items of value that the organiza on has bought and will use for an extended period of me; fixed assets normally include items such
as land and buildings, motor vehicles, furniture, office equipment, computers, fixtures and fi ngs, and plant and machinery. These o en receive
favorable tax treatment (deprecia on allowance) over short-term assets.
It is per nent to note that the cost of a fixed asset is its purchase price, including import du es and other deduc ble trade discounts and
rebates. In addi on, cost a ributable to bringing and installing the asset in its needed loca on and the ini al es mate of dismantling and
removing the item if they are eventually no longer needed on the loca on.
The primary objec ve of a business en ty is to make profit and increase the wealth of its owners. In the a ainment of this objec ve it is
required that the management will exercise due care and diligence in applying the basic accoun ng concept of “Matching Concept”. Matching
concept is simply matching the expenses of a period against the revenues of the same period.
The use of assets in the genera on of revenue is usually more than a year, i.e. long term. It is therefore obligatory that in order to accurately
determine the net income or profit for a period deprecia on is charged on the total value of asset that contributed to the revenue for the period
in considera on and charge against the same revenue of the same period. This is essen al in the prudent repor ng of the net revenue for the
en ty in the period.
Net book value of an asset is basically the difference between the historical cost of that asset and its associated deprecia on. From the
foregoing, it is apparent that in order to report a true and fair posi on of the financial jurisprudence of an en ty it is relatable to record and
report the value of fixed assets at its net book value. Apart from the fact that it is enshrined in Standard Accoun ng Statement (SAS) 3 and IAS
16 that value of asset should be carried at the net book value, it is the best way of consciously presen ng the value of assets to the owners of
the business and poten al investor.
Fixed capital
Concept in economics and accoun ng, first theore cally analyzed in some depth by the economist David Ricardo.
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Fixed capital is a concept in economics and accoun ng, first theore cally analyzed in some depth by the economist David Ricardo. It refers to
any kind of real or physical capital (fixed asset) that is not used up in the produc on of a product. It contrasts with circula ng capital such as raw
materials, opera ng expenses and the like.
So fixed capital is that por on of the total capital outlay that is invested in fixed assets (such as land, buildings, vehicles, plant and equipment),
that stay in the business almost permanently - or at the very least, for more than one accoun ng period. Fixed assets can be purchased by a
business, in which case the business owns them. They can also be leased, hired or rented, if that is cheaper or more convenient, or if owning the
fixed asset is prac cally impossible (for legal or technical reasons).
Refining the classical dis nc on between fixed and circula ng capital in Das Kapital, Karl Marx emphasizes that the dis nc on is really purely
rela ve, i.e. it refers only to the compara ve rota on speeds (turnover me) of different types of physical capital assets. Fixed capital also
"circulates", except that the circula on me is much longer, because a fixed asset may be held for 5, 10 or 20 years before it has yielded its value
and is discarded for its salvage value. A fixed asset may also be resold and re-used, which o en happens with vehicles and planes.
In na onal accounts, fixed capital is conven onally defined as the stock of tangible, durable fixed assets owned or used by resident enterprises
for more than one year. This includes plant, machinery, vehicles & equipment, installa ons & physical infrastructures, the value of land
improvements, and buildings.
The European system of na onal and regional accounts (ESA95) explicitly includes produced intangible assets (e.g. mineral exploita on,
computer so ware, copyright protected entertainment, literary and ar s cs originals) within the defini on of fixed assets.
Land itself is not included in the sta s cal concept of fixed capital, even though it is a fixed asset. The main reason is that land is not regarded as
a product (a reproducible good). But the value of land improvements is included in the sta s cal concept of fixed capital, being regarded as the
crea on of value-added through produc on.
Fixed exchange-rate system

Fixed exchange rate
Type of exchange rate regime where a currency's value is fixed against either the value of another single currency, to a basket of other currencies, or
to another measure of value, such as gold.
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A fixed exchange rate, some mes called a pegged exchange rate, is a type of exchange rate regime where a currency's value is fixed against
either the value of another single currency, to a basket of other currencies, or to another measure of value, such as gold.
There are benefits and risks to using a fixed exchange rate. A fixed exchange rate is typically used in order to stabilize the value of a currency by
directly fixing its value in a predetermined ra o to a different, more stable or more interna onally prevalent currency (or currencies), to which
the value is pegged. In doing so, the exchange rate between the currency and its peg does not change based on market condi ons, the way
floa ng currencies will do. This makes trade and investments between the two currency areas easier and more predictable, and is especially
useful for small economies, economies which borrow primarily in foreign currency, and in which external trade forms a large part of their GDP.
A fixed exchange-rate system can also be used as a means to control the behavior of a currency, such as by limi ng rates of infla on. However,
in doing so, the pegged currency is then controlled by its reference value. As such, when the reference value rises or falls, it then follows that the
value(s) of any currencies pegged to it will also rise and fall in rela on to other currencies and commodi es with which the pegged currency can
be traded. In other words, a pegged currency is dependent on its reference value to dictate how its current worth is defined at any given me. In
addi on, according to the Mundell–Fleming model, with perfect capital mobility, a fixed exchange rate prevents a government from using
domes c monetary policy in order to achieve macroeconomic stability.
In a fixed exchange-rate system, a country’s central bank typically uses an open market mechanism and is commi ed at all mes to buy and/or
sell its currency at a fixed price in order to maintain its pegged ra o and, hence, the stable value of its currency in rela on to the reference to
which it is pegged. The central bank provides the assets and/or the foreign currency or currencies which are needed in order to finance any
payments imbalances.
In the 21st century, the currencies associated with large economies typically do not fix or peg exchange rates to other currencies. The last large
economy to use a fixed exchange rate system was the People's Republic of China which, in July 2005, adopted a slightly more flexible exchange
rate system called a managed exchange rate. The European Exchange Rate Mechanism is also used on a temporary basis to establish a final
conversion rate against the Euro (€) from the local currencies of countries joining the Eurozone.
Floa ng exchange rate

Floa ng exchange
Type of exchange-rate regime in which a currency's value is allowed to fluctuate in response to foreign-exchange market mechanisms.
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A floa ng exchange rate or fluctua ng exchange or flexible exchange rate is a type of exchange-rate regime in which a currency's value is
allowed to fluctuate in response to foreign-exchange market mechanisms. A currency that uses a floa ng exchange rate is known as a floa ng
currency. A floa ng currency is contrasted with a fixed currency whose value is ed to that of another currency, gold or to a currency basket.
In the modern world, most of the world's currencies are floa ng; such currencies include the most widely traded currencies: the United States
dollar, the Indian Rupee, the euro, the Norwegian krone, the Japanese yen, the Bri sh pound, and the Australian dollar. However, central banks
o en par cipate in the markets to a empt to influence the value of floa ng exchange rates. The Canadian dollar most closely resembles a pure
floa ng currency, because the Canadian central bank has not interfered with its price since it officially stopped doing so in 1998. The US dollar
runs a close second, with very li le change in its foreign reserves; in contrast, Japan and the UK intervene to a greater extent whereas India has
seen medium range interven on by its central bank, Reserve Bank of India.
From 1946 to the early 1970s, the Bre on Woods system made fixed currencies the norm; however, in 1971, the US decided no longer to
uphold the dollar exchange at 1/35th of an ounce of gold, so that the currency was no longer fixed. A er the 1973 Smithsonian Agreement,
most of the world's currencies followed suit. However, some countries, such as most of the Gulf States, fixed their currency to the value of
another currency, which has been more recently associated with slower rates of growth. When a currency floats, targets other than the
exchange rate itself are used to administer monetary policy (see open-market opera ons).
Foreign direct investment
Investment in the form of a controlling ownership in a business in one country by an en ty based in another country.
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A foreign direct investment(FDI) is an investment in the form of a controlling ownership in a business in one country by an en ty based in
another country. It is thus dis nguished from foreign por olio investment by a no on of direct control.
The origin of the investment does not impact the defini on as an FDI: the investment may be made either "inorganically" by buying a company
in the target country or "organically" by expanding opera ons of an exis ng business in that country.
Foreign exchange market

