PRAXIS SOCIAL STUDIES CONTENT KNOWLEDGE

Constitutionalism

Constitutionalism Constitutionalism is a way of thinking about the relationship between the rulers and the ruled in a community. It combines two concepts, limited government and the rule of law, that permeate the constitution, a country's framework for government. The constitution in an authentic democracy both grants powers to the government and controls or harnesses them in order to protect the rights of the people. Limited government means that officials cannot act arbitrarily when they make and enforce laws and enact other public decisions. Government officials cannot simply do as they please. Rather, they are guided and limited by the constitution of their country and the laws made in conformity with it as they carry out the duties of their public offices. The rule of law means that neither government officials nor common citizens are allowed to violate the supreme law of the land, the constitution, or the laws enacted in accordance with it. People accused of crimes are treated equally under the law and given due process—that is, fair and proper legal proceedings—in all official actions against them. Under the rule of law, everyone in the community—public officials and private citizens, from the highest to the lowest ranks—must conform to the constitution. In every democracy today, limited government and the rule of law are embedded in the constitution. A turning point in the history of constitutionalism occurred in 1787-88, when the U.S. Constitution was drafted and ratified. The Preamble stated the purposes of the constitutional government: We the people of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America. In order to carry out its purposes in the Preamble, the government under this constitution was sufficiently empowered to protect the people. And the constitutional government was sufficiently limited so that the government would not be able to turn its power unjustly against the people. Thus, this simultaneously strong and limited government would "secure the Blessings of Liberty" to the people. Article VI of the Constitution states the principle of constitutional supremacy that guarantees limited government and the rule of law: "The Constitution and the Laws of the United States which shall be made in Pursuance thereof . . . shall be the supreme Law of the Land." All laws enacted by any government in the United States must conform to the Constitution. As Alexander Hamilton explained in the 78th paper of "The Federalist": "No legislative act contrary to the Constitution, therefore, can be valid." Moreover, any government action that violates the Constitution can be declared unconstitutional and voided by the U.S. Supreme Court. In 1787-88, Alexander Hamilton and James Madison claimed in "The Federalist" that limited government and the rule of law—principles essential to the U.S. Constitution—would guard the people from tyranny or unjust encroachments against their right to liberty. They feared equally any kind of unrestrained exercise of power. To them, the power of an insufficiently limited majority of the people was just as dangerous as the unlimited power of a king or military dictator. Hamilton and Madison held that the best government is both constitutionally empowered and limited; it is "energetic"—strong enough to act decisively and effectively for the common good—and "limited by law" in order to protect the inherent rights of individuals. These principles of constitutionalism expressed by Americans in the late 18th century have become guides to the establishment of constitutional governments in many democracies of the world.

Short-run /Long-run

Corto plazo/Largo plazo

e-commerce

E-commerce is a way of conducting business over the Internet. Though it is a relatively new concept, it has the potential to alter the traditional form of economic activities. Already it affects such large sectors as communications, finance and retail trade and holds promises in areas such as education, health and government. The largest effects may be associated not with many of the impacts that command the most attention (i.e. customized product, elimination of middlemen) but with less visible, but potentially more pervasive, effects on routine business activities (i.e. ordering office supplies, paying bills, estimating demand). A key reason why e-commerce, especially the business-to-business segment, is growing so quickly is its significant impact on costs associated with inventories, sales execution, procurement, intangibles like banking, and distribution costs. If these reductions become pervasive, e-commerce has the potential to be the application that ushers in the large productivity gains. Achieving these gains is therefore contingent on a number of factors, including access to e-commerce systems and the Ziaul Hoq et al 56 needed skills. However, what is unique about e-commerce over the Internet and the efficiency gains is that it promises the premium placed on openness. To reap the potential cost savings fully, firms must be willing to open up their internal systems to suppliers and customers. This raises policy issues concerning security and potential anti competitive effects as firms integrate their operations more closely. The primary route by which e-commerce will affect the economy at large is through its impact on productivity and inflation. Businesses and consumers that use e-commerce benefit from a reduction in costs in terms of the time and effort required to search for goods and services and to complete transactions. This reduction in costs results in higher productivity. An even larger increase in economy-wide productivity levels may result from productivity gains by firms not engaged in e-commerce as they respond to this new source of competition. Continued expansion of e-commerce may also lead to downward pressure on inflation through greater competition, cost savings, and changes in price-setting behavior of sellers. e-commerce continues to grow rapidly, it could lead to an increase in productivity growth and downward inflationary pressures that persist for several years. The shift to e-commerce has positively affected the profitability of companies in the credit services industry. However, this shift has also opened the door for new technologies and payment methods that threaten to seize market share from credit services companies. Credit services is a division of the financial services industry that is concerned with lending money to consumers and other businesses and profiting when borrowers pay back their loans with interest. Mortgage companies, auto financing companies and credit card companies all exist under the umbrella of credit services. Over the years, advancements in technology from electronic credit card processing machines to pay-by-phone systems have been a boon for credit services companies, making it easier for consumers to use credit for minor and major purchases. In the 21st century, the shift to e-commerce has been by far the biggest technological advancement that has changed consumers' buying habits. As of 2014, 9% of all retail sales are made online, and 87% of Internet users have made at least one purchase online. Between 2010 and 2013, global online sales nearly doubled in dollar amount, from $680 billion to $1.25 trillion. When a customer buys something online, paying with cash is not an option, except for the extremely rare cash-on-delivery purchase. Most online retailers prompt customers to enter a valid credit card number at checkout. While some customers use a debit card, which withdraws the funds directly from a bank account and does not issue credit, many pay with a traditional credit card. Thanks to online retailers using e-commerce technology, many purchases that were previously made in person using cash are now made online using credit. Credit card companies are not the only ones in the credit services industry that have benefited from the shift to e-commerce. Many lenders now use online technology to enable customers to get pre-approved for car loans and mortgages without having to speak to a human being, simply by filling out an application on a website. Given the number of consumers who prefer to conduct as much business as possible online without being subjected to a salesperson, companies that utilize this technology position themselves as attractive alternatives to companies that do not. While e-commerce has increased the profitability of credit services companies by providing greater opportunities and incentives for customers to use credit, companies in other industries are finding ways to use this technology to take market share from credit services companies. Bitcoin, a virtual currency used to make purchases online without going through a bank or credit services company, is growing in popularity. Other online payment services such as PayPal, Google Wallet and Apple Pay work in tandem with credit card companies as of 2015, but they potentially pose a future threat as their technological capabilities continue to develop.

Scarcity

Ever-present situation in all markets whereby either less goods are available than the demand for them, or only too little money is available to their potential buyers for making the purchase. This universal phenomenon leads to the definition of economics as the "science of allocation of scarce resources." An economic theory which states that limited supply, combined with high demand, equals a lack of pricing equilibrium. Typically, demand and supply will gravitate prices to a stable balance; however, scarcity of a good or service changes the way buyers will value the purchase, thus leading to new market conditions. Scarcity is fewer resources than are needed to fill human wants and needs. These resources can be resources that come from the land, labor resources or capital resources. Scarcity is considered a basic economic problem. The gasoline shortage in the 1970's After poor weather, corn crops did not grow resulting in a scarcity of food for people and animals and ethanol for fuel. Over-fishing can result in a scarcity of a type of fish. Fewer farmers raising cattle can result in a scarcity of milk and cheese. An embargo on imports from a country can result in a scarcity of the resources that country exports. Due to politics regarding a dam in Gujarat, water has become scarce. Coal is used to create energy; the limited amount of this resource that can be mined is an example of scarcity. Those without access to clean water are experiencing a scarcity of water. In 2012, avian flu wiped out millions of chickens in Mexico creating a scarcity of eggs, a stable of the Mexican diet. Revealing that a population of cattle in a country has Mad Cow disease, resulting in a need to slaughter the animals, could result in a scarcity of beef in the country. Over-hunting of an animal population could make it scarce. Refusal of pharmaceutical companies to create drugs that do not make large profits can cause medication of certain types to be scarce. Each year a limited amount of the flu vaccine is available to the population, meaning there is not enough for each individual to be vaccinated. This is scarcity. When hurricanes have incapacitated refineries on the Gulf Coast, oil prices increase because of the possibility of scarcity of gas for vehicles. Because of a conflict preventing individuals to visit their farms, residents of Alavanyo in Ghana have a food scarcity. Flooding in Nigeria washed farmlands away and has the potential to create a scarcity of food for the residents of the nation. An undereducated population in a country that needs high level skilled workers can result in a scarcity of labor. A disenfranchised population may not volunteer for military services, resulting in the scarcity of individuals to protect the nation. Recent proposed gun legislation in the United States has caused individuals to hoard ammunition, leaving a scarcity of ammunition. Those who live in harsh climates in which it can be hard for transportation to reach them can experience food shortages if weather prevents delivery. The depletion of forests in Thailand has led to a scarcity of wood, forcing individuals to take wood from demolished buildings in order to build new ones. Waste of water through long showers or allowing water to run while brushing one's teeth can contribute to a scarcity of water. All of these are examples of scarcity because there was not a sufficient amount of the resource to go around.

Federalism

Federalism Modern federalism is the division of governmental powers between a central national government and provincial or state governments within the country. Powers granted exclusively to the central government are supreme. Federalism differs from the unitary system of government, which has only one center of authority that prevails throughout the territory of the country. In a unitary system, subdivisions within the country are entirely subordinate to the national government and exist merely to administer or carry out its commands. The idea of modern federalism was invented by the framers of the United States Constitution. It was their way to bring together 13 separate and sovereign American states into one federal union, the United States of America. It was also one constitutional means, among others, to limit the powers of government to prevent tyranny against the people. In a modern-era federal republic, there are two levels of government—one national and general in scope and the other local. Each level of government, supreme in its own sphere, can separately exercise powers directly upon the people under its authority. In traditional forms of federated government, known today as confederations, the states, provinces, or other units of government within the union retained full sovereignty over their internal affairs. The general governments of such confederations only had a few powers pertaining to the need for common foreign policies and defense against external enemies. The Articles of Confederation, by which the United States was formed initially, established a federation of the traditional type, nothing more than a league of sovereign states joined together primarily for purposes of common defense and international relations. By contrast, the constitution of 1787, which superseded the Articles of Confederation, included a ''supremacy clause'' in Article VI. This clause declares that the constitutional powers delegated to the federal or general government take precedence over the powers of the state governments, and that these powers prevail throughout the nation, the United States of America. In the American federal system, the national (federal) government has certain powers that the Constitution grants to it alone. For example, only the federal government may coin money or declare war. Conversely, the Constitution reserves to the state governments all the other powers that the federal government is not granted. According to the U.S. Constitution's 10th Amendment, ''The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively or to the people.'' Only the state governments may establish public schools and conduct elections within the state. Some powers, such as levying taxes and borrowing money, are shared by both federal and state governments, and some powers, such as granting titles of nobility, are denied to both the federal and state governments. The core idea of American federalism is that two levels of government, national and state, exercise certain powers directly and separately on the people at the same time. This is known as a system of dual sovereignty. So, in the federal system of the United States, the state government of Ohio has authority over its residents, but so does the federal government based in Washington, D.C. Residents of Ohio must obey the laws of their state government and their federal government. In the 45th paper of "The Federalist," James Madison gave his vision of how federalism would work in the United States of America: The powers delegated by the Constitution to the federal government are few and defined. Those which are to remain in state government are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation, and foreign commerce. . . . The powers reserved to the several states will extend to all objects which, in the ordinary course of affairs, concern the lives, liberties, and properties of the people, and the internal order, improvement, and prosperity of the states. The balance of power within the American federal system has changed continuously since Madison's time to favor the national government. Through constitutional amendments, Supreme Court decisions, federal statutes, and executive actions, the powers of the federal government have greatly expanded to overshadow those of the states. In addition to the United States, some other democracies that have federal systems of government include Argentina, Australia, Belgium, Brazil, Canada, Germany, India, Mexico, and Switzerland. In some nations, such as Belgium, India, and Switzerland, a federal system was adopted to reconcile tensions between national unity and the separatist tendencies of diverse ethnic groups with different languages and traditions. For example, the Swiss Federation was designed primarily to protect and preserve the ethnic and linguistic diversity of the three constituent ethnic groups—French, German, and Italian—within the unity of one nation-state, Switzerland. In contrast to the multicultural federations of Switzerland, India, and Belgium, the protection of separate ethnic groups' interests was not the reason for federalism in the United States. Rather, it was to forge national unity among 13 separate states that had common cultural characteristics, including the primary language of English and legal and constitutional traditions derived from Great Britain. So, in the United States, the national motto "E Pluribus Unum" (From Many, One) reflects the use of federalism to resolve the potentially destructive tensions between the particular interests of several state governments and the general interests of a federal or national government.

Free Markets: What's The Cost?