FOREX
Global decentralized market for the trading of currencies.
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The foreign exchange market (forex, FX, or currency market) is a global decentralized market for the trading of currencies. This includes all
aspects of buying, selling and exchanging currencies at current or determined prices. In terms of volume of trading, it is by far the largest market
in the world, followed by the Credit market. The main par cipants in this market are the larger interna onal banks. Financial centres around the
world func on as anchors of trading between a wide range of mul ple types of buyers and sellers around the clock, with the excep on of
weekends. The foreign exchange market does not determine the rela ve values of different currencies, but sets the current market price of the
value of one currency as demanded against another.
The foreign exchange market works through financial ins tu ons, and it operates on several levels. Behind the scenes banks turn to a smaller
number of financial firms known as "dealers", who are ac vely involved in large quan es of foreign exchange trading. Most foreign exchange
dealers are banks, so this behind-the-scenes market is some mes called the "interbank market", although a few insurance companies and other
kinds of financial firms are involved. Trades between foreign exchange dealers can be very large, involving hundreds of millions of dollars.
Because of the sovereignty issue when involving two currencies, forex has li le (if any) supervisory en ty regula ng its ac ons.
The foreign exchange market assists interna onal trade and investments by enabling currency conversion. For example, it permits a business in
the United States to import goods from European Union member states, especially Eurozone members, and pay Euros, even though its income is
in United States dollars. It also supports direct specula on and evalua on rela ve to the value of currencies, and the carry trade, specula on
based on the interest rate differen al between two currencies.
In a typical foreign exchange transac on, a party purchases some quan ty of one currency by paying with some quan ty of another currency.
The modern foreign exchange market began forming during the 1970s a er three decades of government restric ons on foreign exchange
transac ons (the Bre on Woods system of monetary management established the rules for commercial and financial rela ons among the
world's major industrial states a er World War II), when countries gradually switched to floa ng exchange rates from the previous exchange
rate regime, which remained fixed as per the Bre on Woods system.
The foreign exchange market is unique because of the following characteris cs:
its huge trading volume represen ng the largest asset class in the world leading to high liquidity;
its geographical dispersion;
its con nuous opera on: 24 hours a day except weekends, i.e., trading from 22:00 GMT on Sunday (Sydney) un l 22:00 GMT Friday (New York);
the variety of factors that affect exchange rates;
the low margins of rela ve profit compared with other markets of fixed income; and
the use of leverage to enhance profit and loss margins and with respect to account size.
As such, it has been referred to as the market closest to the ideal of perfect compe on, notwithstanding currency interven on by central
banks.
According to the Bank for Interna onal Se lements, the preliminary global results from the 2016 Triennial Central Bank Survey of Foreign
Exchange and OTC Deriva ves Markets Ac vity show that trading in foreign exchange markets averaged $5.1 trillion per day in April 2016. This
is down from $5.4 trillion in April 2013 but up from $4.0 trillion in April 2010. Foreign exchange swaps were the most ac vely traded
instruments in April 2016, at $2.4 trillion per day, followed by spot trading at $1.7 trillion. According to the Bank for Interna onal Se lements,
as of April 2016, average daily turnover in global foreign exchange markets is es mated at $5.09 trillion, a decline of approximately 5% from the
$5.355 trillion daily volume as of April 2013. Some firms specializing on the foreign exchange market had put the average daily turnover in
excess of US$4 trillion. The $5.09 trillion break-down is as follows:
$1.654 trillion in spot transac ons
$700 billion in outright forwards
$2.383 trillion in foreign exchange swaps
$96 billion currency swaps
$254 billion in op ons and other products
^ Record, Neil, Currency Overlay (Wiley Finance Series)
^ Global imbalances and destabilizing specula on (2007), UNCTAD Trade and development report 2007 (Chapter 1B).
^ "Triennial Central Bank Survey of foreign exchange and OTC deriva ves markets in 2016".
^ "Triennial Central Bank Survey Foreign exchange turnover in April 2016" (PDF). Triennial Central Bank Survey. Basel, Switzerland: Bank for
Interna onal Se lements. September 2016. Retrieved 1 September 2016.
^ "What is Foreign Exchange?". Published by the Interna onal Business Times AU. Retrieved: 11 February 2011.
Government budget
Government document presen ng the government's proposed revenues and spending for a financial year that is o en passed by the legislature,
approved by the chief execu ve or president and presented by the Finance Minister to the na on.
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A government budget is a government document presen ng the government's proposed revenues and spending for a financial year that is o en
passed by the legislature, approved by the chief execu ve or president and presented by the Finance Minister to the na on. The budget is also
known as the Annual Financial Statement of the country. This document es mates the an cipated government revenues and government
expenditures for the ensuing (current) financial year. For example, only certain types of revenue may be imposed and collected. Property tax is
frequently the basis for municipal and county revenues, while sales tax and/or income tax are the basis for state revenues, and income tax and
corporate tax are the basis for na onal revenues.
Government debt
Debt owed by a central government. (In federal states, "government debt" may also refer to the debt of a state or provincial, municipal or local
government.) By contrast, the annual "government deficit" refers to the difference between government receipts and spending in a single year.
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Government debt (also known as public interest, na onal debt and sovereign debt) is the debt owed by a central government. (In federal states,
"government debt" may also refer to the debt of a state or provincial, municipal or local government.) By contrast, the annual "government
deficit" refers to the difference between government receipts and spending in a single year.
A central government with its own currency can pay for its spending by crea ng money de novo, but Government debt is generally generated to
offset the deficit when spending exceeds receipts. This prac ce stems from a desire to impose discipline on government spending and to avoid
hyperinfla on.
Governments usually borrow by issuing securi es, government bonds and bills. Less creditworthy countries some mes borrow directly from a
suprana onal organiza on (e.g. the World Bank) or interna onal financial ins tu ons.
As the government draws its income from much of the popula on, government debt is an indirect debt of the taxpayers. Government debt can
be categorized as internal debt (owed to lenders within the country) and external debt (owed to foreign lenders). Another common division of
government debt is by dura on un l repayment is due. Short term debt is generally considered to be for one year or less, long term is for more
than ten years. Medium term debt falls between these two boundaries. A broader defini on of government debt may consider all government
liabili es, including future pension payments and payments for goods and services the government has contracted but not yet paid.
Gross domes c product
Monetary measure of the market value of all final goods and services produced in a period (quarterly or yearly).
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Gross domes c product (GDP) is a monetary measure of the market value of all final goods and services produced in a period (quarterly or
yearly). Nominal GDP es mates are commonly used to determine the economic performance of a whole country or region, and to make
interna onal comparisons. Nominal GDP per capita does not, however, reflect differences in the cost of living and the infla on rates of the
countries; therefore using a GDP PPP per capita basis is arguably more useful when comparing differences in living standards between na ons.
Gross na onal product
Market value of all the products and services produced in one year by labor and property supplied by the ci zens of a country.
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Gross na onal product (GNP) is the market value of all the products and services produced in one year by labor and property supplied by the
ci zens of a country. Unlike gross domes c product (GDP), which defines produc on based on the geographical loca on of produc on, GNP
indicates allocated produc on based on loca on of ownership. In fact it calculates income by the loca on of ownership and residence, and so its
name is also the less ambiguous gross na onal income.
GNP is an economic sta s c that is equal to GDP plus any income earned by residents from overseas investments minus income earned within
the domes c economy by overseas residents.
GNP does not dis nguish between qualita ve improvements in the state of the technical arts (e.g., increasing computer processing speeds), and
quan ta ve increases in goods (e.g., number of computers produced), and considers both to be forms of "economic growth".
When a country's capital or labour resources are employed outside its borders, or when a foreign firm is opera ng in its territory, GDP and GNP
can produce different measures of total output. In 2009 for instance, the United States es mated its GDP at $14.119 trillion, and its GNP at
$14.265 trillion.
The term gross na onal income (GNI) has gradually replaced the Gross na onal product (GNP) in interna onal sta s cs. While being
conceptually iden cal, the precise calcula on method has evolved at the same me as the name change.
Hyperinfla on
Certain figures in this ar cle use scien fic nota on for readability.
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Certain figures in this ar cle use scien fic nota on for readability.
In economics, hyperinfla on occurs when a country experiences very high and usually accelera ng rates of infla on, rapidly eroding the real
value of the local currency, and causing the popula on to minimize their holdings of local money. The popula on normally switches to holding
rela vely stable foreign currencies. Under such condi ons, the general price level within an economy increases rapidly as the official currency
quickly loses real value. The value of economic items remains rela vely stable in terms of foreign currencies.
Unlike low infla on, where the process of rising prices is protracted and not generally no ceable except by studying past market prices,
hyperinfla on sees a rapid and con nuing increase in nominal prices, the nominal cost of goods, and in the supply of money. Typically, however,
the general price level rises even more rapidly than the money supply as people try ridding themselves of the devaluing currency as quickly as
possible. As this scenario happens, the real stock of money (i.e., the amount of circula ng money divided by the price level) decreases.
Hyperinfla ons are usually caused by large persistent government deficits financed primarily by money crea on (rather than taxa on or
borrowing). As such, hyperinfla on is o en associated with wars, their a ermath, sociopoli cal upheavals, or other crises that make it difficult
for the government to tax the popula on. A sharp decrease in real tax revenue coupled with a strong need to maintain the status quo, together
with an inability or unwillingness to borrow, can lead a country into hyperinfla on.
Indirect tax
Indirect taxes
By government from the persons (legal or natural) on whom it is imposed. Some commentators have argued that "a direct tax is one that cannot be
changed by the taxpayer to someone else, whereas an indirect tax can be." An indirect tax may increase the price of a good to raise the price of the
products for the consumers. Examples would be fuel, liquor, and cigare e taxes. An excise duty on motor cars is paid in the first instance by the
manufacturer of the cars; ul mately, the manufacturer transfers the burden of this duty to the buyer of the car in the form of a higher price. Thus,
an indirect tax is one that can be shi ed or passed on. The degree to which the burden of a tax is shi ed determines whether a tax is primarily direct
or primarily indirect. This is a func on of the rela ve elas city of the supply and demand of the goods or services being taxed. Under this defini on,
even income taxes may be indirect. The term indirect tax has a different meaning in the context of American Cons tu onal law: see direct tax and
excise tax in the United States. In the United States, the federal income tax has been, since its incep on on July 1, 1862, an indirect tax (more
specifically an excise) even though during the 1940s, its applica on grew from a historical average of about 8% of the popula on paying it to around
90% of the popula on paying it as a measure to support the war effort. ...
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An indirect tax (such as sales tax, per unit tax, value added tax (VAT), or goods and services tax (GST)) is a tax collected by an intermediary (such
as a retail store) from the person who bears the ul mate economic burden of the tax (such as the consumer). The intermediary later files a tax
return and forwards the tax proceeds to government with the return. In this sense, the term indirect tax is contrasted with a direct tax, which is
collected directly by government from the persons (legal or natural) on whom it is imposed. Some commentators have argued that "a direct tax is
one that cannot be changed by the taxpayer to someone else, whereas an indirect tax can be."
An indirect tax may increase the price of a good to raise the price of the products for the consumers. Examples would be fuel, liquor, and
cigare e taxes. An excise duty on motor cars is paid in the first instance by the manufacturer of the cars; ul mately, the manufacturer transfers
the burden of this duty to the buyer of the car in the form of a higher price. Thus, an indirect tax is one that can be shi ed or passed on. The
degree to which the burden of a tax is shi ed determines whether a tax is primarily direct or primarily indirect. This is a func on of the rela ve
elas city of the supply and demand of the goods or services being taxed. Under this defini on, even income taxes may be indirect.
The term indirect tax has a different meaning in the context of American Cons tu onal law: see direct tax and excise tax in the United States. In
the United States, the federal income tax has been, since its incep on on July 1, 1862, an indirect tax (more specifically an excise) even though
during the 1940s, its applica on grew from a historical average of about 8% of the popula on paying it to around 90% of the popula on paying
it as a measure to support the war effort.
Infla on targe ng
Infla on target
Monetary policy regime in which a central bank has an explicit target infla on rate for the medium term and announces this infla on target to the
public.
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Infla on targe ng is a monetary policy regime in which a central bank has an explicit target infla on rate for the medium term and announces
this infla on target to the public. The assump on is that the best that monetary policy can do to support long-term growth of the economy is to
maintain price stability. The central bank uses interest rates, its main short-term monetary instrument.
An infla on-targe ng central bank will raise or lower interest rates based on above-target or below-target infla on, respec vely. The
conven onal wisdom is that raising interest rates usually cools the economy to rein in infla on; lowering interest rates usually accelerates the
economy, thereby boos ng infla on. The first three countries to implement fully-fledged infla on targe ng were New Zealand, Canada and the
United Kingdom in the early 1990s, although Germany had adopted many elements of infla on targe ng earlier.
Infla onary gap
Amount by which the actual gross domes c product exceeds poten al full-employment GDP.
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An infla onary gap, in economics, is the amount by which the actual gross domes c product exceeds poten al full-employment GDP. It is one
type of output gap, the other being a recessionary gap.
Invisible balance
Invisible trade
The invisible balance or balance of trade on services is that part of the balance of trade that refers to services and other products that do not result
in the transfer of physical objects.
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The invisible balance or balance of trade on services is that part of the balance of trade that refers to services and other products that do not
result in the transfer of physical objects. Examples include consul ng services, shipping services, tourism, and patent license revenues. This
figure is usually generated by ter ary industry. The term 'invisible balance' is especially common in the United Kingdom.
For countries that rely on service exports or on tourism, the invisible balance is par cularly important. For instance the United Kingdom and
Saudi Arabia receive significant interna onal income from financial services, while Japan and Germany rely more on exports of manufactured
goods.
Layoff
Laid Off
Temporary suspension or permanent termina on of employment of an employee or, more commonly, a group of employees (collec ve layoff) for
business reasons, such as personnel management or downsizing an organiza on.
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A layoff is the temporary suspension or permanent termina on of employment of an employee or, more commonly, a group of employees
(collec ve layoff) for business reasons, such as personnel management or downsizing an organiza on. Originally, layoff referred exclusively to a
temporary interrup on in work, or employment but this has evolved to a permanent elimina on of a posi on in both Bri sh and US English,
requiring the addi on of "temporary" to specify the original meaning of the word. A layoff is not to be confused with wrongful termina on. Laid
off workers or displaced workers are workers who have lost or le their jobs because their employer has closed or moved, there was insufficient
work for them to do, or their posi on or shi was abolished (Borbely, 2011). Downsizing in a company is defined to involve the reduc on of
employees in a workforce. Downsizing in companies became a popular prac ce in the 1980s and early 1990s as it was seen as a way to deliver
be er shareholder value as it helps to reduce the costs of employers (downsizing, 2015). Indeed, recent research on downsizing in the U.S., UK,
and Japan suggests that downsizing is being regarded by management as one of the preferred routes to help declining organiza ons, cu ng
unnecessary costs, and improve organiza onal performance. Usually a layoff occurs as a cost-cu ng measure.
Lender of last resort
The term lender of last resort (LOLR) originates from the French expression dernier ressort.
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The term lender of last resort (LOLR) originates from the French expression dernier ressort. While the concept itself had been used previously,
the term "lender of last resort" was supposedly first used in its current context by Sir Francis Baring, in his Observa ons on the Establishment of
the Bank of England, which was published in 1797. In 1763, the king was the lender of last resort in Prussia. Different defini ons of the lender
of last resort exist in the literature. A comprehensive one is the following: "the discre onary provision of liquidity to a financial ins tu on (or the
market as a whole) by the central bank in reac on to an adverse shock which causes an abnormal increase in demand for liquidity which cannot
be met from an alterna ve source".
That means that the central bank is the lender (provider of liquidity) of last resort (if there is no other way to increase the supply of liquidity
when there is a lack thereof). The func on has been performed by many central banks since the beginning of the 20th century. The goal is to
prevent financial panics and bank runs spreading from one bank to the next from a lack of liquidity.
Market liquidity
Illiquid
Market's ability to purchase or sell an asset without causing dras c change in the asset's price.
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In business, economics or investment, market liquidity is a market's ability to purchase or sell an asset without causing dras c change in the
asset's price. Equivalently, an asset's market liquidity (or simply "an asset's liquidity") describes the asset's ability to sell quickly without having to
reduce its price to a significant degree. Liquidity is about how big the trade-off is between the speed of the sale and the price it can be sold for.
In a liquid market, the trade-off is mild: selling quickly will not reduce the price much. In a rela vely illiquid market, selling it quickly will require
cu ng its price by some amount.
Money, or cash, is the most liquid asset, because it can be "sold" for goods and services instantly with no loss of value. There is no wait for a
suitable buyer of the cash. There is no trade-off between speed and value. It can be used immediately to perform economic ac ons like buying,
selling, or paying debt, mee ng immediate wants and needs.
If an asset is moderately (or very) liquid, it has moderate (or high) liquidity. In an alterna ve defini on, liquidity can mean the amount of cash and
cash equivalents. If a business has moderate liquidity, it has a moderate amount of very liquid assets. If a business has sufficient liquidity, it has a
sufficient amount of very liquid assets and the ability to meet its payment obliga ons.
An act of exchanging a less liquid asset for a more liquid asset is called liquida on. O en liquida on is trading the less liquid asset for cash, also
known as selling it. An asset's liquidity can change. For the same asset, its liquidity can change through me or between different markets, such
as in different countries. The change in the asset's liquidity is just based on the market liquidity for the asset at the par cular me or in the
par cular country, etc. The liquidity of a product can be measured as how o en it is bought and sold.
Liquidity is defined formally in many accoun ng regimes and has in recent years been more strictly defined. For instance, the US Federal Reserve
intends to apply quan ta ve liquidity requirements based on Basel III liquidity rules as of fiscal 2012. Bank directors will also be required to
know of, and approve, major liquidity risks personally. Other rules require diversifying counterparty risk and por olio stress tes ng against
extreme scenarios, which tend to iden fy unusual market liquidity condi ons and avoid investments that are par cularly vulnerable to sudden
liquidity shi s.
Medium of exchange
Intermediary used in trade to avoid the inconveniences of a pure barter system.
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A medium of exchange is an intermediary used in trade to avoid the inconveniences of a pure barter system.
By contrast, as Othien James Jevons argued, in a barter system there must be a coincidence of wants before two people can trade – one must
want exactly what the other has to offer, when and where it is offered, so that the exchange can occur. A medium of exchange permits the value
of goods to be assessed and rendered in terms of the intermediary, most o en, a form of money widely accepted to buy any other good.
Monetary base
Plus the currency, also known as vault cash, that is physically held in the bank's vault. ...
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In economics, the monetary base (also base money, money base, high-powered money, reserve money, outside money, central bank money or, in
the UK, narrow money) in a country is defined as the por on of a commercial banks' reserves that consist of the commercial bank's accounts
with its central bank plus the total currency circula ng in the public, plus the currency, also known as vault cash, that is physically held in the
bank's vault.
The monetary base should not be confused with the money supply which consists of the total currency circula ng in the public plus the non-
bank deposits with commercial banks.
Monetary economics
Theory of money
Branch of economics that provides a framework for analyzing money in its func ons as a medium of exchange, store of value, and unit of account.
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Monetary economics is a branch of economics that provides a framework for analyzing money in its func ons as a medium of exchange, store of
value, and unit of account. It considers how money, for example fiat currency, can gain acceptance purely because of its convenience as a public
good. It examines the effects of monetary systems, including regula on of money and associated financial ins tu ons and interna onal aspects.
The discipline has historically prefigured, and remains integrally linked to, macroeconomics. Modern analysis has a empted to provide
microfounda ons for the demand for money and to dis nguish valid nominal and real monetary rela onships for micro or macro uses, including
their influence on the aggregate demand for output. Its methods include deriving and tes ng the implica ons of money as a subs tute for other
assets and as based on explicit fric ons.
Monetary policy
Monetary expansion
Process by which the monetary authority of a country, like the central bank or currency board, controls the supply of money, o en targe ng an
infla on rate or interest rate to ensure price stability and general trust in the currency.
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Monetary policy is the process by which the monetary authority of a country, like the central bank or currency board, controls the supply of
money, o en targe ng an infla on rate or interest rate to ensure price stability and general trust in the currency.
Further goals of a monetary policy are usually to contribute to economic growth and stability, to lower unemployment, and to maintain
predictable exchange rates with other currencies.
Monetary economics provides insight into how to cra op mal monetary policy. Since the 1970s, monetary policy has generally been formed
separately from fiscal policy, which refers to taxa on, government spending, and associated borrowing.
Monetary policy is referred to as either being expansionary or contrac onary. Expansionary policy is when a monetary authority uses its tools to
s mulate the economy. An expansionary policy increases the total supply of money in the economy more rapidly than usual. It is tradi onally
used to try to combat unemployment in a recession by lowering interest rates in the hope that easy credit will en ce businesses into expanding.
Also, this increases the aggregate demand (the overall demand for all goods and services in an economy), which boosts growth as measured by
gross domes c product (GDP). Expansionary monetary policy usually diminishes the value of the currency, thereby decreasing the exchange
rate.
The opposite of expansionary monetary policy is contrac onary monetary policy, which slows the rate of growth in the money supply or even
shrinks it. This slows economic growth to prevent infla on. Contrac onary monetary policy can lead to increased unemployment and depressed
borrowing and spending by consumers and businesses, which can eventually result in an economic recession; it should hence be well managed
and conducted with care.
Money market
As money became a commodity, the money market became a component of the financial markets for assets involved in short-term borrowing,
lending, buying and selling with original maturi es of one year or less.
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As money became a commodity, the money market became a component of the financial markets for assets involved in short-term borrowing,
lending, buying and selling with original maturi es of one year or less. Trading in money markets is done over the counter and is wholesale.
There are several money market instruments, including treasury bills, commercial paper, bankers' acceptances, deposits, cer ficates of deposit,
bills of exchange, repurchase agreements, federal funds, and short-lived mortgage- and asset-backed securi es. The instruments bear differing
maturi es, currencies, credit risks, and structure and thus may be used to distribute exposure.
Money markets, which provide liquidity for the global financial system, and capital markets make up the financial market.
Money supply
Money stock
Total amount of monetary assets available in an economy at a specific me.
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In economics, the money supply or money stock, is the total amount of monetary assets available in an economy at a specific me. There are
several ways to define "money", but standard measures usually include currency in circula on and demand deposits (depositors' easily accessed
assets on the books of financial ins tu ons).
Money supply data are recorded and published, usually by the government or the central bank of the country. Public and private sector analysts
have long monitored changes in money supply because of the belief that it affects the price level, infla on, the exchange rate and the business
cycle.
That rela on between money and prices is historically associated with the quan ty theory of money. There is strong empirical evidence of a
direct rela on between money-supply growth and long-term price infla on, at least for rapid increases in the amount of money in the economy.
For example, a country such as Zimbabwe which saw extremely rapid increases in its money supply also saw extremely rapid increases in prices
(hyperinfla on). This is one reason for the reliance on monetary policy as a means of controlling infla on.
The nature of this causal chain is the subject of conten on. Some heterodox economists argue that the money supply is endogenous
(determined by the workings of the economy, not by the central bank) and that the sources of infla on must be found in the distribu onal
structure of the economy.
In addi on, those economists seeing the central bank's control over the money supply as feeble say that there are two weak links between the
growth of the money supply and the infla on rate. First, in the a ermath of a recession, when many resources are underu lized, an increase in
the money supply can cause a sustained increase in real produc on instead of infla on. Second, if the velocity of money (i.e., the ra o between
nominal GDP and money supply) changes, an increase in the money supply could have either no effect, an exaggerated effect, or an
unpredictable effect on the growth of nominal GDP.
Net na onal product
Net na onal product (NNP) refers to gross na onal product (GNP), i.e. the total market value of all final goods and services produced by the factors
of produc on of a country or other polity during a given me period, minus deprecia on.
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Net na onal product (NNP) refers to gross na onal product (GNP), i.e. the total market value of all final goods and services produced by the
factors of produc on of a country or other polity during a given me period, minus deprecia on. Similarly, net domes c product (NDP)
corresponds to gross domes c product (GDP) minus deprecia on. Deprecia on describes the devalua on of fixed capital through wear and tear
associated with its use in produc ve ac vi es.
In na onal accoun ng, net na onal product (NNP) and net domes c product (NDP) are given by the two following formulas:
NNP=GNP−DepreciationNDP=GDP−Depreciation
Nominal interest rate
In finance and economics, nominal interest rate or nominal rate of interest refers to two dis nct things: the rate of interest before adjustment for
infla on (in contrast with the real interest rate); or, for interest rates "as stated" without adjustment for the full effect of compounding (also referred
to as the nominal annual rate).
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In finance and economics, nominal interest rate or nominal rate of interest refers to two dis nct things:
the rate of interest before adjustment for infla on (in contrast with the real interest rate); or,
for interest rates "as stated" without adjustment for the full effect of compounding (also referred to as the nominal annual rate). An interest rate
is called nominal if the frequency of compounding (e.g. a month) is not iden cal to the basic me unit (normally a year).
Open economy
Economy in which there are economic ac vi es between the domes c community and outside.
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An open economy is an economy in which there are economic ac vi es between the domes c community and outside. People and even
businesses can trade in goods and services with other people and businesses in the interna onal community, and funds can flow as investments
across the border. Trade can take the form of managerial exchange, technology transfers, and all kinds of goods and services. (However, certain
excep ons exist that cannot be exchanged; the railway services of a country, for example, cannot be traded with another country to avail the
service.)
It contrasts with a closed economy in which interna onal trade and finance cannot take place.
The act of selling goods or services to a foreign country is called expor ng. The act of buying goods or services from a foreign country is called
impor ng. Expor ng and impor ng are collec vely called interna onal trade.
There are a number of economic advantages for ci zens of a country with an open economy. A primary advantage is that the ci zen consumers
have a much larger variety of goods and services from which to choose. Addi onally, consumers have an opportunity to invest their savings
outside of the country.
If a country has an open economy, that country's spending in any given year need not equal its output of goods and services. A country can
spend more money than it produces by borrowing from abroad, or it can spend less than it produces and lend the difference to foreigners. As of
2014 there is no totally-closed economy.
Open market opera on
Ac vity by a central bank to give (or take) liquidity in its currency to (or from) a bank or a group of banks.
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An open market opera on (OMO) is an ac vity by a central bank to give (or take) liquidity in its currency to (or from) a bank or a group of banks.
The central bank can either buy or sell government bonds in the open market (this is where the name was historically derived from) or, which is
now mostly the preferred solu on, enter into a repo or secured lending transac on with a commercial bank: the central bank gives the money as
a deposit for a defined period and synchronously takes an eligible asset as collateral. A central bank uses OMO as the primary means of
implemen ng monetary policy. The usual aim of open market opera ons is - aside from supplying commercial banks with liquidity and
some mes taking surplus liquidity from commercial banks - to manipulate the short-term interest rate and the supply of base money in an
economy, and thus indirectly control the total money supply, in effect expanding money or contrac ng the money supply. This involves mee ng
the demand of base money at the target interest rate by buying and selling government securi es, or other financial instruments. Monetary
targets, such as infla on, interest rates, or exchange rates, are used to guide this implementa on.
Passive income
Interest income
Income received on a regular basis, with li le effort required to maintain it.
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Passive income is an income received on a regular basis, with li le effort required to maintain it.
The American Internal Revenue Service categorizes income into three broad types, ac ve income, passive income, and por olio income. It
defines passive income as only coming from two sources: rental ac vity or "trade or business ac vi es in which you do not materially
par cipate." Other financial and government ins tu ons also recognize it as an income obtained as a result of capital growth or in rela on to
nega ve gearing. Passive income is usually taxable.
Physical capital
Factor of produc on (or input into the process of produc on), consis ng of machinery, buildings, computers, and the like.
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In economics, physical capital or just capital is a factor of produc on (or input into the process of produc on), consis ng of machinery, buildings,
computers, and the like. The produc on func on takes the general form Y=f(K, L), where Y is the amount of output produced, K is the amount of
capital stock used and L is the amount of labor used. In economic theory, physical capital is one of the three primary factors of produc on, also
known as inputs in the produc on func on. The others are natural resources (including land), and labor — the stock of competences embodied
in the labor force. "Physical" is used to dis nguish physical capital from human capital (a result of investment in the human agent)), circula ng
capital, and financial capital. "Physical capital" is fixed capital, any kind of real physical asset that is not used up in the produc on of a product.
Usually the value of land is not included in physical capital as it is not a reproducible product of human ac vity.
Price level
Hypothe cal daily measure of overall prices for some set of goods and services (the consumer basket), in an economy or monetary union during a
given interval (generally one day), normalized rela ve to some base set.
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The general price level is a hypothe cal daily measure of overall prices for some set of goods and services (the consumer basket), in an economy
or monetary union during a given interval (generally one day), normalized rela ve to some base set. Typically, the general price level is
approximated with a daily price index, normally the Daily CPI. The general price level can change more than once per day during hyperinfla on.
Profit margin
Profit margins
Measure of profitability. It is calculated by finding the net profit as a percentage of the revenue.
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Profit margin, net margin, net profit margin or net profit ra o is a measure of profitability. It is calculated by finding the net profit as a percentage
of the revenue.
net profit margin
=
net profit
revenue
Net profit is revenue minus cost.
Propor onal tax
Tax imposed so that the tax rate is fixed, with no change as the taxable base amount increases or decreases.
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A propor onal tax is a tax imposed so that the tax rate is fixed, with no change as the taxable base amount increases or decreases. The amount
of the tax is in propor on to the amount subject to taxa on. "Propor onal" describes a distribu on effect on income or expenditure, referring to
the way the rate remains consistent (does not progress from "low to high" or "high to low" as income or consump on changes), where the
marginal tax rate is equal to the average tax rate.
It can be applied to individual taxes or to a tax system as a whole; a year, mul -year, or life me. Propor onal taxes maintain equal tax incidence
regardless of the ability-to-pay and do not shi the incidence dispropor onately to those with a higher or lower economic well-being.
Flat taxes, implemented as well as proposed, usually exempt from taxa on household income below a statutorily determined level that is a
func on of the type and size of the household. As a result, such a flat marginal rate is consistent with a progressive average tax rate. A
progressive tax is a tax imposed so that the tax rate increases as the amount subject to taxa on increases. The opposite of a progressive tax is a
regressive tax, where the tax rate decreases as the amount subject to taxa on increases.
The French Declara on of the Rights of Man and of the Ci zen of 1789 proclaims:
A common contribu on is essen al for the maintenance of the public forces and for the cost of administra on. This should be equitably
distributed among all the ci zens in propor on to their means.
Purchasing power parity
. ...
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Theories that invoke purchasing power parity (PPP) assume that in some circumstances (for example, as a long-run tendency) it would cost
exactly the same number of, for example, US dollars to buy euros and then to use the proceeds to buy a market basket of goods as it would cost
to use those dollars directly in purchasing the market basket of goods.
The concept of purchasing power parity allows one to es mate what the exchange rate between two currencies would have to be in order for
the exchange to be at par with the purchasing power of the two countries' currencies. Using that PPP rate for hypothe cal currency
conversions, a given amount of one currency thus has the same purchasing power whether used directly to purchase a market basket of goods
or used to convert at the PPP rate to the other currency and then purchase the market basket using that currency. Observed devia ons of the
exchange rate from purchasing power parity are measured by devia ons of the real exchange rate from its PPP value of 1.
PPP exchange rates help to minimize misleading interna onal comparisons that can arise with the use of market exchange rates. For example,
suppose that two countries produce the same physical amounts of goods as each other in each of two different years. Since market exchange
rates fluctuate substan ally, when the GDP of one country measured in its own currency is converted to the other country's currency using
market exchange rates, one country might be inferred to have higher real GDP than the other country in one year but lower in the other; both of
these inferences would fail to reflect the reality of their rela ve levels of produc on. But if one country's GDP is converted into the other
country's currency using PPP exchange rates instead of observed market exchange rates, the false inference will not occur.
Essen ally GDP PPP controls for the different costs of living and price level, usually rela ve to the United States Dollar, that would make an
accurate depic on of a given na on's gross income.
Quan ty theory of money

Quan ty theory
In monetary economics, the quan ty theory of money (QTM) states that the general price level of goods and services is directly propor onal to the
amount of money in circula on, or money supply.
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In monetary economics, the quan ty theory of money (QTM) states that the general price level of goods and services is directly propor onal to
the amount of money in circula on, or money supply.
The theory was challenged by Keynesian economics, but updated and reinvigorated by the monetarist school of economics. While mainstream
economists agree that the quan ty theory holds true in the long run, there is s ll disagreement about its applicability in the short run. Cri cs of
the theory argue that money velocity is not stable and, in the short-run, prices are s cky, so the direct rela onship between money supply and
price level does not hold.
Alterna ve theories include the real bills doctrine and the more recent fiscal theory of the price level.
Real interest rate
Rate of interest an investor, saver or lender receives (or expects to receive) a er allowing for infla on.
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The real interest rate is the rate of interest an investor, saver or lender receives (or expects to receive) a er allowing for infla on. It can be
described more formally by the Fisher equa on, which states that the real interest rate is approximately the nominal interest rate minus the
infla on rate. If, for example, an investor were able to lock in a 5% interest rate for the coming year and an cipated a 2% rise in prices, they
would expect to earn a real interest rate of 3%. This is not a single number, as different investors have different expecta ons of future infla on.
Since the infla on rate over the course of a loan is not known ini ally, vola lity in infla on represents a risk to both the lender and the
borrower.
Real versus nominal value (economics)

Nominal money
In economics, a real value of a good or other en ty has been adjusted for infla on, enabling comparison of quan es as if prices had not changed.
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In economics, a real value of a good or other en ty has been adjusted for infla on, enabling comparison of quan es as if prices had not
changed. Changes in real terms therefore exclude the effect of infla on. In contrast with a real value, a nominal value has not been adjusted for
infla on, and so changes in nominal value reflect at least in part the effect of infla on.
Repatria on
Repatria ng
Process of returning a person - voluntarily - to his or her place of origin or ci zenship.
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Repatria on is the process of returning a person - voluntarily - to his or her place of origin or ci zenship. This includes the process of returning
military personnel to their place of origin following a war. It also applies to diploma c envoys, interna onal officials as well as expatriates and
migrants in me of interna onal crisis. For refugees, asylum seekers and illegal migrants, repatria on can mean either voluntary return or
deporta on.
The term may also refer to non-human en es, such as conver ng a foreign currency into the currency of one's own country.
Repurchase agreement
Reverse Repo
Transac on concluded on a deal date tD between two par es A and B: (i) A will on the near date tN sell a specified security S at an agreed price PN
to B (ii) A will on the far date tF (a er tN) re-purchase S from B at a price PF which is already pre-agreed on the deal date.
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A sale (and) repurchase agreement, also known as a (currency) repo, RP, or sale and repurchase agreement, is a transac on concluded on a deal
date tD between two par es A and B:
(i) A will on the near date tN sell a specified security S at an agreed price PN to B
(ii) A will on the far date tF (a er tN) re-purchase S from B at a price PF which is already pre-agreed on the deal date.
If we assume posi ve interest rates, the repurchase price PF can be expected to be greater than the original sale price PN.
The ( me-adjusted) difference (PF-PN)/PN/(tF-tN)*365 is called the repo rate; it can be interpreted as the interest rate for the period between
near date and far date.
Reserve requirement
Cash ra o
Central bank regula on employed by most, but not all, of the world's central banks, that sets the minimum amount of reserves that must be held by
a commercial bank.
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The reserve requirement (or cash reserve ra o) is a central bank regula on employed by most, but not all, of the world's central banks, that sets
the minimum amount of reserves that must be held by a commercial bank. The amount of required minimum reserves is generally determined by
the central bank as being equal to no less than a specified percentage or frac on of the amount of deposit liabili es that the commercial bank
owes to its customers. The commercial bank's reserves normally consist of cash owned by the bank and stored physically in the bank vault (vault
cash), plus the amount of the commercial bank's balance in that bank's account with the central bank.
The required reserve ra o is some mes used as a tool in monetary policy, influencing the country's borrowing and interest rates by changing the
amount of funds available for banks to make loans with. Western central banks rarely increase the reserve requirements because it would cause
immediate liquidity problems for banks with low excess reserves; they generally prefer to use open market opera ons (buying and selling
government-issued bonds) to implement their monetary policy. The People's Bank of China uses changes in reserve requirements as an infla on-
figh ng tool, and raised the reserve requirement ten mes in 2007 and eleven mes since the beginning of 2010.
An ins tu on that holds reserves in excess of the required amount is said to hold excess reserves.
Return on assets
The return on assets (ROA) shows the percentage of how profitable a company's assets are in genera ng revenue.
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The return on assets (ROA) shows the percentage of how profitable a company's assets are in genera ng revenue.
ROA can be computed as:
ROA=
Net Income
Average Total Assets
This number tells you what the company can do with what it has, i.e. how many dollars of earnings they derive from each dollar of assets they
control. It's a useful number for comparing compe ng companies in the same industry. The number will vary widely across different industries.
Return on assets gives an indica on of the capital intensity of the company, which will depend on the industry; companies that require large
ini al investments will generally have lower return on assets. ROAs over 5% are generally considered good.
Security (finance)
Financial securi es
Tradable financial asset. The term commonly refers to any form of financial instrument, but its legal defini on varies by jurisdic on.
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A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal defini on varies by
jurisdic on. In some jurisdic ons the term specifically excludes financial instruments other than equi es and fixed income instruments. In some
jurisdic ons it includes some instruments that are close to equi es and fixed income, e.g. equity warrants. In some countries and/or languages
the term "security" is commonly used in day-to-day parlance to mean any form of financial instrument, even though the underlying legal and
regulatory regime may not have such a broad defini on.
In the United Kingdom, the na onal competent authority for financial markets regula on is the Financial Conduct Authority; the defini on in its
Handbook of the term "security" applies only to equi es, debentures, alterna ve debentures, government and public securi es, warrants,
cer ficates represen ng certain securi es, units, stakeholder pension schemes, personal pension schemes, rights to or interests in investments,
and anything that may be admi ed to the Official List.
In the United States, a security is a tradable financial asset of any kind. Securi es are broadly categorized into:
debt securi es (e.g., banknotes, bonds and debentures)
equity securi es (e.g., common stocks)
deriva ves (e.g., forwards, futures, op ons and swaps).
The company or other en ty issuing the security is called the issuer. A country's regulatory structure determines what qualifies as a security. For
example, private investment pools may have some features of securi es, but they may not be registered or regulated as such if they meet
various restric ons.
Securi es may be represented by a cer ficate or, more typically, "non-cer ficated", that is in electronic (dematerialized) or "book entry" only
form. Cer ficates may be bearer, meaning they en tle the holder to rights under the security merely by holding the security, or registered,
meaning they en tle the holder to rights only if he or she appears on a security register maintained by the issuer or an intermediary. They
include shares of corporate stock or mutual funds, bonds issued by corpora ons or governmental agencies, stock op ons or other op ons,
limited partnership units, and various other formal investment instruments that are nego able and fungible.
Seigniorage
Infla on tax
Difference between the value of money and the cost to produce and distribute it.
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Seigniorage /ˈseɪnjərɪdʒ/, also spelled seignorage or seigneurage (from Old French seigneuriage "right of the lord (seigneur) to mint money"), is
the difference between the value of money and the cost to produce and distribute it. The term can be applied in the following ways:
Seigniorage derived from specie—metal coins—is a tax, added to the total price of a coin (metal content and produc on costs), that a customer
of the mint had to pay to the mint, and that was sent to the sovereign of the poli cal area.
Seigniorage derived from notes is more indirect, being the difference between interest earned on securi es acquired in exchange for bank notes
and the costs of producing and distribu ng those notes.
The term also applies to monetary seignorage, where sovereign-issued securi es are exchanged for newly minted bank notes by a central bank,
thus allowing the sovereign to 'borrow' without needing to repay. However, monetary seignorage refers to the sovereign revenue obtained
through rou ne debt mone za on, including expanding the money supply during GDP growth and mee ng yearly infla on targets.
Seigniorage is a convenient source of revenue for some governments. By providing the government with increased purchasing power at the
expense of the public's purchasing power, it imposes what is metaphorically known as an infla on tax on the public.
Shares outstanding
Outstanding stock
Shares outstanding are all the shares of a corpora on or financial asset that have been authorized, issued and purchased by investors and are held
by them.
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Shares outstanding are all the shares of a corpora on or financial asset that have been authorized, issued and purchased by investors and are
held by them. They have rights and represent ownership in the corpora on by the person who holds the shares. They are dis nguished from
treasury shares, which are shares held by the corpora on itself and have no exercisable rights. Shares outstanding plus treasury shares together
amount to the number of issued shares.
Shares outstanding can be calculated as either basic or fully diluted. The basic count is the current number of shares. Dividend distribu ons and
vo ng in the general mee ng of shareholders are calculated according to this number. The fully diluted shares outstanding count, on the other
hand, includes dilu ng securi es, such as warrants, capital notes or conver bles. If the company has any dilu ng securi es, this indicates the
poten al future increased number of shares outstanding.
Solvency
Degree to which the current assets of an individual or en ty exceed the current liabili es of that individual or en ty.
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Solvency, in finance or business, is the degree to which the current assets of an individual or en ty exceed the current liabili es of that
individual or en ty. Solvency can also be described as the ability of a corpora on to meet its long-term fixed expenses and to accomplish long-
term expansion and growth. This is best measured using the net liquid balance (NLB) formula. In this formula solvency is calculated by adding
cash and cash equivalents to short-term investments, then subtrac ng notes payable.
Stabilizers
American pop/rock band from Erie, Pennsylvania, founded in the early 1980s by musicians Dave Christenson (lead vocals), England-born Rich
Nevens (guitars and occasional keyboards), and Dan Haight (drums).
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The Stabilizers were an American pop/rock band from Erie, Pennsylvania, founded in the early 1980s by musicians Dave Christenson (lead
vocals), England-born Rich Nevens (guitars and occasional keyboards), and Dan Haight (drums).
In the early 1980s, Christenson was the bassist/singer in the local Erie band, Prophecy, which also included keyboardist John Schaaf, who later
joined The Stabilizers. Prophecy toured across Pennsylvania, Ohio, and New York, scoring a local hit with "Another American Rock 'N Roll Story"
and genera ng mild record company interest in the process. However, the band, unable to secure a major label record deal, would not survive
the mid-1980s, playing their final show in 1984; Christenson connected with Nevens later that year to form The Stabilizers with other members,
including Schaaf on keyboards and saxophone, and Haight on drums. A er con nuing to tour the Pennsylvania area and recording original
composi ons on a 4-track recorder, they were signed to Columbia Records in 1985, releasing Tyranny, their first and only album, the following
year. By this me, only Christenson and Nevens remained in the official band lineup, with Haight, Schaaf, and other previous bandmembers not
appearing on the recording.
The guitar and synth-laced album followed in the style of other 1980s bands such as a-ha, Duran Duran, Tears for Fears and Mr. Mister. The first
single from Tyranny was "One Simple Thing," which peaked at number 21 on the Billboard Mainstream Rock Tracks chart in 1986 and number 93
on the Billboard Hot 100 in 1987, helped by the band's performance of the song on American Bandstand. Two music videos were released to
promote the album: "One Simple Thing", which was directed by David Fincher - who would go on to greater success direc ng the feature films
Alien 3, Se7en and Fight Club - and "Tyranny", directed by David Hogan.
The "Tyranny" single failed to chart, and for the next five years, The Stabilizers disappeared from view. However, in 1991, an unreleased track
from the Tyranny sessions, "Maybe This Time," surfaced on the soundtrack to the film If Looks Could Kill. Although no addi onal music has been
released from the band since then, Tyranny has been re-released digitally via the iTunes Store.
S mulus (economics)
Fiscal s mulus
In economics, s mulus refers to a empts to use monetary or fiscal policy (or stabiliza on policy in general) to s mulate the economy.
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In economics, s mulus refers to a empts to use monetary or fiscal policy (or stabiliza on policy in general) to s mulate the economy. S mulus
can also refer to monetary policies like lowering interest rates and quan ta ve easing.
O en the underlying assump on is that, due to a recession, produc on and hence also employment are far below their sustainable poten al
(see NAIRU) due to lack of demand. It is hoped that this will be corrected by increasing demand and that any adverse side effects from s mulus
will be mild.
Fiscal s mulus refers to increasing government consump on or transfers or lowering taxes. Effec vely this means increasing the rate of growth
of public debt, except that par cularly Keynesians o en assume that the s mulus will cause sufficient economic growth to fill that gap par ally
or completely. See mul plier (economics).
Monetary s mulus refers to lowering interest rates, quan ta ve easing, or other ways of increasing the amount of money or credit.
For example, Milton Friedman argued that the Great Depression was caused by the fact that the Federal Reserve did not counteract the sudden
reduc on of money stock and velocity. Ben Bernanke argued, instead, that the problem was lack of credit, not lack of money, and hence, during
the financial crisis, the Federal Reserve led by Bernanke provided addi onal credit, not addi onal liquidity (money), to s mulate the economy
back on trail. Jeff Hummel has analyzed the different implica ons of these two conflic ng explana ons. President of the Federal Reserve Bank
of Richmond, Jeffrey Lacker, with Renee Haltom, has cri cized Bernanke's solu on because "it encourages excessive risk-taking and contributes
to financial instability."
It is o en argued that fiscal s mulus typically increases infla on, and hence must be counteracted by a typical central bank. Hence only
monetary s mulus could work. Counter-arguments say that if the produc on gap is high enough, the risk of infla on is low, or that in
depressions infla on is too low but central banks are not able to achieve the required infla on rate without fiscal s mulus by the government.
Monetary s mulus is o en considered more neutral: decreasing interest rates make addi onal investments profitable, but yet only the most
addi onal investments, whereas fiscal s mulus where the government decides the investments may lead to populism or corrup on. On the
other hand, the government can also take externali es into account, such as how new roads or railways benefit users that do not pay for them,
and choose investments that are even more beneficial although not profitable.
Typically Keynesians are par cularly strongly pro-s mulus, Austrians and Ra onal expecta ons economists against, and mainstream economists
between the two.
Supply and demand