Free Markets: What's The Cost? By Chris Seabury Share The U.S. economy is essentially a free market economy - an economic market that is run by supply and demand - with some government regulation. In a true free market, buyers and sellers conduct their business without any government regulation, but there is a continuing debate among politicians and economists about how much government regulation is necessary in the U.S. economy. (For more, read Economics Basics.) Those who want less regulation argue that if you remove government restrictions, the free market will force businesses to protect consumers, provide superior products or services, and create affordable prices for everyone. They believe that the government is inefficient and creates nothing but a big bureaucracy that increases the cost of doing business for everyone. Those who argue that government regulations are necessary to protect consumers, the environment and the general public claim that corporations are not looking out for the public's interest, and that it is precisely for this reason that regulations are required. In this article, we consider the pros and cons of a completely free market versus a market with some government regulation. It's a Free Market Economy, Man In its purest form, a free market economy is when the allocation of resources is determined by supply and demand , without any government intervention. (To learn more about supply and demand, see Economics Basics: Demand and Supply.) Supporters of a free market economy claim that the system has the following advantages: It contributes to political and civil freedom. It contributes to economic freedom and transparency. It ensures competitive markets. Consumers' voices are heard in that their decisions determine what products or services are in demand. Supply and demand create competition, which helps ensure that the best goods or services are provided to consumers at a lower price. Critics of a free market economy claim the following disadvantages to this system: A competitive environment creates an atmosphere of survival of the fittest. This causes many businesses to disregard the safety of the general public to increase the bottom line. Wealth is not distributed equally - a small percentage of society has the wealth while the majority lives in poverty. There is no economic stability because greed and overproduction cause the economy to have wild swings ranging from times of robust growth to cataclysmic recessions. When Free Markets: Triumphs and Tribulations There are several historical examples that suggest that the free market works. For example, the deregulation of AT&T, which previously functioned as a regulated national monopoly, in the 1980s provided consumers with more competitive telephone rates. Also, the deregulation of U.S. airlines in 1979 provided consumers with more choice and lower air fares. The deregulation of trucking companies and railroads also increased competition and lowered prices. Despite its successes, there are also several historical examples of free market failure. For example, since the cable industry was deregulated in 1996, cable TV rates have skyrocketed; according to a 2003 report by the U.S. Public Interest Research Group (PIRG), cable rates increased by more than 50% between 1996 and 2003. Clearly, in this case of deregulation, increased competition did not reduce prices for consumers. Another example of free market failure can be seen in environmental issues. For example, for years the oil industry fought and defeated laws requiring double-hull oil tankers to prevent spills, even after the single-hulled oil tanker Exxon Valdez spilled 11 million gallons into Prince William Sound in 1989. Similarly, the Cuyahoga River in Northeast Ohio was so polluted with industrial waste that it caught fire several times between 1936 and 1969 before the government ordered a $1.5 billion cleanup. As such, critics of a free market system argue that although some aspects of the market may be self regulating, other things, such as environmental concerns, require government intervention. (Find out how being environmentally friendly can benefit a company in Five Companies Leading The Green Charge.) Law and Order: The Regulated Economy Regulation is a rule or law designed to control the behavior of those to whom it applies. Those who fail to follow these rules are subject to fines and imprisonment and could have their property or businesses seized. The United States is a mixed economy where both the free market and government play important roles. A regulated economy provides the following advantages: It looks out for the safety of consumers. It protects the safety and health of the general public as well as the environment. It looks after the stability of the economy. The following are disadvantages to regulation: It creates a huge government bureaucracy that stifles growth. It can create huge monopolies that cause consumers to pay more. It squashes innovation by over-regulating. Some historical examples that show how well regulation works include the ban on DDT and PCBs, which destroyed wildlife and threatened human health; the establishment of the Clean Air and Water Acts, which forced the cleanup of America's rivers and set air quality standards; and the creation of the Federal Aviation Administration (FAA), which controls air traffic and enforces safety regulations. Several historical examples of regulatory failures include: In response to the Sarbanes-Oxley Act of 2002 (SOX), an act written in response to accounting scandals, many companies decided it was too cumbersome to list in the United States and decided to do their initial public offerings (IPOs) on the London Stock Exchange (LSE) where they didn't have to worry about Sarbanes-Oxley. The coal industry has so many regulations that it is more profitable to ship coal overseas than to sell it domestically. Many labor and environmental regulations force businesses to move jobs off shore, where they can find more reasonable regulations. Finding a Balance There is a delicate balance between an unregulated free market and a regulated economy. The following are some examples in which it appears that the U.S. has struck a good balance between the two: The Federal Deposit Insurance Corporation (FDIC) was created after the Great Depression. The FDIC insures depositors' money so that even if banks fail, the depositors won't lose their deposits. The Securities and Exchange Commission (SEC) regulates the stock markets, ensures honest disclosure on all stock transactions and fights insider trading. The ban on CFCs prevents the destruction of the ozone layer. Several ways in which the economy has become out of balance as a result of deregulation include: The deregulation of the savings and loan (S&L) industry in 1982 led to fraud and abuse, causing the federal government to spend $500 billion to stabilize the industry after 650 S&Ls went under. Improperly trained crews led to the near meltdown of a nuclear reactor at Three Mile Island, which released radiation into the air and water. Gordon MacLeod, the secretary of state for Pennsylvania, was fired for voicing his concerns about the lack oversight of the nuclear industry and the inadequate preparedness of the state to respond to such emergencies. The lack of adequate regulation of silicon breast implants led to a situation in which manufacturers knew that the implants leaked but continued to sell them anyway, leading to a settlement of $4.75 billion to 60,000 women affected in 1994. Conclusion Free market economics aren't perfect, but neither are completely regulated economies. The key is to strike a balance between free markets and the amount of government regulation needed to protect people and the environment. When this balance is reached, the public interest is protected and private business flourishes.

Cost

In business, cost is usually a monetary valuation of (1) effort, (2) material, (3) resources, (4) time and utilities consumed, (5) risks incurred, and (6) opportunity forgone (perdida) in production and delivery of a good or service. All expenses are costs, but not all costs (such as those incurred in acquisition of an income-generating asset) are expenses. Cost Principle The accounting principle that goods and services purchased should be recorded at their historical cost and not at their current market value. costs Fixed Costs (FC). The costs which don't vary with changing output. Fixed costs might include the cost of building a factory, insurance and legal bills. Even if your output changes or you don't produce anything, your fixed costs stays the same. In the above example, fixed costs are always £1,000. Variable Costs (VC). Costs which depend on the output produced. For example, if you produce more cars, you have to use more raw materials such as metal. This is a variable cost. Semi-Variable Cost. Labour might be a semi-variable cost. If you produce more cars, you need to employ more workers; this is a variable cost. However, even if you didn't produce any cars, you may still need some workers to look after empty factory. Total Costs (TC) - Fixed + Variable Costs Marginal Costs - Marginal cost is the cost of producing an extra unit. If the total cost of 3 units is 1550, and the total cost of 4 units is 1900. The marginal cost of the 4th unit is 350. Opportunity cost - Opportunity cost is the next best alternative foregone (resultante). If you invest £1million in developing a cure for pancreatic cancer, the opportunity cost is that you can't use that money to invest in developing a cure for skin cancer. Economic Cost. Economic cost includes both the actual direct costs (accounting costs) plus the opportunity cost. For example, if you take time off work to a training scheme. You may lose a weeks pay £350, plus also have to pay the direct cost of £200. Thus the total economic cost = £550. Accounting Costs - this is the monetary outlay for producing a certain good. Accounting costs will include your variable and fixed costs you have to pay. Sunk Costs. These are costs that have been incurred and cannot be recouped. If you left the industry you cannot reclaim sunk costs. For example, if you spend money on advertising to enter an industry, you can never claim these costs back. If you buy a machine, you might be able to sell if you leave the industry. See: Sunk cost fallacy Avoidable Costs. Costs that can be avoided. If you stop producing cars, you don't have to pay for extra raw materials and electricity. Sometimes known as an escapable cost. Market Failure Social Costs. This is the total cost to society. It will include the private costs plus also the external cost (cost incurred by a third party). May also be referred to as 'True costs' External Costs. This is the cost imposed on a third party. For example, if you smoke, some people may suffer from passive smoking. That is the external cost. Private costs. The costs you pay. e.g. the private cost of a packet of cigarettes is £6.10 Social Marginal Cost. The total cost to society of producing one extra unit. Social Marginal Cost (SMC) = Private marginal cost (PMC) + External marginal Cost (XMC)

Exchange rates fluctuations - currency

Loading the player... Aside from factors such as interest rates and inflation, the exchange rate is one of the most important determinants of a country's relative level of economic health. Exchange rates play a vital role in a country's level of trade, which is critical to most every free market economy in the world. For this reason, exchange rates are among the most watched, analyzed and governmentally manipulated economic measures. But exchange rates matter on a smaller scale as well: they impact the real return of an investor's portfolio. Here we look at some of the major forces behind exchange rate movements. Overview Before we look at these forces, we should sketch out how exchange rate movements affect a nation's trading relationships with other nations. A higher currency makes a country's exports more expensive and imports cheaper in foreign markets. A lower currency makes a country's exports cheaper and its imports more expensive in foreign markets. A higher exchange rate can be expected to lower the country's balance of trade, while a lower exchange rate would increase it. Major online brokers offer the most up-to-date news on some of the factors influencing exchange rates. Check out which ones offer the best tools and resources here. Determinants of Exchange Rates Numerous factors determine exchange rates, and all are related to the trading relationship between two countries. Remember, exchange rates are relative, and are expressed as a comparison of the currencies of two countries. The following are some of the principal determinants of the exchange rate between two countries. Note that these factors are in no particular order; like many aspects of economics, the relative importance of these factors is subject to much debate. 1. Differentials in Inflation As a general rule, a country with a consistently lower inflation rate exhibits a rising currency value, as its purchasing power increases relative to other currencies. During the last half of the 20th century, the countries with low inflation included Japan, Germany and Switzerland, while the U.S. and Canada achieved low inflation only later. Those countries with higher inflation typically see depreciation in their currency in relation to the currencies of their trading partners. This is also usually accompanied by higher interest rates. 2. Differentials in Interest Rates Interest rates, inflation and exchange rates are all highly correlated. By manipulating interest rates, central banks exert influence over both inflation and exchange rates, and changing interest rates impact inflation and currency values. Higher interest rates offer lenders in an economy a higher return relative to other countries. Therefore, higher interest rates attract foreign capital and cause the exchange rate to rise. The impact of higher interest rates is mitigated, however, if inflation in the country is much higher than in others, or if additional factors serve to drive the currency down. The opposite relationship exists for decreasing interest rates - that is, lower interest rates tend to decrease exchange rates. 3. Current-Account Deficits The current account is the balance of trade between a country and its trading partners, reflecting all payments between countries for goods, services, interest and dividends. A deficit in the current account shows the country is spending more on foreign trade than it is earning, and that it is borrowing capital from foreign sources to make up the deficit. In other words, the country requires more foreign currency than it receives through sales of exports, and it supplies more of its own currency than foreigners demand for its products. The excess demand for foreign currency lowers the country's exchange rate until domestic goods and services are cheap enough for foreigners, and foreign assets are too expensive to generate sales for domestic interests. 4. Public Debt Countries will engage in large-scale deficit financing to pay for public sector projects and governmental funding. While such activity stimulates the domestic economy, nations with large public deficits and debts are less attractive to foreign investors. The reason? A large debt encourages inflation, and if inflation is high, the debt will be serviced and ultimately paid off with cheaper real dollars in the future. In the worst case scenario, a government may print money to pay part of a large debt, but increasing the money supply inevitably causes inflation. Moreover, if a government is not able to service its deficit through domestic means (selling domestic bonds, increasing the money supply), then it must increase the supply of securities for sale to foreigners, thereby lowering their prices. Finally, a large debt may prove worrisome to foreigners if they believe the country risks defaulting on its obligations. Foreigners will be less willing to own securities denominated in that currency if the risk of default is great. For this reason, the country's debt rating (as determined by Moody's or Standard & Poor's, for example) is a crucial determinant of its exchange rate. 5. Terms of Trade A ratio comparing export prices to import prices, the terms of trade is related to current accounts and the balance of payments. If the price of a country's exports rises by a greater rate than that of its imports, its terms of trade have favorably improved. Increasing terms of trade shows greater demand for the country's exports. This, in turn, results in rising revenues from exports, which provides increased demand for the country's currency (and an increase in the currency's value). If the price of exports rises by a smaller rate than that of its imports, the currency's value will decrease in relation to its trading partners. 6. Political Stability and Economic Performance Foreign investors inevitably seek out stable countries with strong economic performance in which to invest their capital. A country with such positive attributes will draw investment funds away from other countries perceived to have more political and economic risk. Political turmoil, for example, can cause a loss of confidence in a currency and a movement of capital to the currencies of more stable countries. The Bottom Line The exchange rate of the currency in which a portfolio holds the bulk of its investments determines that portfolio's real return. A declining exchange rate obviously decreases the purchasing power of income and capital gains derived from any returns. Moreover, the exchange rate influences other income factors such as interest rates, inflation and even capital gains from domestic securities. While exchange rates are determined by numerous complex factors that often leave even the most experienced economists flummoxed, investors should still have some understanding of how currency values and exchange rates play an important role in the rate of return on their investments. Exchange rates affect how much you pay for goods Exchange rates can impact inflation, and hence interest rates, on savings and loans Exchange rates can affect your job prospects Exchange rates have an impact on your investment portfolio Exchange rates can drive up property and housing prices The Bottom Line Just like an iceberg, the major impact of exchange rates fluctuations lie largely beneath the surface. The indirect effect of currency fluctuations dwarfs the direct effect because of the huge influence it exerts on the economy in both the near term and long term. The indirect effect of exchange rates extends to the prices you pay at the supermarket, the interest rates on your loans and savings, the returns on your investment portfolio, your job prospects, and possibly even on housing prices in your area.