Demand and supply
Economic model of price determina on in a market.
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In microeconomics, supply and demand is an economic model of price determina on in a market. It postulates that in a compe ve market, the
unit price for a par cular good, or other traded item such as labor or liquid financial assets, will vary un l it se les at a point where the quan ty
demanded (at the current price) will equal the quan ty supplied (at the current price), resul ng in an economic equilibrium for price and quan ty
transacted.
Time deposit
Time deposits
Oney. In its strict sense, cer ficate deposit is different from that of me deposit in terms of its nego ability: CDs are nego able and can be
rediscounted when the holder needs some liquidity, while me deposits must be kept un l maturity. The opposite, some mes known as a sight
deposit or "on call" deposit, can be withdrawn at any me, without any no ce or penalty: e.g., money deposited in a checking account in a bank. The
rate of return is higher than for savings accounts because the requirement that the deposit be held for a prespecified term gives the bank the ability
to invest it in a higher-gain financial product class. However, the return on a me deposit is generally lower than the long-term average of that of
investments in riskier products like stocks or bonds. Some banks offer market-linked me deposit accounts which offer poten ally higher returns
while guaranteeing principal. A me deposit is an interest-bearing bank deposit that has a specified date of maturity. A deposit of funds in a savings
ins tu on is made under an agreement s pula ng that (a) the funds must be kept on deposit for a stated period of me, or (b) the ins tu on may
require a minimum period of no fica on before a withdrawal is made. "Small" me deposits are defined in the U.S. as those under $100,000, while
"large" ones are $100,000 or greater in size. The term "jumbo CD" is commonly used in the United States to refer to large me deposits. In the U.S.,
banks are not subject to a reserve requirement against their me deposit holdings. ...
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A me deposit or term deposit (also known as a cer ficate of deposit in the United States, (Chinese: 定期存款)), is a deposit with a specified
period of maturity and earns interest. It is a money deposit at a banking ins tu on that cannot be withdrawn for a specific term or period of
me (unless a penalty is paid). When the term is over it can be withdrawn or it can be held for another term. Generally speaking, the longer the
term the be er the yield on the money. In its strict sense, cer ficate deposit is different from that of me deposit in terms of its nego ability:
CDs are nego able and can be rediscounted when the holder needs some liquidity, while me deposits must be kept un l maturity.
The opposite, some mes known as a sight deposit or "on call" deposit, can be withdrawn at any me, without any no ce or penalty: e.g., money
deposited in a checking account in a bank.
The rate of return is higher than for savings accounts because the requirement that the deposit be held for a prespecified term gives the bank
the ability to invest it in a higher-gain financial product class. However, the return on a me deposit is generally lower than the long-term
average of that of investments in riskier products like stocks or bonds. Some banks offer market-linked me deposit accounts which offer
poten ally higher returns while guaranteeing principal.
A me deposit is an interest-bearing bank deposit that has a specified date of maturity. A deposit of funds in a savings ins tu on is made under
an agreement s pula ng that (a) the funds must be kept on deposit for a stated period of me, or (b) the ins tu on may require a minimum
period of no fica on before a withdrawal is made.
"Small" me deposits are defined in the U.S. as those under $100,000, while "large" ones are $100,000 or greater in size. The term "jumbo CD"
is commonly used in the United States to refer to large me deposits.
In the U.S., banks are not subject to a reserve requirement against their me deposit holdings.
Transfer payment
Transfer payments
Redistribu on of income in the market system. These payments are considered to be non-exhaus ve because they do not directly absorb resources
or create output.
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In economics, a transfer payment (or government transfer or simply transfer) is a redistribu on of income in the market system. These payments
are considered to be non-exhaus ve because they do not directly absorb resources or create output. In other words, the transfer is made
without any exchange of goods or services. Examples of certain transfer payments include welfare (financial aid), social security, and government
making subsidies for certain businesses (firms).
Use for administra ve: In some federal systems the term can also be used to refer to payments from one order of a government to another.
In Canada, transfer payments usually refer to a system of payments from the federal government to the provinces. Major Canadian transfer
payments include equaliza on payments, the Canada Health Transfer and the Canada Social Transfer (formerly the Canada Health and Social
Transfer) and Territorial Formula Financing.
In Australia, the horizontal fiscal imbalance arises because of the mismatch between the tax revenues and government expenses for the various
state and territorial governments. This imbalance is addressed by a horizontal fiscal equalisa on (HFE) policy overseen by the Commonwealth
Grants Commission.
Transfer payments are not a part of the na onal income so they are cut from na onal income to get n.n.p. in order to arrive na onal income
such payments are bad debts incurred by banks, payments of pensions, charity, scholarships etc. In the UK they have several transfer payments
such as EMA and a job seeker's allowance.
Unit of account
Nominal monetary unit of measure or currency used to value/cost goods, services, assets, liabili es, income, expenses; i.e., any economic item.
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A unit of account in economics is a nominal monetary unit of measure or currency used to value/cost goods, services, assets, liabili es, income,
expenses; i.e., any economic item. It is one of three well-known func ons of money. It lends meaning to profits, losses, liability, or assets.
A unit of account in financial accoun ng refers to the words that are used to describe the specific assets and liabili es that are reported in
financial statements rather than the units used to measure them.
Unit of account and unit of measure are some mes treated as synonyms in financial accoun ng and economics.
The unit of account in economics (unit of measure in accoun ng) suffers from the pi all of not being stable in real value over me because
money is generally not perfectly stable in real value during infla on and defla on. Infla on destroys the assump on that the real value of the
unit of account is stable which is the basis of classic accountancy. In such circumstances, historical values registered in accountancy books
become heterogeneous amounts measured in different units. The use of such data under tradi onal accoun ng methods without previous
correc on o en leads to invalid results.
All monetary units of measure, e.g., US dollar, euro, yen, yuan, ruble, peso, etc. (all fiat currency units) are assumed to be perfectly stable in real
value during non-hyperinfla onary condi ons under tradi onal Historical Cost Accoun ng in terms of which the stable measuring unit
assump on is applied. The Daily Consumer Price Index (Daily CPI) – or a mone zed daily indexed unit of account – is generally used to index
monetary values on a daily basis when it is required to maintain the purchasing power or real value of monetary values constant during infla on
and defla on.
Aggregate demand
Total demand for final goods and services in an economy at a given me.
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In macroeconomics, aggregate demand (AD) or domes c final demand (DFD) is the total demand for final goods and services in an economy at a
given me. It specifies the amounts of goods and services that will be purchased at all possible price levels. This is the demand for the gross
domes c product of a country. It is o en called effec ve demand, though at other mes this term is dis nguished.
The aggregate demand curve is plo ed with real output on the horizontal axis and the price level on the ver cal axis. It is downward sloping as a
result of three dis nct effects: Pigou's wealth effect, Keynes' interest rate effect and the Mundell–Fleming exchange-rate effect. The Pigou
effect states that a higher price level implies lower real wealth and therefore lower consump on spending, giving a lower quan ty of goods
demanded in the aggregate. The Keynes effect states that a higher price level implies a lower real money supply and therefore higher interest
rates resul ng from financial market equilibrium, in turn resul ng in lower investment spending on new physical capital and hence a lower
quan ty of goods being demanded in the aggregate.
The Mundell–Fleming exchange-rate effect is an extension of the IS–LM model. Whereas the tradi onal IS-LM Model deals with a closed
economy, Mundell–Fleming describes a small open economy. The Mundell–Fleming model portrays the short-run rela onship between an
economy's nominal exchange rate, interest rate, and output (in contrast to the closed-economy IS–LM model, which focuses only on the
rela onship between the interest rate and output)
The aggregate demand curve illustrates the rela onship between two factors: the quan ty of output that is demanded and the aggregate price
level. Aggregate demand is expressed con ngent upon a fixed level of the nominal money supply. There are many factors that can shi the AD
curve. Rightward shi s result from increases in the money supply, in government expenditure, or in autonomous components of investment or
consump on spending, or from decreases in taxes.
According to the aggregate demand-aggregate supply model, when aggregate demand increases, there is movement up along the aggregate
supply curve, giving a higher level of prices.
Aggregate supply
Total supply of goods and services that firms in a na onal economy plan on selling during a specific me period.
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In economics, aggregate supply (AS) or domes c final supply (DFS) is the total supply of goods and services that firms in a na onal economy
plan on selling during a specific me period. It is the total amount of goods and services that firms are willing and able to sell at a given price
level in an economy.
Automa c stabilizer
Automa c stabilizers
In macroeconomics, automa c stabilizers are features of the structure of modern government budgets, par cularly income taxes and welfare
spending, that act to dampen fluctua ons in real GDP.
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In macroeconomics, automa c stabilizers are features of the structure of modern government budgets, par cularly income taxes and welfare
spending, that act to dampen fluctua ons in real GDP.
The size of the government budget deficit tends to increase when a country enters a recession, which tends to keep na onal income higher by
maintaining aggregate demand. There may also be a mul plier effect. This effect happens automa cally depending on GDP and household
income, without any explicit policy ac on by the government, and acts to reduce the severity of recessions. Similarly, the budget deficit tends to
decrease during booms, which pulls back on aggregate demand. Therefore, automa c stabilizers tend to reduce the size of the fluctua ons in a
country's GDP.
Capacity u liza on
Excess capacity
Extent to which an enterprise or a na on actually uses its installed produc ve capacity.
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Capacity u liza on or capacity u lisa on is the extent to which an enterprise or a na on actually uses its installed produc ve capacity. It is the
rela onship between output that is actually produced with the installed equipment, and the poten al output which could be produced with it, if
capacity was fully used.
Demand curve
Graph depic ng the rela onship between the price of a certain commodity and the amount of it that consumers are willing and able to purchase at
any given price.
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In economics, the demand curve is the graph depic ng the rela onship between the price of a certain commodity and the amount of it that
consumers are willing and able to purchase at any given price. It is a graphic representa on of a market demand schedule. The demand curve for
all consumers together follows from the demand curve of every individual consumer: the individual demands at each price are added together,
assuming independent decision-making.
Demand curves are used to es mate behaviors in compe ve markets, and are o en combined with supply curves to es mate the equilibrium
price (the price at which sellers together are willing to sell the same amount as buyers together are willing to buy, also known as market clearing
price) and the equilibrium quan ty (the amount of that good or service that will be produced and bought without surplus/excess supply or
shortage/excess demand) of that market. In a monopolis c market, the demand curve facing the monopolist is simply the market demand curve.
Demand curves are usually considered as theore cal structures that are expected to exist in the real world, but real world measurements of
actual demand curves are difficult and rare.
Durable good
Durable goods
Good that does not quickly wear out, or more specifically, one that yields u lity over me rather than being completely consumed in one use.
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In economics, a durable good or a hard good is a good that does not quickly wear out, or more specifically, one that yields u lity over me rather
than being completely consumed in one use. Items like bricks could be considered perfectly durable goods because they should theore cally
never wear out. Highly durable goods such as refrigerators, cars, or mobile phones usually con nue to be useful for 3 or more years of use, so
durable goods are typically characterized by long periods between successive purchases.
Examples of consumer durable goods include automobiles, books, household goods (home appliances, consumer electronics, furniture,
tools,etc.), sports equipment, jewelry, medical equipment, firearms, and toys.
Nondurable goods or so goods (consumables) are the opposite of durable goods. They may be defined either as goods that are immediately
consumed in one use or ones that have a lifespan of fewer than 3 years.
Examples of nondurable goods include fast-moving consumer goods such as cosme cs and cleaning products, food, condiments, fuel, beer,
cigare es and tobacco, medica on, office supplies, packaging and containers, paper and paper products, personal products, rubber, plas cs,
tex les, clothing, and footwear.
While durable goods can usually be rented as well as bought, nondurable goods generally are not rented. While buying durable goods comes
under the category of investment demand of goods, buying non-durables comes under the category of consump on demand of goods.
Final good
Consumer good or final good. Consumer goods are goods that are ul mately consumed rather than used in the produc on of another good.
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In economics, any commodity which is produced and subsequently consumed by the consumer, to sa sfy its current wants or needs, is a
consumer good or final good. Consumer goods are goods that are ul mately consumed rather than used in the produc on of another good. For
example, a microwave oven or a bicycle which is sold to a consumer is a final good or consumer good, whereas the components which are sold
to be used in those goods are called intermediate goods. For example, tex les or transistors which can be used to make some further goods.
When used in measures of na onal income and output, the term "final goods" only includes new goods. For instance, the GDP excludes items
counted in an earlier year to prevent double coun ng of produc on based on resales of the same item second and third hand. In this context the
economic defini on of goods includes what are commonly known as services.
Manufactured goods are goods that have been processed in any way. As such, they are the opposite of raw materials, but include intermediate
goods as well as final goods.
Fric onal unemployment
Unemployment that results from me spent between jobs when a worker is searching for, or transi oning from one job to another.
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Fric onal unemployment is the unemployment that results from me spent between jobs when a worker is searching for, or transi oning from
one job to another. It is some mes called search unemployment and can be based on the circumstances of the individual.
Full employment
Level of employment rates where there is no cyclical or deficient-demand unemployment.
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Full employment, in macroeconomics, is the level of employment rates where there is no cyclical or deficient-demand unemployment. It is
defined by the majority of mainstream economists as being an acceptable level of unemployment somewhere above 0%. The discrepancy from
0% arises due to non-cyclical types of unemployment, such as fric onal unemployment (there will always be people who have quit or have lost a
seasonal job and are in the process of ge ng a new job) and structural unemployment (mismatch between worker skills and job requirements).
Unemployment above 0% is seen as necessary to control infla on in capitalist economies, to keep infla on from accelera ng, i.e., from rising
from year to year. This view is based on a theory centering on the concept of the Non-Accelera ng Infla on Rate of Unemployment (NAIRU); in
the current era, the majority of mainstream economists mean NAIRU when speaking of "full" employment. The NAIRU has also been described
by Milton Friedman, among others, as the "natural" rate of unemployment. Having many names, it has also been called the structural
unemployment rate.
The 20th century Bri sh economist William Beveridge stated that an unemployment rate of 3% was full employment. For the United States,
economist William T. Dickens found that full-employment unemployment rate varied a lot over me but equaled about 5.5 percent of the
civilian labor force during the 2000s. Recently, economists have emphasized the idea that full employment represents a "range" of possible
unemployment rates. For example, in 1999, in the United States, the Organisa on for Economic Co-opera on and Development (OECD) gives
an es mate of the "full-employment unemployment rate" of 4 to 6.4%. This is the es mated unemployment rate at full employment, plus &
minus the standard error of the es mate.
The concept of full employment of labor corresponds to the concept of poten al output or poten al real GDP and the long run aggregate supply
(LRAS) curve. In neoclassical macroeconomics, the highest sustainable level of aggregate real GDP or "poten al" is seen as corresponding to a
ver cal LRAS curve: any increase in the demand for real GDP can only lead to rising prices in the long run, while any increase in output is
temporary.
Ter ary sector of the economy

Service Sector
Third of the three economic sectors of the three-sector theory.
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The ter ary sector or service sector is the third of the three economic sectors of the three-sector theory. The others are the secondary sector
(approximately the same as manufacturing), and the primary sector (raw materials).
The service sector consists of the parts of the economy, i.e. ac vi es where people offer their knowledge and me to improve produc vity,
performance, poten al, and sustainability, which is termed as affec ve labor. The basic characteris c of this sector is the produc on of services
instead of end products. Services (also known as "intangible goods") include a en on, advice, access, experience, and discussion. The
produc on of informa on has long been regarded as a service, but some economists now a ribute it to a fourth sector, the quaternary sector.
The ter ary sector of industry involves the provision of services to other businesses as well as final consumers. Services may involve the
transport, distribu on and sale of goods from producer to a consumer, as may happen in wholesaling and retailing, or may involve the provision
of a service, such as in pest control or entertainment. The goods may be transformed in the process of providing the service, as happens in the
restaurant industry. However, the focus is on people interac ng with people and serving the customer rather than transforming physical goods.
Total return
The total return on a por olio of investments takes into account not only the capital apprecia on on the por olio, but also the income received on
the por olio.
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The total return on a por olio of investments takes into account not only the capital apprecia on on the por olio, but also the income received
on the por olio. The income typically consists of interest, dividends, and securi es lending fees. This contrasts with the price return, which takes
into account only the capital gain on an investment. In 2010 an academic paper highlighted this issue found with most web charts in the
'compare' mode, and was published in the Journal of Behavioral Finance. The discrepancy between total return charts and "price only" charts
was later brought out in the Wall Street Journal.
Stock and bond funds provide annual Total Return values summarizing the last ten years of opera on. Total Return assumes that dividends and
interest are reinvested in the funds. A reasonably accurate equa on for the percent Total Return in a year of any security is the sum of the
percent gain (or loss, a nega ve percent) over the year in the security value, plus the annual dividend yield expressed as a percent (100 × annual
dividends divided by the security price at the beginning of the year). This slightly understates the Total Return because it ignores the
reinvestment of dividends, as soon as they are paid, for purchasing more of the security. Professor Pankaj Agrrawal produced the ReturnFinder
App to rec fy the issue created by these web-charts, the App's algorithm includes dividends and bond income in the total return calcula ons.
The problem can lead to the pernicious inversion of performance ordering with bond ETF's or stocks paying high dividends.
Autonomous consump on
Autonomous consump on (also exogenous consump on) is consump on expenditure that occurs when income levels are zero.
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Autonomous consump on (also exogenous consump on) is consump on expenditure that occurs when income levels are zero. Such
consump on is considered autonomous of income only when expenditure on these consumables does not vary with changes in income;
generally, it may be required to fund necessi es and debt obliga ons. If income levels are actually zero, this consump on counts as dissaving,
because it is financed by borrowing or using up savings. Autonomous consump on contrasts with induced consump on, in that it does not
systema cally fluctuate with income, whereas induced consump on does. The two are related, for all households, through the consump on
func on:
C=c0+c1Yd
where
C = total consump on,
c0 = autonomous consump on (c0 > 0),
c1 = the marginal propensity to consume (the gradient of induced consump on) (0 < c1 < 1), and
Yd = disposable income (income a er government taxes, benefits, and transfer payments).
Autonomous Investment
An autonomous investment consists of expenditures in a country or region that is independent of economic growth.
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An autonomous investment consists of expenditures in a country or region that is independent of economic growth. They are investments made
for the good of society and not for the goal of making profits. Autonomous investment is the opposite of induced investment, which is not
mandatory or compulsory.
Ceteris paribus
Ceteris
La n phrase meaning "other things equal". English transla ons of the phrase include "all other things being equal" or "other things held constant" or
"all else unchanged".
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Ceteris paribus or caeteris paribus is a La n phrase meaning "other things equal". English transla ons of the phrase include "all other things
being equal" or "other things held constant" or "all else unchanged". A predic on or a statement about a causal, empirical, or logical rela on
between two states of affairs is ceteris paribus if it is acknowledged that the predic on, although usually accurate in expected condi ons, can
fail or the rela on can be abolished by intervening factors.
A ceteris paribus assump on is o en key to scien fic inquiry, as scien sts seek to screen out factors that perturb a rela on of interest. Thus,
epidemiologists for example may seek to control independent variables as factors that may influence dependent variables—the outcomes or
effects of interest. Likewise, in scien fic modeling, simplifying assump ons permit illustra on or elucida on of concepts thought relevant within
the sphere of inquiry.
There is ongoing debate in the philosophy of science concerning ceteris paribus statements. On the logical empiricist view, fundamental physics
tends to state universal laws, whereas other sciences, such as biology, psychology, and economics, tend to state laws that hold true in normal
condi ons but have excep ons, ceteris paribus laws (cp laws). The focus on universal laws is a criterion dis nguishing fundamental physics as
fundamental science, whereas cp laws are predominant in most other sciences as special sciences, whose laws hold in special cases. This
dis nc on assumes a logical empiricist view of science. It does not readily apply in a mechanis c understanding of scien fic discovery. There is
reasonable disagreement as to whether mechanisms or laws are the appropriate model, though mechanisms are the favored method.
Circular flow of income

Circular flow
Model of the economy in which the major exchanges are represented as flows of money, goods and services, etc.
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The circular flow of income or circular flow is a model of the economy in which the major exchanges are represented as flows of money, goods
and services, etc. between economic agents. The flows of money and goods exchanged in a closed circuit correspond in value, but run in the
opposite direc on. The circular flow analysis is the basis of na onal accounts and hence of macroeconomics.
The idea of the circular flow was already present in the work of Richard Can llon. François Quesnay developed and visualized this concept in
the so-called Tableau économique. Important developments of Quesnay's tableau were Karl Marx' reproduc on schemes in the second volume
of Capital: Cri que of Poli cal Economy, and John Maynard Keynes' General Theory of Employment, Interest and Money. Richard Stone further
developed the concept for the United Na ons (UN) and the Organisa on for Economic Co-opera on and Development to the system, which is
now used interna onally.
Consump on func on
In economics, the consump on func on describes a rela onship between consump on and disposable income.
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In economics, the consump on func on describes a rela onship between consump on and disposable income. Algebraically, this means
C=f(Yd)
where
f:R→R
is a func on that maps levels of disposable income
Yd
—income a er government interven on, such as taxes or transfer payments—into levels of consump on
C
. The concept is believed to have been introduced into macroeconomics by John Maynard Keynes in 1936, who used it to develop the no on of
a government spending mul plier. Its simplest form is the linear consump on func on used frequently in simple Keynesian models:
C=a+b×Yd
where
a
is the autonomous consump on that is independent of disposable income; in other words, consump on when income is zero. The term
b×Yd
is the induced consump on that is influenced by the economy's income level. The parameter
b
is known as the marginal propensity to consume, i.e. the increase in consump on due to an incremental increase in disposable income, since
∂C/∂Yd=b
. Geometrically,
b
is the slope of the consump on func on. One of the key assump ons of Keynesian economics is that this parameter is posi ve but smaller than
one, i.e.
b∈(0,1).
Cri cism of the simplicity and irreality of this assump on lead to the development of Milton Friedman's permanent income hypothesis, and
Richard Brumberg and Franco Modigliani's life-cycle hypothesis. But none of them developed a defini ve consump on func on. Friedman,
although he got the Nobel prize for his book A Theory of the Consump on Func on (1957), presented several different defini ons of the
permanent income in his approach, making it impossible to develop a more sophis cated func on. Modigliani and Brumberg tried to develop a
be er consump on func on using the income got in the whole life of consumers, but them and their followers ended in a formula on lacking
economic theory and therefore full of proxies that do not account for the complex changes of today's economic systems.
Un l recently, the three main exis ng theories, based on the income dependent Consump on Expenditure Func on pointed by Keynes in 1936,
were Duesenberry's (1949) rela ve consump on expenditure, Modigliani and Brumberg's (1954) life-cycle income, and Friedman's (1957)
permanent income.
Some new theore cal works are based, following Duesenberry's one, on behavioral economics and suggest that a number of behavioural
principles can be taken as microeconomic founda ons for a behaviorally-based aggregate consump on func on.
Deflator
Value that allows data to be measured over me in terms of some base period, usually through a price index, in order to dis nguish between a
changes in the money value of a gross na onal product (GNP) that come from a change in prices, and changes from a change in physical output.
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In sta s cs, a deflator is a value that allows data to be measured over me in terms of some base period, usually through a price index, in order
to dis nguish between a changes in the money value of a gross na onal product (GNP) that come from a change in prices, and changes from a
change in physical output. It is the measure of the price level for some quan ty. A deflator serves as a price index in which the effects of
infla on are nulled. It is the difference between real and nominal GDP.
In the United States, the import and export price indexes produced by the Interna onal Price Program are used as deflators in na onal accounts.
For example, the gross domes c product (GDP) equals consump on expenditures plus net investment plus government expenditures plus
exports minus imports. Various price indexes are used to "deflate" each component of the GDP to make the GDP figures comparable over me.
Import price indexes are used to deflate the import component (i.e., import volume is divided by the Import Price index) and the export price
indexes are used to deflate the export component (i.e., export volume is divided by the Export Price index).
It is generally used as a sta s cal tool to convert dollars purchasing power into "infla on-adjusted" purchasing power, thus enabling the
comparison of prices while accoun ng for infla on in various me periods.
Discouraged worker
Discouraged workers
Person of legal employment age who is not ac vely seeking employment or who does not find employment a er long-term unemployment.
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In economics, a discouraged worker is a person of legal employment age who is not ac vely seeking employment or who does not find
employment a er long-term unemployment. This is usually because an individual has given up looking or has had no success in finding a job,
hence the term "discouraged".
In other words, even if a person is s ll looking ac vely for a job, that person may have fallen out of the core sta s cs of unemployment rate
a er long-term unemployment and is therefore by default classified as "discouraged" (since the person does not appear in the core sta s cs of
unemployment rate). In some cases, their belief may derive from a variety of factors including a shortage of jobs in their locality or line of work;
discrimina on for reasons such as age, race, sex, religion, sexual orienta on, and disability; a lack of necessary skills, training, or experience; or, a
chronic illness or disability.
As a general prac ce, discouraged workers, who are o en classified as marginally a ached to the labor force, on the margins of the labor force,
or as part of hidden unemployment, are not considered part of the labor force, and are thus not counted in most official unemployment rates—
which influences the appearance and interpreta on of unemployment sta s cs. Although some countries offer alterna ve measures of
unemployment rate, the existence of discouraged workers can be inferred from a low employment-to-popula on ra o.
Economic equilibrium
Market equilibrium
State where economic forces such as supply and demand are balanced and in the absence of external influences the (equilibrium) values of economic
variables will not change.
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In economics, economic equilibrium is a state where economic forces such as supply and demand are balanced and in the absence of external
influences the (equilibrium) values of economic variables will not change. For example, in the standard textbook model of perfect compe on,
equilibrium occurs at the point at which quan ty demanded and quan ty supplied are equal. Market equilibrium in this case refers to a condi on
where a market price is established through compe on such that the amount of goods or services sought by buyers is equal to the amount of
goods or services produced by sellers. This price is o en called the compe ve price or market clearing price and will tend not to change unless
demand or supply changes, and the quan ty is called "compe ve quan ty" or market clearing quan ty. However, the concept of equilibrium in
economics also applies to imperfectly compe ve markets, where it takes the form of a Nash equilibrium.
Exchange-rate regime
Exchange rate regime
Way an authority manages its currency in rela on to other currencies and the foreign exchange market.
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An exchange-rate regime is the way an authority manages its currency in rela on to other currencies and the foreign exchange market. It is
closely related to monetary policy and the two are generally dependent on many of the same factors.
The basic types are a floa ng exchange rate, where the market dictates movements in the exchange rate; a pegged float, where a central bank
keeps the rate from devia ng too far from a target band or value; and a fixed exchange rate, which es the currency to another currency, mostly
reserve currencies such as the U.S. dollar or the euro or a basket of currencies.
Exogeny
Exogenous variables
Fact of an ac on or object origina ng externally.
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In a variety of contexts, exogeny or exogeneity (from Greek exo, meaning "outside", and gignomai, meaning "to produce") is the fact of an ac on
or object origina ng externally. It contrasts with endogeny or endogeneity, the fact of being influenced within a system.
In an economic model, an exogenous change is one that comes from outside the model and is unexplained by the model. For example, in the
simple supply and demand model, a change in consumer tastes or preferences is unexplained by the model and also leads to endogenous
changes in demand that lead to changes in the equilibrium price. Similarly, a change in the consumer's income is given outside the model but
affects demand. Put another way, an exogenous change involves an altera on of a variable that is autonomous, i.e., unaffected by the workings
of the model.
In linear regression, an exogenous variable is independent of the random error term in the linear model.
In biology, an exogenous contrast agent in medical imaging for example, is a liquid injected into the pa ent intravenously that enhances visibility
of a pathology, such as a tumor. An exogenous factor is any material that is present and ac ve in an individual organism or living cell but that
originated outside that organism, as opposed to an endogenous factor.
Exogenous factors in medicine include both pathogens and therapeu cs.
DNA introduced to cells via transfec on or viral infec on (transduc on) is an exogenous factor.
Carcinogens are exogenous factors.
In geography, exogenous processes all take place outside the Earth and all the other planets. Weathering, erosion, transporta on and
sedimenta on are the main exogenous processes.
In a en onal psychology, exogenous s muli are external s muli without conscious inten on. An example of this is a en on drawn to a flashing
light in the periphery of vision.
In ludology, the study of games, an exogenous item is anything outside the game itself. Therefore, an item in a massively mul player online game
would have exogenous value if people were buying it with real world money rather than in-game currency (though its in-game cost would be
endogenous).
In materials science, an exogenous property of a substance is derived from outside or external influences, such as a nano-doped material.
In philosophy, the origins of existence of self, or the iden ty of self, emana ng from, or sustaining, outside of the natural or influenced realm, is
exogenous.
Fixed investment
Fixed investment in economics refers to investment in fixed capital or to the replacement of depreciated fixed capital.
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Fixed investment in economics refers to investment in fixed capital or to the replacement of depreciated fixed capital.
Thus, fixed investment is investment in physical assets such as machinery, land, buildings, installa ons, vehicles, or technology. Normally, a
company balance sheet will state both the amount of expenditure on fixed assets during the quarter or year, and the total value of the stock of
fixed assets owned.
Fixed investment contrasts with investments in labour, ongoing opera ng expenses, materials or financial assets. Financial assets may also be
held for a fixed term (for example, bonds) but they are not usually called "fixed investment" because they do not involve the purchase of physical
fixed assets. The more usual term for such financial investments is "fixed-term investments". Bank deposits commi ed for a fixed term such as
one or two years in a savings account are similarly called "fixed-term deposits".
Sta s cal measures of fixed investment, such as provided by the Bureau of Economic Analysis in the United States, Eurostat in Europe, and
other na onal and interna onal sta s cal offices (e.g., the Interna onal Monetary Fund), are o en considered by economists to be important
indicators of longer-term economic growth (the growth of output and employment) and poten al produc vity.
The more fixed capital is used per worker, the more produc ve the worker can be, other things being equal. For example, a worker who lls the
soil only with a spade is normally less produc ve than a worker who uses a tractor-driven plough to do the same work, because with a tractor
one can plough more land in less me, and thus produce more in less me, even if a tractor costs more than a spade. Obviously one would not
normally use a tractor to plough a small garden, but in large-scale farming the income earned using a tractor by far outweighs the expense of
using a tractor. It is not economical to use a spade for large-scale ploughing, unless the labour is extremely cheap, and the supply of labour is
plen ful.
The level of fixed investment by businesses also indicates something about the level of confidence that business owners or managers have
about the ability to earn more income from sales in the next few years. The reasoning is that they would be unlikely to e up addi onal capital in
fixed assets for several years or more, unless they thought it would be a commercially viable proposi on in the longer term. If there is too much
uncertainty about whether their fixed investment will pay off, they are unlikely to engage in it.
In recent decades, the growth rate of fixed investment in the US, Europe and Japan was rela vely low, but in China for example it is rela vely
high. O en the rela vi es are expressed as a ra o between gross fixed capital forma on and GDP, or fixed investment per worker employed or
per capita.
Foreign-exchange reserves
Foreign Reserves
Ns tu ons. ...
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Foreign-exchange reserves (also called forex reserves or FX reserves) is money or other assets held by a central bank or other monetary
authority so that it can pay if need be its liabili es, such as the currency issued by the central bank, as well as the various bank reserves
deposited with the central bank by the government and other financial ins tu ons. Reserves are held in one or more reserve currency, mostly
the United States dollar and to a lesser extent the EU's euro, the Bri sh pound sterling, and the Japanese yen.
Free trade debate

Capital mobility
Free trade is one of the most debated topics in economics of the 19th, 20th, and 21st century.
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Free trade is one of the most debated topics in economics of the 19th, 20th, and 21st century. Arguments over free trade can be divided into
economic, moral, and socio-poli cal arguments.
Household income
Measure of the combined incomes of all people sharing a par cular household or place of residence.
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Household income is a measure of the combined incomes of all people sharing a par cular household or place of residence. It includes every
form of income, e.g., salaries and wages, re rement income, near cash government transfers like food stamps, and investment gains.
Average household income can be used as an indicator for the monetary well-being of a country's ci zens. Mean or median net household
income, a er taxes and mandatory contribu ons, are good indicators of standard of living, because they include only disposable income and
acknowledge people sharing accommoda on benefit from pooling at least some of their living costs.
Average household incomes need not map directly to measures of an individual's earnings such as per capita income as numbers of people
sharing households and numbers of income earners per household can vary significantly between regions and over me.
Interest rate parity