Quotas

Quota 1. Proportionate share or part, such as a sales quota. 2. Limitation on the quantity that must not be exceeded, such as an import quota. Quotation: 1. Contracts: A formal statement of promise (submitted usually in response to a request for quotation) by potential supplier to supply the goods or services required by a buyer, at specified prices, and within a specified period. A quotation may also contain terms of sale and payment, and warranties. Acceptance of quotation by the buyer constitutes an agreement binding on both parties. 2. Securities: The bid and asked price cited for the sale or purchase of a commodity or security. What is a 'Quota' A quota is a government-imposed trade restriction that limits the number, or monetary value, of goods that can be imported or exported during a particular time period. Quotas are used in international trade to help regulate the volume of trade between countries. They are sometimes imposed on specific goods to reduce imports, thereby increasing domestic production. In theory, this helps protect domestic production by restricting foreign competition. BREAKING DOWN 'Quota' Quotas are different than tariffs, or customs, which place a tax on imports or exports in and out of a country. Both quotas and tariffs are protective measures imposed by governments to try to control trade between countries, but quotas focus on providing limits by defining the quantities of a particular good that will be accepted, while tariffs impose a specific fee on those goods seeking entry into the United States The fees associated with tariffs are designed to raise the overall cost to the producer, or supplier, seeking to sell goods within the United States and serves as a way to encourage outside goods to be priced for higher sale prices than if the tariffs were not in place. Import Quota Regulatory Agencies The U.S. Customs and Border Protection Agency, a federal law enforcement agency of the U.S. Department of Homeland Security, is in charge of regulating international trade, collecting customs and enforcing U.S. trade regulations. Within the United States, there are three forms of quotas: absolute, tariff-rate and tariff preference level. 1. Absolute quotas provide a definitive restriction on the quantity of a particular good that may be imported into the United States, though this level of restriction is not always in use. Tariff-rate quotas allow a certain quantity of a particular good to be brought into the country at a reduced rate of duty. Once the tariff-rate quota is met, all subsequent goods brought in will be charged at a higher rate of duty. Tariff preference levels are created through separate negotiations, such as those established through Free Trade Agreements (FTAs). 2. Goods Subject to Tariff-Rate Quotas Various commodities are subject to tariff-rate quotas when entering the United States. This includes, but is not limited to, milk and cream, brooms, cotton shirting fabric, blended syrups, Canadian cheese, cocoa powder, infant formula, peanuts, sugar and tobacco. Once the tariff-rate quota is met, all subsequent goods brought in will be charged at a higher rate of duty. 3. Tariff preference levels are created through separate negotiations, such as those established through Free Trade Agreements (FTAs). Risks Associated With Quotas and Tariffs Highly restrictive quotas coupled with high tariffs can lead to trade disputes between nations. For example, in 2014, the United States was in a trade dispute with China over Chinese silicon solar panels being imported into the United States in order to bring the prices of these solar panels up, and make the prices of products produced in other countries more competitive in the marketplace, tariff increases on the Chinese solar panels of 19% to 35% were proposed. This was met with resistance from Chinese companies, as it would increase the costs associated with bringing the product to the United States

Federal Reserve System

The Federal Reserve System (FRS) is the central bank of the United States. The Fed, as it is commonly known, regulates the U.S. monetary and financial system. The Federal Reserve System is composed of a central governmental agency in Washington, DC, the Board of Governors (7 members appointed by the President for 14 years) and 12 regional Federal Reserve Banks in major cities throughout the United States. Both its chairman (who is its de facto CEO) and vice-chairman are appointed by the US president for a renewable four-year term. The Fed publishes 'Federal Reserve bulletin,' an authoritative source of data on banking, economy, and money. BREAKING DOWN 'Federal Reserve System - FRS' The Federal Reserve's duties can be divided into four general areas: conducting monetary policy, regulating banking institutions and protecting the credit rights of consumers, maintaining the stability of the financial system, and providing financial services to the U.S. government. The Fed also operates three wholesale (al pro mayor) payment systems: the Fedwire Funds Service sefvicio de fondos) , the Fedwire Securities Service (servicio de valores) and the National Settlement (acuerdo nacional) Service. The Fed is a major force in the economy and banking. Role and Authority The Fed was established by the Federal Reserve Act, which was signed by President Woodrow Wilson on Dec. 23, 1913 in response to the financial panic of 1907. Before that, the United States was the only major financial power without a central bank. The Fed has broad power to act to ensure financial stability, and it is the primary regulator of banks that are members of the Federal Reserve System. It acts as the lender of last resort to member institutions who have no place else to borrow. Banks in the United States are also subject to regulations established by the states, the Federal Deposit Insurance Corporation (if they are members) and the Office of the Comptroller of the Currency (OCC). The Federal Reserve Bank The central bank of the United States is the most powerful financial institution in the world. The Federal Reserve Bank was founded by the U.S. Congress in 1913 to provide the nation with a safe, flexible and stable monetary and financial system. It is based on a federal system that comprises a central governmental agency (the Board of Governors) in Washington, DC and 12 regional Federal Reserve Banks that are each responsible for a specific geographic area of the U.S. The Federal Reserve Bank is considered to be independent because its decisions do not have to be ratified by the President or any other government official. However, it is still subject to Congressional oversight and must work within the framework of the government's economic and financial policy objectives. Often known simply as "the Fed". The 12 regional Feds are based in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco. The Federal Reserve's duties can be categorized into four general areas: 1. Conducting national monetary policy by influencing monetary and credit conditions in the U.S. economy to ensure maximum employment, stable prices and moderate long-term interest rates. 2. Supervising and regulating banking institutions to ensure safety of the U.S. banking and financial system and to protect consumers' credit rights. 3. Maintaining financial system stability and containing systemic risk. 4. Providing financial services - including a pivotal role in operating the national payments system - to depository institutions, the U.S. government and foreign official institutions. The Federal Reserve's main monetary policymaking body is the Federal Open Market Committee (FOMC), which includes the Board of Governors, president of the Federal Reserve Bank of New York, and presidents of four other regional Federal Reserve Banks who serve on a rotating basis. The FOMC oversees open market operations, the main tool used by the Fed to influence monetary and credit conditions. The Fed's main income source is interest on U.S. government securities it has acquired through open market operations. Other income sources include interest on foreign currency investments, interest on loans to depository institutions, and fees for services (such as check clearing and fund transfers) provided to these institutions. After paying expenses, the Fed transfers the rest of its earnings to the U.S. Treasury.