Interest parity condi on
No-arbitrage condi on represen ng an equilibrium state under which investors will be indifferent to interest rates available on bank deposits in two
countries.
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Interest rate parity is a no-arbitrage condi on represen ng an equilibrium state under which investors will be indifferent to interest rates
available on bank deposits in two countries. The fact that this condi on does not always hold allows for poten al opportuni es to earn riskless
profits from covered interest arbitrage. Two assump ons central to interest rate parity are capital mobility and perfect subs tutability of
domes c and foreign assets. Given foreign exchange market equilibrium, the interest rate parity condi on implies that the expected return on
domes c assets will equal the exchange rate-adjusted expected return on foreign currency assets. Investors then cannot earn arbitrage profits
by borrowing in a country with a lower interest rate, exchanging for foreign currency, and inves ng in a foreign country with a higher interest
rate, due to gains or losses from exchanging back to their domes c currency at maturity. Interest rate parity takes on two dis nc ve forms:
uncovered interest rate parity refers to the parity condi on in which exposure to foreign exchange risk (unan cipated changes in exchange
rates) is uninhibited, whereas covered interest rate parity refers to the condi on in which a forward contract has been used to cover (eliminate
exposure to) exchange rate risk. Each form of the parity condi on demonstrates a unique rela onship with implica ons for the forecas ng of
future exchange rates: the forward exchange rate and the future spot exchange rate.
Economists have found empirical evidence that covered interest rate parity generally holds, though not with precision due to the effects of
various risks, costs, taxa on, and ul mate differences in liquidity. When both covered and uncovered interest rate parity hold, they expose a
rela onship sugges ng that the forward rate is an unbiased predictor of the future spot rate. This rela onship can be employed to test whether
uncovered interest rate parity holds, for which economists have found mixed results. When uncovered interest rate parity and purchasing power
parity hold together, they illuminate a rela onship named real interest rate parity, which suggests that expected real interest rates represent
expected adjustments in the real exchange rate. This rela onship generally holds strongly over longer terms and among emerging market
countries.
Intermediate good
Intermediate goods or producer goods or semi-finished products are goods , such as partly finished goods, used as inputs in the produc on of other
goods including final goods.
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Intermediate goods or producer goods or semi-finished products are goods , such as partly finished goods, used as inputs in the produc on of
other goods including final goods. A firm may make and then use intermediate goods, or make and then sell, or buy then use them. In the
produc on process, intermediate goods either become part of the final product, or are changed beyond recogni on in the process.
Intermediate goods are not counted in a country's GDP, as that would mean double coun ng, as the final product only should be counted, and
the value of the intermediate good is included in the value of the final good.
The use of the term "intermediate goods" can be slightly misleading, since in advanced economies about half of the value of intermediate inputs
consist of services.
Internal balance
State in which a country maintains full employment and price level stability.
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Internal balance in economics is a state in which a country maintains full employment and price level stability. It is a func on of a country's total
output,
II = C (Yf - T) + I + G + CA (E x P*/P, Yf-T; Yf* - T*)
Internal balance = Consump on [determined by disposable income] + Investment + Government Spending + Current Account (determined by
the real exchange rate, disposable income of home country and disposable income of the foreign country).
External balance signifies a condi on in which the country's current account, its exports minus imports, is neither too far in surplus nor in deficit.
It is signified by a level of the current account which is consistent with the maintenance of exis ng (or growing) levels of consump on,
employment and na onal output over the long term. It is notated by
XX = CA (EP*/P, Y-T, Yf* - T*)
External balance = the right amount of surplus or deficit in the current account.
Maintaining both internal and external balances requires use of both monetary policy and fiscal policy. That is one reason why floa ng exchange
rates may be superior to fixed exchange rates. Under fixed exchange rates, governments are not usually free to employ monetary policy. Under
floa ng rates, countries can use both.
Involuntary unemployment
Involuntary unemployment occurs when a person is willing to work at the prevailing wage yet is unemployed.
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Involuntary unemployment occurs when a person is willing to work at the prevailing wage yet is unemployed. Involuntary unemployment is
dis nguished from voluntary unemployment, where workers choose not to work because their reserva on wage is higher than the prevailing
wage. In an economy with involuntary unemployment there is a surplus of labor at the current real wage. Involuntary unemployment cannot be
represented with a basic supply and demand model at a compe ve equilibrium: All workers on the labor supply curve below the market wage
would voluntarily choose not to work, and all those above the market wage would be employed. Given the basic supply and demand model,
involuntarily unemployed workers lie somewhere off of the labor supply curve. Economists have several theories explaining the possibility of
involuntary unemployment including implicit contract theory, disequilibrium theory, staggered wage se ng, and efficiency wages.
Keynesian economics
Keynesian
Various theories about how in the short run, and especially during recessions, economic output is strongly influenced by aggregate demand (total
spending in the economy).
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Keynesian economics (/ˈkeɪnziən/ KAYN-zee-ən; or Keynesianism) are the various theories about how in the short run, and especially during
recessions, economic output is strongly influenced by aggregate demand (total spending in the economy). In the Keynesian view, aggregate
demand does not necessarily equal the produc ve capacity of the economy; instead, it is influenced by a host of factors and some mes behaves
erra cally, affec ng produc on, employment, and infla on.
The theories forming the basis of Keynesian economics were first presented by the Bri sh economist John Maynard Keynes during the Great
Depression in his 1936 book, The General Theory of Employment, Interest and Money. Keynes contrasted his approach to the aggregate supply-
focused classical economics that preceded his book. The interpreta ons of Keynes that followed are conten ous and several schools of
economic thought claim his legacy.
Keynesian economists o en argue that private sector decisions some mes lead to inefficient macroeconomic outcomes which require ac ve
policy responses by the public sector, in par cular, monetary policy ac ons by the central bank and fiscal policy ac ons by the government, in
order to stabilize output over the business cycle. Keynesian economics advocates a mixed economy – predominantly private sector, but with a
role for government interven on during recessions.
Keynesian economics served as the standard economic model in the developed na ons during the later part of the Great Depression, World War
II, and the post-war economic expansion (1945–1973), though it lost some influence following the oil shock and resul ng stagfla on of the
1970s. The advent of the financial crisis of 2007–08 caused a resurgence in Keynesian thought, which con nues as new Keynesian economics.
Labour supply
Total hours (adjusted for intensity of effort) that workers wish to work at a given real wage rate.
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In mainstream economic theories, the labour supply is the total hours (adjusted for intensity of effort) that workers wish to work at a given real
wage rate. It is frequently represented graphically by a labour supply curve, which shows hypothe cal wage rates plo ed ver cally and the
amount of labour that an individual or group of individuals is willing to supply at that wage rate plo ed horizontally.
Liquidity crisis
In financial economics, a liquidity crisis refers to an acute shortage (or "drying up") of liquidity.
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In financial economics, a liquidity crisis refers to an acute shortage (or "drying up") of liquidity. Liquidity is a catch-all term that may refer to
several different yet closely related concepts. Among other defini ons, it may refer by market liquidity (the ease with which an asset can be
converted into a liquid medium, e.g. cash), funding liquidity (the ease with which borrowers can obtain external funding), or accoun ng liquidity
(the health of an ins tu on’s balance sheet measured in terms of its cash-like assets). Addi onally, some economists define a market to be liquid
if it can absorb "liquidity trades" (sale of securi es by investors to meet sudden needs for cash) without large changes in price. This shortage of
liquidity could reflect a fall in asset prices below their long run fundamental price, deteriora on in external financing condi ons, reduc on in the
number of market par cipants, or simply difficulty in trading assets.
The above-men oned forces mutually reinforce each other during a liquidity crisis. Market par cipants in need of cash find it hard to locate
poten al trading partners to sell their assets. This may result either due to limited market par cipa on or because of a decrease in cash held by
financial market par cipants. Thus asset holders may be forced to sell their assets at a price below the long term fundamental price. Borrowers
typically face higher loan costs and collateral requirements, compared to periods of ample liquidity, and unsecured debt is nearly impossible to
obtain. Typically, during a liquidity crisis, the interbank lending market does not func on smoothly either.
Several mechanisms opera ng through the mutual reinforcement of asset market liquidity and funding liquidity can amplify the effects of a small
nega ve shock to the economy and result in lack of liquidity and eventually a full blown financial crisis.
Marginal propensity to consume

Propensity To Consume
Metric that quan fies induced consump on, the concept that the increase in personal consumer spending (consump on) occurs with an increase in
disposable income (income a er taxes and transfers).
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In economics, the marginal propensity to consume (MPC) is a metric that quan fies induced consump on, the concept that the increase in
personal consumer spending (consump on) occurs with an increase in disposable income (income a er taxes and transfers). The propor on of
disposable income which individuals spend on consump on is known as propensity to consume. MPC is the propor on of addi onal income
that an individual consumes. For example, if a household earns one extra dollar of disposable income, and the marginal propensity to consume is
0.65, then of that dollar, the household will spend 65 cents and save 35 cents. Obviously, the household cannot spend more than the extra
dollar (without borrowing).
According to John Maynard Keynes, marginal propensity to consume is less than one.
Marginal propensity to import
Frac onal change in import expenditure that occurs with a change in disposable income (income a er taxes and transfers).
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The marginal propensity to import (MPM) is the frac onal change in import expenditure that occurs with a change in disposable income (income
a er taxes and transfers). For example, if a household earns one extra dollar of disposable income, and the marginal propensity to import is 0.2,
then the household will spend 20 cents of that dollar on imported goods and services.
Mathema cally, the marginal propensity to import (MPM) func on is expressed as the deriva ve of the import (I) func on with respect to
disposable income (Y).
MPM=dIdY
In other words, the marginal propensity to import is measured as the ra o of the change in imports to the change in income, thus giving us a
figure between 0 and 1.
Imports are also considered to be automa c stabilisers that work to lessen fluctua ons in real GDP.
The UK government assumes that UK ci zens have a high marginal propensity to import and thus will use a decrease in disposable income as a
tool to control the current account on the balance of payments.
Marginal propensity to save
Frac on of an increase in income that is not spent on an increase in consump on.
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The marginal propensity to save (MPS) is the frac on of an increase in income that is not spent on an increase in consump on. That is, the
marginal propensity to save is the propor on of each addi onal dollar of household income that is used for saving. It is the slope of the line
plo ng saving against income. For example, if a household earns one extra dollar, and the marginal propensity to save is 0.35, then of that
dollar, the household will spend 65 cents and save 35 cents. Likewise, it is the frac onal decrease in saving that results from a decrease in
income.
The MPS plays a central role in Keynesian economics as it quan fies the saving-income rela on, which is the flip side of the consump on-
income rela on, and according to Keynes it reflects the fundamental psychological law. The marginal propensity to save is also a key variable in
determining the value of the mul plier.
Marginal u lity
Marginal benefit
Sa sfac on or benefit derived by consuming a product, thus the marginal u lity of a good or service is the change in the u lity from increase or
decrease in the consump on of that good or service.
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In economics, u lity is the sa sfac on or benefit derived by consuming a product, thus the marginal u lity of a good or service is the change in
the u lity from increase or decrease in the consump on of that good or service. Economists some mes speak of a law of diminishing marginal
u lity, meaning that the first unit of consump on of a good or service yields more u lity than the second and subsequent units, with a
con nuing reduc on for greater amounts. Therefore, the fall in marginal u lity as consump on increases is known as diminishing marginal
u lity. Mathema cally, MU1>MU2>MU3......>MUn. The marginal decision rule states that a good or service should be consumed at a
quan ty at which the marginal u lity is equal to the marginal cost.
Measures of na onal income and output

Na onal Income
A variety of measures of na onal income and output are used in economics to es mate total economic ac vity in a country or region, including
gross domes c product (GDP), gross na onal product (GNP), net na onal income (NNI), and adjusted na onal income (NNI* adjusted for natural
resource deple on).
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A variety of measures of na onal income and output are used in economics to es mate total economic ac vity in a country or region, including
gross domes c product (GDP), gross na onal product (GNP), net na onal income (NNI), and adjusted na onal income (NNI* adjusted for natural
resource deple on). All are specially concerned with coun ng the total amount of goods and services produced within some "veay. The
boundary is usually defined by geography or ci zenship, and may also restrict the goods and services that are counted. For instance, some
measures count only goods & services that are exchanged for money, excluding bartered goods, while other measures may a empt to include
bartered goods by impu ng monetary values to them.
Money crea on
Deposit Mul plier
Process by which the money supply of a country or a monetary region (such as the Eurozone) is increased.
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Money crea on (also known as credit crea on) is the process by which the money supply of a country or a monetary region (such as the
Eurozone) is increased. A central bank may introduce new money into the economy (termed "expansionary monetary policy", or by detractors
"prin ng money") by purchasing financial assets or lending money to financial ins tu ons. However, in most countries today, most of the money
supply is in the form of bank deposits, which is created by the frac onal reserve banking system. Bank lending mul plies the amount of broad
money beyond the amount of base money originally created by the central bank. Reserve requirements, capital adequacy ra os, and other
policies of the central bank limit this process.
Central banks monitor the amount of money in the economy by measuring monetary aggregates such as M2. The effect of monetary policy on
the money supply is indicated by comparing these measurements on various dates. For example, in the United States, money supply measured
as M2 grew from $6.407 trillion in January 2005, to $8.319 trillion in January 2009.
Money mul plier
In monetary economics, a money mul plier is one of various closely related ra os of commercial bank money to central bank money under a
frac onal-reserve banking system.
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In monetary economics, a money mul plier is one of various closely related ra os of commercial bank money to central bank money under a
frac onal-reserve banking system. Most o en, it measures an es mate of the maximum amount of commercial bank money that can be created,
given a certain amount of central bank money. That is, in a frac onal-reserve banking system, the total amount of loans that commercial banks
are allowed to extend (the commercial bank money that they can legally create) is equal to an amount which is a mul ple of the amount of
reserves. This mul ple is the reciprocal of the reserve ra o, and it is an economic mul plier.
Although the money mul plier concept is a tradi onal portrayal of frac onal reserve banking, it has been cri cized as being misleading. The
Bank of England and the Standard & Poor's ra ng agency (amongst others) have issued detailed refuta ons of the concept together with factual
descrip ons of banking opera ons. Several countries (such as Canada, the UK, Australia and Sweden) set no legal reserve requirements. Even in
those countries that do (such as the USA), the reserve requirement is as a ra o to deposits held, not a ra o to loans that can be extended. Under
the Basel III global regulatory standard, it is the level of bank capital that determines the maximum amount that banks can lend. Basel III does
s pulate a liquidity requirement to cover 30 days net cash ou low expected under a modeled stressed scenario (note this is not a ra o to loans
that can be extended) however liquidity coverage does not need to be held as reserves but rather as any high-quality liquid assets
In equa ons, wri ng M for commercial bank money (loans), R for reserves (central bank money), and RR for the reserve ra o, the reserve ra o
requirement is that
R/M≥RR;
the frac on of reserves must be at least the reserve ra o. Taking the reciprocal,
M/R≤1/RR,
which yields
M≤R×(1/RR),
meaning that commercial bank money is at most reserves mes
(1/RR),
the la er being the mul plier.
If banks lend out close to the maximum allowed by their reserves, then the inequality becomes an approximate equality, and commercial bank
money is central bank money mes the mul plier. If banks instead lend less than the maximum, accumula ng excess reserves, then commercial
bank money will be less than central bank money mes the theore cal mul plier.
Na onal accounts
Implementa on of complete and consistent accoun ng techniques for measuring the economic ac vity of a na on.
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Na onal accounts or na onal account systems (NAS) are the implementa on of complete and consistent accoun ng techniques for measuring
the economic ac vity of a na on. These include detailed underlying measures that rely on double-entry accoun ng. By design, such accoun ng
makes the totals on both sides of an account equal even though they each measure different characteris cs, for example produc on and the
income from it. As a method, the subject is termed na onal accoun ng or, more generally, social accoun ng. Stated otherwise, na onal accounts
as systems may be dis nguished from the economic data associated with those systems. While sharing many common principles with business
accoun ng, na onal accounts are based on economic concepts. One conceptual construct for represen ng flows of all economic transac ons
that take place in an economy is a social accoun ng matrix with accounts in each respec ve row-column entry.
Na onal accoun ng has developed in tandem with macroeconomics from the 1930s with its rela on of aggregate demand to total output
through interac on of such broad expenditure categories as consump on and investment. Economic data from na onal accounts are also used
for empirical analysis of economic growth and development.
Net foreign assets
In economics, the concept of net foreign assets relates to balance of payments iden ty.
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In economics, the concept of net foreign assets relates to balance of payments iden ty.
The net foreign asset (NFA) posi on of a country is the value of the assets that country owns abroad, minus the value of the domes c assets
owned by foreigners. The net foreign asset posi on of a country reflects the indebtedness of that country.
North Sea oil
Mixture of hydrocarbons, comprising liquid petroleum and natural gas, produced from petroleum reservoirs beneath the North Sea.
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North Sea oil is a mixture of hydrocarbons, comprising liquid petroleum and natural gas, produced from petroleum reservoirs beneath the North
Sea.
In the petroleum industry, the term "North Sea" o en includes areas such as the Norwegian Sea and the area known as "West of Shetland", "the
Atlan c Fron er" or "the Atlan c Margin" that is not geographically part of the North Sea.
Brent crude is s ll used today as a standard benchmark for pricing oil, although the contract now refers to a blend of oils from fields in the
northern North Sea.
Output gap
Defla onary gap
Difference between actual GDP or actual output and poten al GDP.
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The GDP gap or the output gap is the difference between actual GDP or actual output and poten al GDP. The calcula on for the output gap is
Y–Y* where Y is actual output and Y* is poten al output. If this calcula on yields a posi ve number it is called an infla onary gap and indicates
the growth of aggregate demand is outpacing the growth of aggregate supply—possibly crea ng infla on; if the calcula on yields a nega ve
number it is called a recessionary gap—possibly signifying defla on.
The percentage GDP gap is the actual GDP minus the poten al GDP divided by the poten al GDP.
(GDPactual−GDPpotential)GDPpotential.
February 2013 data from the Congressional Budget Office showed that the United States had a projected output gap for 2013 of roughly $1
trillion, or nearly 6% of poten al GDP.
Permanent income hypothesis

Permanent income
Economic theory a emp ng to describe how agents spread consump on over their life mes.
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The permanent income hypothesis (PIH) is an economic theory a emp ng to describe how agents spread consump on over their life mes. First
developed by Milton Friedman, it supposes that a person's consump on at a point in me is determined not just by their current income but also
by their expected income in future years—their "permanent income". In its simplest form, the hypothesis states that changes in permanent
income, rather than changes in temporary income, are what drive the changes in a consumer's consump on pa erns. Its predic ons of
consump on smoothing, where people spread out transitory changes in income over me, departs from the tradi onal Keynesian emphasis on
the marginal propensity to consume. It has had a profound effect on the study of consumer behavior, and provides an explana on for some of
the failures of Keynesian demand management techniques.
Income consists of a permanent (an cipated and planned) component and a transitory (windfall gain/unexpected) component. In the permanent
income hypothesis model, the key determinant of consump on is an individual's life me income, not his current income. Permanent income is
defined as expected long-term average income.
Assuming consumers experience diminishing marginal u lity, they will want to smooth out consump on over me, e.g. take on debt as a student
and also ensure savings for re rement. Coupled with the idea of average life me income, the consump on smoothing element of the PIH
predicts that transitory changes in income will have only a small effect on consump on. Only longer-las ng changes in income will have a large
effect on spending.
A consumer's permanent income is determined by their assets; both physical (shares, bonds, property) and human (educa on and experience).
These influence the consumer's ability to earn income. The consumer can then make an es ma on of an cipated life me income. A worker
saves only if they expect that their long-term average income, i.e. their permanent income, will be less than their current income.
Phillips curve
Single-equa on empirical model, named a er A. W. Phillips, describing a historical inverse rela onship between rates of unemployment and
corresponding rates of infla on that result within an economy.
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The Phillips curve is a single-equa on empirical model, named a er A. W. Phillips, describing a historical inverse rela onship between rates of
unemployment and corresponding rates of infla on that result within an economy. Stated simply, decreased unemployment, (i.e., increased
levels of employment) in an economy will correlate with higher rates of infla on.
While there is a short run tradeoff between unemployment and infla on, it has not been observed in the long run. In 1968, Milton Friedman
asserted that the Phillips curve was only applicable in the short-run and that in the long-run, infla onary policies will not decrease
unemployment. Friedman then correctly predicted that, in the 1973–75 recession, both infla on and unemployment would increase. The long-
run Phillips curve is now seen as a ver cal line at the natural rate of unemployment, where the rate of infla on has no effect on unemployment.
Accordingly, the Phillips curve is now seen as too simplis c, with the unemployment rate supplanted by more accurate predictors of infla on
based on velocity of money supply measures such as the MZM ("money zero maturity") velocity, which is affected by unemployment in the short
but not the long term.
Poten al output
In economics, poten al output (also referred to as "natural gross domes c product") refers to the highest level of real gross domes c product
(output) that can be sustained over the long term.
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In economics, poten al output (also referred to as "natural gross domes c product") refers to the highest level of real gross domes c product
(output) that can be sustained over the long term. The existence of a limit is due to natural and ins tu onal constraints. If actual GDP rises and
stays above poten al output, then (in the absence of wage and price controls) infla on tends to increase as demand for factors of produc on
exceeds supply. This is because of the limited supply of workers and their me, capital equipment, and natural resources, along with the limits of
our technology and our management skills. Graphically, the expansion of output beyond the natural limit can be seen as a shi of produc on
volume above the op mum quan ty on the average cost curve. Likewise, if GDP is below natural GDP, infla on will decelerate as suppliers
lower prices to fill their excess produc on capacity.
Poten al output in macroeconomics corresponds to one point on the produc on possibili es fron er (or curve) for a society as a whole seen in
introductory economics, reflec ng natural, technological, and ins tu onal constraints.
Poten al output has also been called the "natural gross domes c product." If the economy is at poten al, the unemployment rate equals the
NAIRU or the "natural rate of unemployment." There is great disagreement among economists as to what these rates actually are.
Generally speaking, most central banks and other economic planning agencies a empt to keep GDP at or around the natural GDP level. This can
be done in a number of ways: the two most common strategies are expanding or contrac ng the government budget (fiscal policy), and altering
the money supply to change consump on and investment levels (monetary policy).
The difference between poten al output and actual output is referred to as the output or GDP gap, which may closely track measures of
industrial capacity u liza on. Poten al output has also been studied in rela on Okun's law as to percentage changes in output associated with
changes in the output gap and over me. and in decomposi on of trend and business cycle in the economy rela ve to the output gap.
Price elas city of demand

Elas city of demand
Measure used in economics to show the responsiveness, or elas city, of the quan ty demanded of a good or service to a change in its price, ceteris
paribus.
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Price elas city of demand (PED or Ed) is a measure used in economics to show the responsiveness, or elas city, of the quan ty demanded of a
good or service to a change in its price, ceteris paribus. More precisely, it gives the percentage change in quan ty demanded in response to a
one percent change in price (ceteris paribus).
Price elas ci es are almost always nega ve, although analysts tend to ignore the sign even though this can lead to ambiguity. Only goods which
do not conform to the law of demand, such as Veblen and Giffen goods, have a posi ve PED. In general, the demand for a good is said to be
inelas c (or rela vely inelas c) when the PED is less than one (in absolute value): that is, changes in price have a rela vely small effect on the
quan ty of the good demanded. The demand for a good is said to be elas c (or rela vely elas c) when its PED is greater than one (in absolute
value): that is, changes in price have a rela vely large effect on the quan ty of a good demanded.
Revenue is maximized when price is set so that the PED is exactly one. The PED of a good can also be used to predict the incidence (or
"burden") of a tax on that good. Various research methods are used to determine price elas city, including test markets, analysis of historical
sales data and conjoint analysis.
Price of oil
Oil prices
The price of oil, or the oil price, generally refers to the spot price of a barrel of benchmark crude oil—a reference price for buyers and sellers of crude
oil such as West Texas Intermediate (WTI), Brent ICE, Dubai Crude, OPEC Reference Basket, Tapis Crude, Bonny Light, Urals oil, Isthmus and
Western Canadian Select (WCS).
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The price of oil, or the oil price, generally refers to the spot price of a barrel of benchmark crude oil—a reference price for buyers and sellers of
crude oil such as West Texas Intermediate (WTI), Brent ICE, Dubai Crude, OPEC Reference Basket, Tapis Crude, Bonny Light, Urals oil, Isthmus
and Western Canadian Select (WCS). There is a differen al in the price of a barrel of oil based on its grade—determined by factors such as its
specific gravity or API and its sulphur content—and its loca on—for example, its proximity to dewater and/or refineries. Heavier, sour crude
oils lacking in dewater access—such as Western Canadian Select— are less expensive than lighter, sweeter oil—such as WTI.
Public expenditure
Government expenditure
Public expenditure is spending made by the government of a country on collec ve needs and wants such as pension, provision, infrastructure, etc.
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Public expenditure is spending made by the government of a country on collec ve needs and wants such as pension, provision, infrastructure,
etc. Un l the 19th century, public expenditure was limited as laissez faire philosophies believed that money le in private hands could bring
be er returns. In the 20th century, John Maynard Keynes argued the role of public expenditure in determining levels of income and distribu on
in the economy. Since then government expenditures has shown an increasing trend.
In the 17th and the 18th century Public Expenditure was considered as a wastage of money.Thinkers said Government should stay with their
tradi onal func ons of spending on defence and maintaining law and order.
Quan ty Demanded
Term used in economics to describe the total amount of goods or services demanded at any given point in me.
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Quan ty demanded is a term used in economics to describe the total amount of goods or services demanded at any given point in me. It
depends on the price of a good or service in the marketplace, regardless of whether that market is in equilibrium. The degree to which the
quan ty demanded changes with respect to price is called the elas city of demand.
Real gross domes c product

Real gdp
Macroeconomic measure of the value of economic output adjusted for price changes (i.e., infla on or defla on).
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Real Gross Domes c Product (real GDP) is a macroeconomic measure of the value of economic output adjusted for price changes (i.e., infla on
or defla on). This adjustment transforms the money-value measure, nominal GDP, into an index for quan ty of total output. Although GDP is
total output, it is primarily useful because it closely approximates the total spending: the sum of consumer spending, investment made by
industry, excess of exports over imports, and government spending. Due to infla on, GDP increases and does not actually reflect the true
growth in an economy. That is why the infla on rate must be subtracted from the GDP to get the real growth percentage, called the real GDP.
Real income
Real income is income of individuals or na ons a er adjus ng for infla on.
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Real income is income of individuals or na ons a er adjus ng for infla on. It is calculated by dividing nominal income by the price level. Real
variables such as real income and real GDP are variables that are measured in physical units, while nominal variables such as nominal income and
nominal GDP are measured in monetary units. Therefore, real income is a more useful indicator of well-being since it measures the amount of
goods and services that can be purchased with the income.
According to the classical dichotomy theory, real variables and nominal variables are separate in the long run, so they are not influenced by each
other. In other words, if the nominal star ng income was 100 and there was 10% infla on (general rise in prices, for example, what cost 10 now
costs 11), then with nominal income of s ll 100, one can buy 10% less; so if nominal income was not adjusted for infla on (did not rise by 10%),
real income has dropped 10%.[1] But if the classical dichotomy holds, nominal income will eventually go up by 10%, leaving real income
unchanged from its original value.
Real wages
Real wage
Real wages are wages adjusted for infla on, or, equivalently, wages in terms of the amount of goods and services that can be bought.
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Real wages are wages adjusted for infla on, or, equivalently, wages in terms of the amount of goods and services that can be bought. This term
is used in contrast to nominal wages or unadjusted wages.
Because it has been adjusted to account for changes in the prices of goods and services, real wages provide a clearer representa on of an
individual's wages in terms of what they can afford to buy with those wages – specifically, in terms of the amount of goods and services that can
be bought. However, real wages suffer the disadvantage of not being well defined, since the amount of infla on (which can be calculated based
on different combina ons of goods and services) is itself not well defined. Hence real wage defined as the total amount of goods and services
that can be bought with a wage, is also not defined. This is because changes in the rela ve prices of goods and services will change the financial
comparability of various bundles of goods and services.
Despite difficulty in defining one value for the real wage, in some cases a real wage can be said to have unequivocally increased. This is true if:
A er the change, the worker can now afford any bundle of goods and services that he could just barely afford before the change, and s ll have
money le over. In such a situa on, real wage increases no ma er how infla on is calculated. Specifically, infla on could be calculated based on
any good or service or combina on thereof, and real wage has s ll increased. This of course leaves many scenarios where real wage increasing,
decreasing or staying the same depends upon how infla on is calculated. These are the scenarios where the worker can buy some of the
bundles that he could just barely afford before and s ll have money le , but at the same me he simply cannot afford some of the bundles that
he could before. This happens because some prices change more than others, which means rela ve prices have changed.
The use of adjusted figures is used in undertaking some forms of economic analysis. For example, to report on the rela ve economic successes
of two na ons, real wage figures are more useful than nominal figures. The importance of considering real wages also appears when looking at
the history of a single country. If only nominal wages are considered, the conclusion has to be that people used to be significantly poorer than
today. However, the cost of living was also much lower. To have an accurate view of a na on's wealth in any given year, infla on has to be taken
into account and real wages must be used as one measuring s ck.
An alterna ve is to look at how much me it took to earn enough money to buy various items in the past, which is one version of the defini on
of real wages as the amount of goods or services that can be bought. Such an analysis shows that for most items, it takes much less work me to
earn them now than it did decades ago, at least in the United States.
Real wages are a useful economic measure, as opposed to nominal wages, which simply show the monetary value of wages in that year.
Rela ve price
Price of a commodity such as a good or service in terms of another; i.e., the ra o of two prices.
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A rela ve price is the price of a commodity such as a good or service in terms of another; i.e., the ra o of two prices. A rela ve price may be
expressed in terms of a ra o between any two prices or the ra o between the price of one par cular good and a weighted average of all other
goods available in the market. A rela ve price is an opportunity cost. Microeconomics can be seen as the study of how economic agents react to
changes in rela ve prices.
In the demand equa on Q = f(P) (in which Q is the number of units of a good or service demanded), P is the rela ve price of the good or service
rather than the nominal price. It is the change in a rela ve price that prompts a change in demand. For example, if all prices rise by 10% there is
no change in any rela ve prices, so if consumers' nominal income and wealth also go up by 10% leaving real income and real wealth unchanged,
then demand for each good or service will be unaffected. But if the price of a par cular good goes up by, say, 2% while the prices of the other
goods and services go down enough that the overall price level is unchanged, then the rela ve price of the par cular good has increased while
purchasing power has been unaffected, so the demand for the good will go down.
O en infla on makes it difficult for economic agents to immediately dis nguish increases in the price of a good which are due to rela ve price
changes from changes in the price which are due to infla on of prices in general. This situa on can lead to alloca ve inefficiency, and is one of
the nega ve effects of infla on.
Stabiliza on policy
Package or set of measures introduced to stabilize a financial system or economy.
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A stabiliza on policy is a package or set of measures introduced to stabilize a financial system or economy. The term can refer to policies in two
dis nct sets of circumstances: business cycle stabiliza on and crisis stabiliza on. In either case, it is a form of discre onary policy.
Store of value
Func on of an asset that can be saved, retrieved and exchanged at a later me, and be predictably useful when retrieved.
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A store of value is the func on of an asset that can be saved, retrieved and exchanged at a later me, and be predictably useful when retrieved.
More generally, a store of value is anything that retains purchasing power into the future.
The most common store of value in modern mes has been money, currency, or a commodity like a precious metal, cryptocurrency or financial
capital. The point of any store of value is risk management due to a stable demand for the underlying asset. Money is one of the best stores of
value because of its liquidity, that is, it can easily be exchanged for other goods and services. An individual's wealth is the total of all stores of
value including both monetary and nonmonetary assets.
Structural unemployment
Form of unemployment caused by a mismatch between the skills that workers in the economy can offer, and the skills demanded of workers by
employers (also known as the skills gap).
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Structural unemployment is a form of unemployment caused by a mismatch between the skills that workers in the economy can offer, and the
skills demanded of workers by employers (also known as the skills gap). Structural unemployment is o en brought about by technological
changes that make the job skills of many of today's workers obsolete.
Structural unemployment is one of several major categories of unemployment dis nguished by economists, including fric onal unemployment,
cyclical unemployment, involuntary unemployment ,and classical unemployment.
Because it requires either migra on or re-training, structural unemployment can be long-term and slow to fix.
Supply (economics)
Supply schedule
Amount of something that firms, consumers, laborers, providers of financial assets, or other economic agents are willing to provide to the
marketplace.
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In economics, supply is the amount of something that firms, consumers, laborers, providers of financial assets, or other economic agents are
willing to provide to the marketplace. Supply is o en plo ed graphically with the quan ty provided (the dependent variable) plo ed horizontally
and the price (the independent variable) plo ed ver cally.
In the goods market, supply is the amount of a product per unit of me that producers are willing to sell at various given prices when all other
factors are held constant. In the labor market, the supply of labor is the amount of me per week, month, or year that individuals are willing to
spend working, as a func on of the wage rate. In the financial markets, the money supply is the amount of highly liquid assets available in the
money market, which is either determined or influenced by a country's monetary authority.
The remainder of this ar cle focuses on the supply of goods.
Supply-side economics
Supply-side
Macroeconomic theory that argues economic growth can be most effec vely created by inves ng in capital and by lowering barriers on the
produc on of goods and services.
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Supply-side economics is a macroeconomic theory that argues economic growth can be most effec vely created by inves ng in capital and by
lowering barriers on the produc on of goods and services. It was started by Robert Mundell, who won the 1999 Nobel Prize for Economics,
during the Ronald Reagan administra on. According to supply-side economics, consumers will then benefit from a greater supply of goods and
services at lower prices; furthermore, the investment and expansion of businesses will increase the demand for employees and therefore create
jobs. Typical policy recommenda ons of supply-side economists are lower marginal tax rates and less government regula on.
The term "supply-side economics" was thought, for some me, to have been coined by journalist Jude Wanniski in 1975, but according to
Robert D. Atkinson's Supply-Side Follies, the term "supply side" ("supply-side fiscalists") was first used by Herbert Stein, a former economic
adviser to President Nixon, in 1976, and only later that year was this term repeated by Jude Wanniski. Its use connotes the ideas of economists
Robert Mundell and Arthur Laffer.
The Laffer curve is one of the main theore cal constructs of supply-side economics. It is the idea that lowering tax rates may generate more
government revenue than would otherwise be expected at the lower tax rate because moving off of a prohibi vely high tax system could
generate more economic ac vity, which would lead to increased opportuni es for tax revenues. However, the Laffer curve only measures the
rate of taxa on, not tax incidence, which is a stronger predictor of whether a tax code change is s mula ve or dampening. In addi on, some
studies have shown that tax cuts done in the US in the past several decades seldom recoup revenue losses and have minimal impact on GDP
growth.
Tax bracket
Tax brackets
Divisions at which tax rates change in a progressive tax system (or an explicitly regressive tax system, although this is much rarer).
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Tax brackets are the divisions at which tax rates change in a progressive tax system (or an explicitly regressive tax system, although this is much
rarer). Essen ally, they are the cutoff values for taxable income — income past a certain point will be taxed at a higher rate.
Taylor rule
Reduced form approxima on of the responsiveness of the nominal interest rate, as set by the central bank, to changes in infla on, output, or other
economic condi ons.
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In economics, a Taylor rule is a reduced form approxima on of the responsiveness of the nominal interest rate, as set by the central bank, to
changes in infla on, output, or other economic condi ons. In par cular, the rule describes how, for each one-percent increase in infla on, the
central bank tends to raise the nominal interest rate by more than one percentage point. This aspect of the rule is o en called the Taylor
principle. It should be noted that while such rules may serve as concise, descrip ve proxies for central bank policy, and are not explicitly
proscrip vely considered by central banks when se ng nominal rates.
The rule was first proposed by John B. Taylor, and simultaneously by Dale W. Henderson and Warwick McKibbin in 1993. It is intended to foster
price stability and full employment by systema cally reducing uncertainty and increasing the credibility of future ac ons by the central bank. It
may also avoid the inefficiencies of me inconsistency from the exercise of discre onary policy. The Taylor rule synthesized, and provided a
compromise between, compe ng schools of economics thought in a language devoid of rhetorical passion. Although many issues remain
unresolved and views s ll differ about how the Taylor rule can best be applied in prac ce, research shows that the rule has advanced the
prac ce of central banking.
Technical progress (economics)

Technical progress
Economic measure of innova on.
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Tight Monetary Policy
Course of ac on undertaken by the Federal Reserve to constrict spending in an economy that is seen to be growing too quickly or to curb infla on
when it is rising too fast.
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Tight monetary policy is a course of ac on undertaken by the Federal Reserve to constrict spending in an economy that is seen to be growing
too quickly or to curb infla on when it is rising too fast. The Fed ghtens policy or makes money ght by raising short-term interest rates
through policy changes to the discount rate, also known as the federal funds rate. Increasing interest rates, increases the cost of borrowing and
effec vely reduces its a rac veness.
Token money
Token money is money whose face value exceeds its cost of produc on.
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Token money is money whose face value exceeds its cost of produc on. Most modern coins used in circula on are token money, as are paper
notes. It is a subsidary of standard money. Token money is exchanged at a value rate independent from its commodity value. If the money is
metallic it is made out of inferior metals such as copper and nickel.
Token money gives the holder no claim to legal redemp on in terms of some object possessing an intrinsic value. As such all money in the whole
Western world is token money. With token money, exchanges are not considered fully complete because the exchange of value is not
equivalent. Value is hoped to be rendered at soon future me. Examples of this include bills of exchange or nego able instrument and
cer ficates. Financial cryptography enables digital token money deployment of digital currencies such as Bitcoin.
Unemployment benefits
Unemployment Benefit
Unemployment benefits (depending on the jurisdic on also called unemployment insurance or unemployment compensa on) are social welfare
payments made by the state or other authorized bodies to unemployed people.
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Unemployment benefits (depending on the jurisdic on also called unemployment insurance or unemployment compensa on) are social welfare
payments made by the state or other authorized bodies to unemployed people. Benefits may be based on a compulsory para-governmental
insurance system. Depending on the jurisdic on and the status of the person, those sums may be small, covering only basic needs, or may
compensate the lost me propor onally to the previous earned salary.
Unemployment benefits are generally given only to those registering as unemployed, and o en on condi ons ensuring that they seek work and
do not currently have a job.
In some countries, a significant propor on of unemployment benefits are distributed by trade/labour unions, an arrangement known as the
Ghent system.
Visible balance
Visible trade
The visible balance is that part of the balance of trade figures that refers to interna onal trade in physical goods, but not trade in services; it thus
contrasts with the invisible balance.
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The visible balance is that part of the balance of trade figures that refers to interna onal trade in physical goods, but not trade in services; it thus
contrasts with the invisible balance.
Most countries do not have a zero visible balance: they usually run a surplus or a deficit. This will be offset by trade in services, other income
transfers, investments and monetary flows, leading to an overall balance of payments. The visible balance is affected by changes in the volumes
of imports and exports, and also by changes in the terms of trade.
In aggregate, the World o en appears to have a nega ve visible balance with itself; i.e. imports of goods appear to exceed exports. There are
numerous causes for this, such as measuring imports on a cost, insurance and freight basis while measuring exports on a free on board basis, or
sta s cal errors occurring when imports are more closely recorded than exports.
Balance Of Trade
Net Exports
Difference between a country's imports and its exports for a given me period.
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The balance of trade (BOT) is the difference between a country's imports and its exports for a given me period. The balance of trade is the
largest component of the country's balance of payments (BOP). Economists use the BOT as a sta s cal tool to help them understand the
rela ve strength of a country's economy versus other countries' economies and the flow of trade between na ons. The balance of trade is also
referred to as the trade balance or the interna onal trade balance.
Bank Capital
Difference between a bank's assets and liabili es, and it represents the net worth of the bank or its value to investors.
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Bank capital is the difference between a bank's assets and liabili es, and it represents the net worth of the bank or its value to investors. The
asset por on of a bank's capital includes cash, government securi es and interest-earning loans, such as mortgages, le ers of credit and inter-
bank loans, while the liabili es sec on of a bank's capital includes loan-loss reserves and any debt it owes. A bank's capital can be thought of as
the margin to which creditors are covered if the bank liquidates its assets.
Bank Deposits
Bank deposits consist of money placed into banking ins tu ons for safekeeping.
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Bank deposits consist of money placed into banking ins tu ons for safekeeping. These deposits are made to deposit accounts such as savings
accounts, checking accounts and money market accounts. The account holder has the right to withdraw deposited funds, as set forth in the
terms and condi ons governing the account agreement.
Bank of England
The Bank of England
Central bank for the United Kingdom. It has a wide range of responsibili es, similar to those of most central banks around the world.
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The Bank of England (BoE) is the central bank for the United Kingdom. It has a wide range of responsibili es, similar to those of most central
banks around the world. It acts as the government's bank and the lender of last resort. It issues currency and, most importantly, it oversees
monetary policy.
Bond Market
Bond markets
Financial market in which the par cipants are provided with the issuance and trading of debt securi es.
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The bond market â€“ also called the debt market or credit market â€“ is a financial market in which the par cipants are provided with the
issuance and trading of debt securi es. The bond market primarily includes government-issued securi es and corporate debt securi es,
facilita ng the transfer of capital from savers to the issuers or organiza ons requiring capital for government projects, business expansions and
ongoing opera ons.
Capital Adequacy Ra o
Capital Adequacy Ra o
Measure of a bank's capital. It is expressed as a percentage of a bank's risk weighted credit exposures.
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The capital adequacy ra o (CAR) is a measure of a bank's capital. It is expressed as a percentage of a bank's risk weighted credit exposures.
Capital Flows
Capital flows refer to the movement of money for the purpose of investment, trade or business produc on, including the flow of capital within
corpora ons in the form of investment capital, capital spending on opera ons and research and development (R&D).
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Capital flows refer to the movement of money for the purpose of investment, trade or business produc on, including the flow of capital within
corpora ons in the form of investment capital, capital spending on opera ons and research and development (R&D). On a larger scale, a
government directs capital flows from tax receipts into programs and opera ons and through trade with other na ons and currencies. Individual
investors direct savings and investment capital into securi es, such as stocks, bonds and mutual funds.
Cash Reserves
Cash reserves can refer to the money a company or individual keeps on hand to meet short-term and emergency funding needs.
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Cash reserves can refer to the money a company or individual keeps on hand to meet short-term and emergency funding needs. Cash reserves
can also refer to a type of short-term, highly liquid investment that earns a low rate of return (perhaps 3% annually), such as investment
company Fidelity's mutual fund called Fidelity Cash Reserves; this is where some individuals keep money that they want to have quick access to.
Cer ficate Of Deposit