Federal Budget

The budget for the federal government. The federal budget of a country is determined yearly, and forecasts the amount of money that will be spent on a variety of expenses in the upcoming year. DEFINITION of 'Federal Budget' The federal budget is an itemized plan for the annual public expenditures of the United States. BREAKING DOWN 'Federal Budget' The federal budget is used to finance a variety of federal expenses, which range from paying federal employees, to dispersing agricultural subsidies, to paying for U.S. military equipment. Budgets are calculated on an annual basis, with a fiscal year beginning on October 1st and ending on September 30th of the subsequent year, which is the year for which the budget is named. Expenses made under the budget are classified as either mandatory or discretionary spending. Mandatory spending is stipulated by law and includes entitlement programs such as Social Security, Medicare and Medicaid. Such expenses are also known as permanent appropriations. Discretionary spending is spending which must be approved by individual appropriations bills. The federal budget is funded by tax revenue, but in all years since 2001 (and many before that as well), the United States has operated from a budget deficit, in which spending outstrips revenue. Receipts, Outlays and Deficits The 2014 federal budget allotted approximately $3.5 trillion in a year where federal revenue (collected by taxes) was about $3.02 trillion. This left the government with a deficit of approximately $484.6 billion. Of this total, mandatory spending accounted for $2.475 trillion, primarily going to Social Security, Medicare and Medicaid, and discretionary spending totaled about $1.235 trillion. Of the discretionary expenses, about $613.8 billion financed U.S. defense, homeland security and intelligence operations. American military expenses traditionally occupy a high percentage of the discretionary budget, but are currently in a period of decline after a massive expansion in the decade immediately following the 9/11 attacks. The departments receiving the most discretionary funding after the defense departments were Education, Veterans Affairs, and Health and Human Services. In the first article of the U.S. Constitution, it is specified that any appropriations of public funds must be approved by law and that accounts of government transactions must be published regularly. On this basis, an accepted legal procedure for crafting and approving the federal budget has taken shape, although the specific roles of the executive and Congress were not entirely clarified until the Congressional Budget and Impoundment Control Act of 1974. The President initiates budget negotiations, and is required to submit a budget to Congress for the subsequent fiscal year between the first Monday of January and the first Monday of February. (This has been relaxed at times when a newly elected president who is not from the incumbent party enters office.) The budget sent by the President's office does not include mandatory spending, but the document must also include detailed predictions for U.S. tax revenue and estimated budget requirements for at least four years after the fiscal year under discussion. From there, the President's budget is referred to the respective budgetary committees of the Senate and the House, as well as to the explicitly non-partisan Congressional Budget Office, which provides analysis and estimates to supplement the President's predictions. There is no requirement for both houses to pass the same budget; if this is the case, the budget resolutions from the previous years carry over, or the necessary discretionary expenses are funded by individual appropriations bills. The 2014 budget was the first one approved by both the House and the Senate since FY2010. Furthermore, the House and the Senate may propose their own budget resolutions independent of the President. History of the Budget Process In the early years of the United States, single committees in the House and the Senate handled the budget, which at the time consistently entirely of discretionary spending. While not entirely lacking contention, this centralized, streamlined budget authority enabled the legislature to regularly pass balanced budgets, except in times of recession or war. However, in 1885 the House passed legislation largely dissolving the authority of the existing Appropriations Committee and created various bodies to authorize expenditures for different purposes. Shortly thereafter, federal spending (including deficit spending) began to increase. From 1919-1921, both the House and the Senate took steps to rein in government spending by centralizing appropriations authority once again. However, after the 1929 stock market crash and the advent of the Great Depression, Congress and President Franklin D. Roosevelt were compelled to pass the Social Security Act of 1935, which established the first major mandatory spending program in U.S. history. Social Security, and the later but related Medicare and Medicaid programs, add to the tax burden of the individual citizen with the promise of payouts upon reaching certain qualifications. Under such provisions the federal government is legally obligated to disperse entitlement benefits to any citizen who qualifies. Therefore, modern mandatory spending depends primarily on demographic rather than economic factors. The federal budget has recently become one of the most contentious sources of political debate in the United States. Federal expenditures have risen astronomically since the 1980s, largely as a result of the increased requirements of mandatory spending related to population growth. The ongoing retirement of the baby boomers, the largest generation in U.S. history, spurs fears that mandatory Social Security costs will continue to rise quickly unless the programs are reformed. Furthermore, since 2001 the United States has continually operated in deficit, which every year adds to the national debt. The polarities of U.S. politics have general approaches to dealing with these fiscal issues. Right-leaning politicians generally advocate major cuts to Social Security, Medicare, Medicaid and other mandatory spending programs, while left-leaning politicians support raising taxes, particularly on the wealthy, coupled with health care reform.

Human Resources

The division of a company that is focused on activities relating to employees. These activities normally include recruiting and hiring of new employees, orientation and training of current employees, employee benefits, and retention. Formerly called personnel.

Production

The processes and methods used to transform tangible inputs (raw materials, semi-finished goods, subassemblies (subconjuntos) and intangible inputs (ideas, information, knowledge) into goods or services. Resources are used in this process to create an output that is suitable for use or has exchange value.

National Debt

Total outstanding borrowings of a central government comprising internal (owing to national creditors) and external (owing to foreign creditors) debt incurred in financing its expenditure. Loading the player... The national debt level of the United States has always been a subject of controversy. But, given that four consecutive years of $1 trillion budget deficits (2009-2012) has pushed the national debt to over 100% of gross domestic product (GDP), it is easy to understand why people (beyond politicans and economists) are starting to pay close attention to the issue these days. Unfortunately, the manner in which the debt level is explained to the public is usually pretty obscure. Couple this problem with the fact that many individuals do not understand how the national debt level affects their daily lives, and you have a centerpiece for discussion — and confusion. National Debt vs. Budget Deficits First, it's important to understand what the difference is between the federal government's annual budget deficit (or fiscal deficit) and the outstanding federal debt (or the national public debt, the official accounting term). Simply explained, the federal government generates a budget deficit whenever it spends more money than it brings in through income-generating activities such as individual, corporate or excise taxes. In order to operate in this manner, the Treasury Department has to issue treasury bills, treasury notes and treasury bonds to compensate for the difference: financing its deficit by borrowing from the public (which includes both domestic and foreign investors, as well as corporations and other governments), in other words. By issuing these types of securities, the federal government can acquire the cash that it needs to provide governmental services. The federal or national debt is simply the net accumulation of the federal government's annual budget deficits: It is the total amount of money that the U.S. federal government owes to its creditors. To make an analogy, fiscal deficits are the trees, and federal debt is the forest. Government borrowing, for the national debt shortfall, can also be in other forms - issuing other financial securities, or even borrowing from world-level organizations like the World Bank or private financial institutions. Since it is a borrowing at a governmental or national level, it is termed national debt, government debt, federal debt or public debt. The total amount of money that can be borrowed by the government without further authorization by Congress is known as the total public debt subject to limit. Any amount to be borrowed above this level has to receive additional approval from the legislative branch. The public debt is calculated daily. After receiving end-of-day reports from about 50 different sources (such as Federal Reserve Bank branches) regarding the amount of securities sold and redeemed that day, the Treasury calculates the total public debt outstanding, which is released the following morning. It represents the total marketable and non-marketable principal amount of securities outstanding (i.e. not including interest). National debt is divided generally into three categories: (1) Floating debt, short term borrowings such as treasury bills, various ways-and-means advances, and borrowings from the central bank. (2) Funded debt, short-term debt converted into long-term debt. (3) Unfunded debt, national savings certificates, savings bonds, premium bonds, and securities repayable in foreign exchange (payment of which affects the country's balance of payments). National debt plays a crucial role in a country's financial system as government securities (being a secure vehicle for investment) form an important part of the reserves of its financial institutions. The national debt can only be reduced through five mechanisms: increased taxation, reduced spending, debt restructuring, monetization of the debt or outright default. The federal budget process directly deals with taxation and spending levels and can create recommendations for restructuring or possible default.