Cer ficates of deposit
Savings cer ficate with a fixed maturity date, specified fixed interest rate and can be issued in any denomina on aside from minimum investment
requirements.
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A cer ficate of deposit (CD) is a savings cer ficate with a fixed maturity date, specified fixed interest rate and can be issued in any denomina on
aside from minimum investment requirements. A CD restricts access to the funds un l the maturity date of the investment. CDs are generally
issued by commercial banks and are insured by the FDIC up to $250,000 per individual.
Cost Of Goods Sold
Produc on cost
Direct costs a ributable to the produc on of the goods sold by a company.
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Cost of goods sold (COGS) are the direct costs a ributable to the produc on of the goods sold by a company. This amount includes the cost of
the materials used in crea ng the good along with the direct labor costs used to produce the good. It excludes indirect expenses such as
distribu on costs and sales force costs. COGS appears on the income statement and can be deducted from revenue to calculate a company's
gross margin. Also referred to as "cost of sales."
Currency In Circula on
Currency in circula on is currency that is physically used to conduct transac ons between consumers and businesses rather than stored in a bank,
financial ins tu on or central bank.
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Currency in circula on is currency that is physically used to conduct transac ons between consumers and businesses rather than stored in a
bank, financial ins tu on or central bank. Currency in circula on is part of the overall money supply, with a larger por on of the overall supply
being stored in checking and savings accounts.
Current Income
The investment objec ve for a moderately conserva ve por olio of securi es or mutual funds that provides high dividend and annuity payments to
sa sfy an investor's steady income requirements.
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The investment objec ve for a moderately conserva ve por olio of securi es or mutual funds that provides high dividend and annuity
payments to sa sfy an investor's steady income requirements.
Current Transfers
Current transfers are current account transac ons in which a resident en ty in one na on provides a nonresident en ty with an economic value,
such as a real resource or financial item, without receiving something of economic value in exchange.
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Current transfers are current account transac ons in which a resident en ty in one na on provides a nonresident en ty with an economic value,
such as a real resource or financial item, without receiving something of economic value in exchange. Current transfers are transac ons where
the originator does not receive a â€œquid pro quoâ€ in return; this absence of economic value on one side is represented in the balance of
payments by one-sided transac ons called transfers. Current transfers affect the current account and are separate and dis nct from capital
transfers, which are included in the capital and financial account. Current transfers include workersâ€™ remi ances, dona ons, tax payments,
foreign aid and grants.
Demand Shock
Sudden surprise event that temporarily increases or decreases demand for goods or services.
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A demand shock is a sudden surprise event that temporarily increases or decreases demand for goods or services. A posi ve demand shock
increases demand, while a nega ve demand shock decreases demand. Both a posi ve demand shock and a nega ve demand shock have an
effect on the prices of goods and services.
Dollar Price
The percentage of par, or face value, at which a bond is quoted.
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The percentage of par, or face value, at which a bond is quoted. Dollar price is one method by which the price of a bond is quoted. Bonds are
used by companies, municipali es, states, and U.S. and foreign governments to finance a variety of projects and ac vi es. For example, a
municipal government may issue bonds to fund the construc on of a school. A corpora on, on the other hand, might issue a bond to expand its
business into a new territory.
Financial Account
Component of a countryâ€™s balance of payments that covers claims on or liabili es to nonresidents, specifically with regard to financial assets.
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A financial account is a component of a countryâ€™s balance of payments that covers claims on or liabili es to nonresidents, specifically with
regard to financial assets. Financial account components include direct investment, por olio investment and reserve assets and are broken down
by sector. When recorded in a countryâ€™s balance of payments, claims made by nonresidents on the financial assets of residents are
considered liabili es, while claims made against nonresidents by residents are considered assets.
Fixed Price
The leg of a swap that is based on an unchanging interest rate.
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The leg of a swap that is based on an unchanging interest rate. A plain vanilla interest rate swap is an exchange of two streams of cash flows.
Both streams are based on the same amount of no onal principal, but one stream pays interest on that no onal principal at a fixed rate (or fixed
price) and one stream pays interest on the no onal principal at a floa ng rate (or floa ng price).
Foreign Direct Investment

Foreign Direct Investment
Investment made by a company or individual in one country in business interests in another country, in the form of either establishing business
opera ons or acquiring business assets in the other country, such as ownership or controlling interest in a foreign company.
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Foreign direct investment (FDI) is an investment made by a company or individual in one country in business interests in another country, in the
form of either establishing business opera ons or acquiring business assets in the other country, such as ownership or controlling interest in a
foreign company. Foreign direct investments are dis nguished from por olio investments in which an investor merely purchases equi es of
foreign-based companies. The key feature of foreign direct investment is that it is an investment made that establishes either effec ve control
of, or at least substan al influence over, the decision making of a foreign business.
Forex Market
Market in which par cipants are able to buy, sell, exchange and speculate on currencies.
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The forex market is the market in which par cipants are able to buy, sell, exchange and speculate on currencies. The forex markets is made up of
banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors. The currency
market is considered to be the largest financial market in the world, processing trillions of dollars worth of transac ons each day.
Gross Domes c Product

Gross Domes c Product
Monetary value of all the finished goods and services produced within a country's borders in a specific me period.
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Gross domes c product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific me
period. Though GDP is usually calculated on an annual basis, it can be calculated on a quarterly basis as well. GDP includes all private and public
consump on, government outlays, investments and exports minus imports that occur within a defined territory. Put simply, GDP is a broad
measurement of a na onâ€™s overall economic ac vity.
Gross Na onal Product

Gross Na onal Product
Es mate of total value of all the final products and services produced in a given period by the means of produc on owned by a country's residents.
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Gross na onal product (GNP) is an es mate of total value of all the final products and services produced in a given period by the means of
produc on owned by a country's residents. GNP is commonly calculated by taking the sum of personal consump on expenditures, private
domes c investment, government expenditure, net exports, and any income earned by residents from overseas investments, minus income
earned within the domes c economy by foreign residents. Net exports represent the difference between what a country exports minus any
imports of goods and services.
Jim Cramer
Real Money
Former hedge fund manager, columnist and author as well as host of CNBC's "Mad Money" and CBS radio's "Real Money".
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Former hedge fund manager, columnist and author as well as host of CNBC's "Mad Money" and CBS radio's "Real Money". Cramer's claim to
fame is his bombas c and 'in your face' behavior in which he gives recommenda ons and analysis on featured and viewer-suggested stocks. Jim
Cramer is also one of the founders of TheStreet.com, a popular financial website.
Long-Term Assets
Value of a company's property, equipment and other capital assets, minus deprecia on.
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Long-term assets are the value of a company's property, equipment and other capital assets, minus deprecia on. This is reported on the balance
sheet. Be aware that long-term assets are usually recorded at the price at which they were purchased and do not always reflect the current
value of the asset.
Marginal Propensity To Consume

Propensity To Consume
Propor on of an aggregate raise in pay that a consumer spends on the consump on of goods and services, as opposed to saving it.
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The marginal propensity to consume (MPC) is the propor on of an aggregate raise in pay that a consumer spends on the consump on of goods
and services, as opposed to saving it. Marginal propensity to consume is a component of Keynesian macroeconomic theory and is calculated as
the change in consump on divided by the change in income. MPC is depicted by a consump on line- a sloped line created by plo ng change in
consump on on the ver cal y axis and change in income on the horizontal x axis.
Net Na onal Product

Net Na onal Product
Monetary value of finished goods and services produced by a country's ci zens, whether overseas or resident, in the me period being measured
(i.e., the gross na onal product, or GNP) minus the amount of GNP required to purchase new goods to maintain exis ng stock (i.e., deprecia on).
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The net na onal product (NNP) is the monetary value of finished goods and services produced by a country's ci zens, whether overseas or
resident, in the me period being measured (i.e., the gross na onal product, or GNP) minus the amount of GNP required to purchase new goods
to maintain exis ng stock (i.e., deprecia on). Alterna vely, the NNP can be calculated as total payroll compensa on plus net indirect tax on
current produc on plus opera ng surpluses.
Nominal GDP
Nominal GDP is gross domes c product (GDP) evaluated at current market prices, GDP being the monetary value of all the finished goods and
services produced within a countryâ€™s borders in a specific me period.
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Nominal GDP is gross domes c product (GDP) evaluated at current market prices, GDP being the monetary value of all the finished goods and
services produced within a countryâ€™s borders in a specific me period. Nominal differs from real GDP in that it includes changes in prices due
to infla on or a rise in the overall price level.
Open Market
Economic system with no barriers to free market ac vity.
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An open market is an economic system with no barriers to free market ac vity. An open market is characterized by the absence of tariffs, taxes,
licensing requirements, subsidies, unioniza on and any other regula ons or prac ces that interfere with the natural func oning of the free
market. Anyone can par cipate in an open market; there may be compe ve barriers to entry, but there are no regulatory barriers to entry.
Repurchase Agreement
Reverse Repo
Form of short-term borrowing for dealers in government securi es.
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A repurchase agreement (repo) is a form of short-term borrowing for dealers in government securi es. The dealer sells the government
securi es to investors, usually on an overnight basis, and buys them back the following day.
Required Cash
The total dollar amount that must be posted up front by the buyer to close a mortgage or to refinance an exis ng property.
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The total dollar amount that must be posted up front by the buyer to close a mortgage or to refinance an exis ng property. The required cash
amount can include any of the following amounts if they are requested at closing: -Any down payment -Points or other fixed charges to the
lender -Insurance premiums -Title insurance or per diem interest The required cash should be expressed on the Good Faith Es mate of
Se lement, which is a mandatory step in the lending process.
Return On Assets
Return On Assets
Indicator of how profitable a company is rela ve to its total assets.
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Return on assets (ROA) is an indicator of how profitable a company is rela ve to its total assets. ROA gives an idea as to how efficient
management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed
as a percentage. Some mes this is referred to as "return on investment".
Shor all
Amount by which a financial obliga on or liability exceeds the amount of cash that is available.
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A shor all is the amount by which a financial obliga on or liability exceeds the amount of cash that is available. A shor all can be temporary in
nature, arising out of a unique set of circumstances, or it can be persistent, in which case it may indicate poor financial management prac ces.
Regardless of the nature of a shor all, it is a significant concern for a company and is usually corrected promptly through short-term loans or
equity injec ons.
Supply Shock
Unexpected event that changes the supply of a product or a commodity, resul ng in a sudden change in its price.
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A supply shock is an unexpected event that changes the supply of a product or a commodity, resul ng in a sudden change in its price. Supply
shocks can be nega ve (decreased supply) or posi ve (increased supply); however, they are almost always nega ve and rarely posi ve. Assuming
aggregate demand is unchanged, a nega ve supply shock in a product or a commodity causes its price to spike upward, while a posi ve supply
shock exerts downward pressure on its price.
Take-Home Pay
Money that an employee actually receives from working a er employment taxes and the cost of benefits and re rement contribu ons are
subtracted.
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Take-home pay is the money that an employee actually receives from working a er employment taxes and the cost of benefits and re rement
contribu ons are subtracted. Take-home pay is calculated by taking the monthly gross income and subtrac ng federal income tax, Social
Security and Medicare contribu ons, any state or local income taxes, monthly health and dental insurance premiums, 401(k) contribu ons and
contribu ons to flexible spending accounts. The money that remains is what an employee takes home and has available for expenses, such as
paying a mortgage, buying groceries and making discre onary purchases.
Total fer lity rate

Replacement rate
Average number of children that would be born to a woman over her life me if: She were to experience the exact current age-specific fer lity rates
(ASFRs) through her life me, and She were to survive from birth through the end of her reproduc ve life.
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The total fer lity rate (TFR), some mes also called the fer lity rate, absolute /poten al natality, period total fer lity rate (PTFR) or total period
fer lity rate (TPFR) of a popula on is the average number of children that would be born to a woman over her life me if:
She were to experience the exact current age-specific fer lity rates (ASFRs) through her life me, and
She were to survive from birth through the end of her reproduc ve life.
It is obtained by summing the single-year age-specific rates at a given me.
Trade Surplus
Economic measure of a posi ve balance of trade, where a country's exports exceed its imports.
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A trade surplus is an economic measure of a posi ve balance of trade, where a country's exports exceed its imports. A trade surplus represents a
net inflow of domes c currency from foreign markets and is the opposite of a trade deficit, which represents a net ou low. Balancing
interna onal trade is an important economic factor for a country; when a na on has a trade surplus, its exports exceed its imports during a
specified period of me.
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Introduc on to Macroeconomics Notes (h ps://www.studocu.com/en/document/university-of-

Deﬁni ons Flashcards Ques ons

Instrument of indebtedness of the bond issuer to the holders.

Financial ins tu on owned by its members as a mutual organiza on.

Cer ﬁcate of deposit

Some features of CDs are:

A larger principal should/may receive a higher interest rate.

Cost of goods sold

Decrease in the general price level of goods and services.

Demand for money

A typical money-demand func on may be wri en as

Disposable and discre onary income

Disposable income is total personal income minus personal current taxes.

Eﬀec ve exchange rate

Currency established as money by government regula on or law.

Aggregate demand and the level of economic ac vity;

Savings and investment in the economy;

Income distribu on.

Fixed exchange-rate system

Floa ng exchange rate

Foreign direct investment

Foreign exchange market

Global decentralized market for the trading of currencies.

its geographical dispersion;

the variety of factors that aﬀect exchange rates;

$1.654 trillion in spot transac ons

$700 billion in outright forwards

$2.383 trillion in foreign exchange swaps

$96 billion currency swaps

$254 billion in op ons and other products

^ Record, Neil, Currency Overlay (Wiley Finance Series)

Gross domes c product

Gross na onal product

Certain ﬁgures in this ar cle use scien ﬁc nota on for readability.

Certain ﬁgures in this ar cle use scien ﬁc nota on for readability.

Inﬂa onary gap

Lender of last resort

Intermediary used in trade to avoid the inconveniences of a pure barter system.

Total amount of monetary assets available in an economy at a speciﬁc me.

Net na onal product

Nominal interest rate

Open market opera on

Income received on a regular basis, with li le eﬀort required to maintain it.

net proﬁt margin

Net proﬁt is revenue minus cost.

Propor onal tax

Purchasing power parity

Quan ty theory of money

Real interest rate

Real versus nominal value (economics)

Process of returning a person - voluntarily - to his or her place of origin or ci zenship.

ROA can be computed as:

Average Total Assets

debt securi es (e.g., banknotes, bonds and debentures)

equity securi es (e.g., common stocks)

deriva ves (e.g., forwards, futures, op ons and swaps).

Supply and demand

Economic model of price determina on in a market.

Extent to which an enterprise or a na on actually uses its installed produc ve capacity.

Fric onal unemployment

Level of employment rates where there is no cyclical or deﬁcient-demand unemployment.

Ter ary sector of the economy

Third of the three economic sectors of the three-sector theory.

c0 = autonomous consump on (c0 > 0),

II = C (Yf - T) + I + G + CA (E x P/P, Yf-T; Yf - T*)

XX = CA (EP/P, Y-T, Yf - T*)