Barter (permuta)

Trading in which goods or services are exchanged without the use of cash. Resorted-to usually in times of high inflation or tight money, barter is now a common form of trading in deals such as offers to buy surplus goods in exchange for advertising space or time. Advent of internet has transformed bartering from largely person-to-person to mainly business-to-business exchange where items ranging from manufacturing capacity to steel and paper are bartered across international borders on a daily basis.

Traditional Economy

Traditional economy is an original economic system in which traditions, customs, and beliefs help shape the goods and the services the economy produces, as well as the rules and manner of their distribution. Countries that use this type of economic system are often rural and farm-based. Definition: A traditional economy is a system that relies on customs, history and time-honored beliefs. Tradition guides economic decisions such as production and distribution. Traditional economies depend on agriculture, fishing, hunting, gathering or some combination of the above. They use barter instead of money. Most traditional economies operate in emerging markets and developing countries. They are often in Africa, Asia, Latin America and the Middle East. But you can find pockets of traditional economies scattered throughout the world. Economists and anthropologists believe all other economies got their start as traditional economies. Thus, they expect remaining traditional economies to evolve into either market, command or mixed economies over time. Five Characteristics of a Traditional Economy First, traditional economies center around a family or tribe. They use traditions gained from the elders' experiences to guide day-to-day life and economic decisions. Second, a traditional economy exists in a hunter-gatherer and nomadic society. These societies cover vast areas to find enough food to support them. They follow the herds of animals that sustain them, migrating with the seasons. These nomadic hunter-gatherers usually compete with other groups for scarce natural resources. There is little need for trade since they all consume and produce the same things. Third, most traditional economies produce only what they need. There is rarely surplus or leftovers. That makes it unnecessary to trade or create money. Fourth, when traditional economies do trade, they rely on barter. It can only occur between groups that don't compete. For example, a tribe that relies on hunting exchanges food with a group that relies on fishing. Because they just trade meat for fish, there is no need for cumbersome currency. Fifth, traditional economies start to evolve once they start farming and settle down. They are more likely to have a surplus, such as a bumper crop, that they use for trade. When that happens, the groups create some form of money. That facilitates trading over long distances. Traditional Mixed Economies When traditional economies interact with market or command economies, things change. Cash takes on a more important role. It enables those in the traditional economy to buy better equipment. That makes their farming, hunting or fishing more profitable. When that happens, they become a traditional mixed economy. Traditional economies can have elements of capitalism, socialism and communism. It depends on how they are set up. Agricultural societies that allow private ownership of farmland incorporate capitalism. Nomadic communities practice socialism if they distribute production to whoever best earned it. In socialism, that's called "to each according to his contribution." That would be the case if the best hunter, or the chief, received the choicest cut of meat or the best grains. If they feed children and the elderly first, they're adopting communism. It says "to each according to his needs."

Labor Unions

US term for trade union. An organization whose membership consists of workers and union leaders, united to protect and promote their common interests. The principal purposes of a labor union are to (1) negotiate wages and working condition terms, (2) regulate relations between workers (its members) and the employer, (3) take collective action to enforce (hacer cumplir) the terms of collective bargaining (negociación), (4) raise new demands on behalf of its members, and (5) help settle their grievances (ayudar a resolver sus agravios). What is a 'Labor Union' A labor union is an organization intended to represent the collective interests of workers in negotiations with employers over wages, hours, benefits and working conditions. Labor unions are often industry-specific and tend to be more common in manufacturing, mining, construction, transportation and the public sector. However, while beneficial to its members, labor union representation in the United States has declined significantly in the private sector over time. BREAKING DOWN 'Labor Union' Labor unions protect the rights of workers in specific industries. A union works like a democracy in that it holds elections for its members that seek to appoint officers who are charged with the duty of making decisions for union participants. A union is structured as a locally-based group of employees who obtain a charter from a national organization. Dues are paid by the employees to the national union, and in return, the labor union acts as an advocate on the employees behalf. An Example of a Labor Union Almost all unions are structured the same way and carry out duties in the same manner. The National Education Association of the United States (NEA), for example, is a labor union of professionals that represents teachers and other education professionals in the workplace. NEA is the largest labor union in the United States and boasts a group of nearly 3 million members. The union's aim is to advocate for education professionals and to unite its members to fulfill the promise of public education. NEA works with local and state schooling systems to set adequate wages for its members, among other things. When negotiating salaries on behalf of its teachers, NEA first starts with what's called a bargaining unit. This unit is a group of members whose duty is to deal with a specific employer. The bargaining unit, as its name implies, works with an employer to negotiate and ensure that its members are properly compensated and represented. The employer, in this case, a school district, is required by law to actively bargain with the union in good faith. However, the employer is not required to agree to specific terms. Multiple negotiation rounds are conducted between the bargaining party and the employer, after which, a collective bargaining agreement (acuerdo de negociación colectiva) (CBA) is agreed on and signed. The CBA outlines pay scales, and also includes other terms of employment, such as vacation and sick days, benefits, working hours and working conditions. After the CBA is signed, an employer cannot change the agreement without a union representative's approval. However, CBAs eventually expire, after which a new bargaining agreement must be negotiated and signed.

Scarcity, basic economic problem

What is 'Scarcity' Scarcity refers to the basic economic problem, the gap between limited - that is, scarce - resources and theoretically limitless wants. This situation requires people to make decisions about how to allocate resources efficiently, in order to satisfy basic needs and as many additional wants at possible. Any resource that has a non-zero cost to consume is scarce to some degree, but what matters in practice is relative scarcity. Also referred to as "paucity." BREAKING DOWN 'Scarcity' In his 1932 Essay on the Nature and Significance of Economic Science, British economist Lionel Robbins defined the discipline in terms of scarcity: Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses. In a hypothetical world in which every resource—water, hand soap, expert translations of Hittite inscriptions, enriched uranium, organic bok choy, time—was abundant, economists would have nothing to study. There would be no need to make decisions about how to allocate resources, and no tradeoffs to explore and quantify. In the real world, on the other hand, everything costs something; in other words, every resource is to some degree scarce. Money and time are quintessentially scarce resources. Most people have too little of one, the other, or both. An unemployed person may have an abundance of time, but find it hard to pay rent. A hotshot executive, on the other hand, may be financially capable of retiring on a whim, yet be forced to eat ten minute lunches and sleep four hours a night. A third category has little time or money. People with abundant money and abundant time are seldom observed in the wild. Even resources that we consider infinitely abundant, and which are free in dollar terms, are scarce in some sense. This is another way of stating the maxim, "there's no such thing as a free lunch." Take air, for example. From an individual's perspective, breathing is completely free. Yet there are a number of costs associated with the activity. It requires breathable air, which has become increasingly difficult to take for granted since the industrial revolution. In a number of cities today, poor air quality has been associated with high rates of disease and death. In order to avoid these costly affairs and assure that citizens can breathe safely, governments must invest in methods of power generation that do not create harmful emissions. These may be more expensive than dirtier methods, but even if they are not, they require massive capital expenditures. These costs fall on the citizens in one way or another. Breathing freely, in other words, is not free. When (if) the government decides to allocate resources to making the air clean enough to breathe, a number of questions arise. What methods exist to improve air quality? Which are the most effective in the short term, medium term and long term? What about cost effectiveness? What should the balance between th? What tradeoffs come with various courses of action? Where should the money come from? Should the government raise taxes, and if so, on what and for whom? Will the government borrow? Will it print money? How will the government keep track of its costs, debts and the benefits that accrue from the project (ie, accounting)? Pretty soon, the scarcity of clean air (the fact that clean air has a non-zero cost) brings up a vast array of questions about how to efficiently allocate resources. Scarcity is the basic problem that gives rise to economics. Scarcity You implicitly understand scarcity, whether you are aware of it or not. It is the most basic concept in economics, and is more of a solid fact than any abstraction. Simply put, the world has limited means to meet unlimited wants, so there is always a choice to be made. For example, there is only so much wheat grown every year. Some people want bread; some people want cereal; some people want beer, and so on. Only so much of any one product can be made because of the scarcity of wheat. How do we decide how much flour should be made for bread? Or cereal? Or beer? One answer is a market system. Supply and Demand The market system is driven by supply and demand. Take beer again. Let's say people want more beer, meaning the demand for beer is high. This demand means you can charge more for beer, so you can make more money on average by changing wheat into beer than grounding that same wheat into flour. More people start making beer and, after a few production cycles, there is so much beer on the market that prices plummet. Meanwhile, the price of flour has been increasing as the supply shrinks, so more producers buy up wheat for the purpose of making flour - and on, and on. This extreme and simplified example does encapsulate the wonderful balancing act that is supply and demand. The market is generally much more responsive in real life, and true supply shocks are rare - at least ones caused by the market are rare. On a basic level, supply and demand helps explain why last year's hit product is half the price the following year. Costs and Benefit The concept of costs and benefits encompass a large area of economics that has to do with rational expectations and rational choices. In any situation, people are likely to make the choice that has the most benefit to them, with the least cost, or, put another way, the choice that provides more in benefits than in costs. Going back to beer, the breweries of the world will hire more employees to make more beer, only if the price of beer and the sales volume justifies the additional costs to the payroll and the materials needed to brew more. Similarly, the consumer will buy the best beer he or she can afford, not, perhaps, the best tasting beer in the store. This extends far beyond financial transactions. University students perform cost benefit analysis on a daily basis, by focusing on certain courses that they believe will be more important for them, while cutting the time spent studying or even attending courses that they see as less necessary. Of course, everyone knows someone who has seemingly made a poor life choice. Although people are generally rational, there are many, many factors that can throw our internal accountant out the window. Advertising is one that everyone is familiar with. Commercials tweak emotional centers of our brain and do other clever tricks to fool us into overestimating the benefits of a given item. Some of these same techniques are used quite adeptly by the lottery, showing a couple sailing a yacht and enjoying a carefree life. This image and its emotional message ("this could be you") overwhelm the rational part of your brain that can run the very, very long odds of actually winning. Cost and benefits may not rule your mind all the time, but they are in charge more than you think - especially when it comes to the next concept. (This free thinker promoted free trade at a time when governments controlled most commercial interests. Check out Adam Smith: The Father Of Economics.) Everything Is in the Incentives Incentives are part of costs and benefits and rational expectations, but they are so important that they are worth further examination. Incentives make the world go round, and sometimes go wrong. If you are a parent, a boss, a teacher or anyone with the responsibility of oversight, and things are going horribly awry, the chances are very good that your incentives are out of alignment with what you want to achieve. We'll take a safe example, however, of - you guessed it - a brewery. This particular brewery has two sizes of bottle: one 500 ml bottle and a 1L bottle for couples. The owner wants to increase production, so he offers a bonus to the shift that produces the most bottles of beer in a day. Within a couple days, he sees production numbers shoot up from 10,000 bottles a day to 15,000. However, he is soon deluged with calls from suppliers wondering when orders of the 1L bottles are going to come. The problem, of course, is that his incentive focused on the wrong thing - the number of the bottles rather than the volume of beer - and made it "beneficial" for the competing shifts to cheat by only using the smaller bottles. When incentives are aligned with organizational goals, however, the benefits can be exceptional. Some incentives have been proven so effective that they are common practice at many firms, such as profit sharing, performance bonuses and employee shareholding. However, even these incentives can turn disastrous if the criteria for the incentives falls out of alignment with the original goal. Poorly structured performance bonuses, for example, have driven many a CEO to take temporary measures to juice the financial results enough to get the bonus - measures that often turn out to be detrimental in the longer term. Putting It All Together Scarcity is the overarching theme of all economics. It sounds negative, and it is one of the reasons economics is referred to as the dismal science, but it simply means that choices have to be made. These choices are decided by the costs and benefits that impact the choice, leading to a dynamic market system where choices are played out through supply and demand. On a personal level, scarcity means that we have to make choices based on the incentives we are given and the cost and benefits of different courses of action.

Currency

What is currency? Tokens used as money in a country. In addition to the metal coins and paper bank notes, modern currency also includes checks drawn on bank accounts, money orders, travelers checks, and will soon include electronic money or digital cash. What gives currency its value? Depending on the type of money, there are many different ways that value is assigned and handled. These are the types of currency. Fiat Currency Fiat currency (moneda fiduciaria) is, at its core, money that is worth what the government and free market determine it is worth. It gets its value through fiat. Every developed nation uses fiat currency, because the value can be controlled through monetary policies. Some examples of fiat currency include the American dollar, British pound, and Euro. Asset Backed Currency Sometimes, assets like gold and silver are used to guarantee the value of currency. Often, asset backed currencies are made out of a precious metal, but this isn't always the case. Sometimes an asset backed currency can be exchanged for a given quantity of the asset, like the American dollar was exchangeable for gold prior to the 1930's. Commodity (mercancía) Backed Currency Commodity backed currencies are largely a relic of history. Commodities like tobacco were used to guarantee the value of currency. Although they aren't in use anymore, commodity backed currencies played a large role in the early days of capitalism. Their weakness is that there was often a shortage of a particular commodity due to yearly fluctuations, and that could wipe out or drastically increase the amount of wealth in any given financial system. Digital Currency The final, and most modern, type of currency is digital currency. Digital currencies get their value through scarcity imposed on them by the need to solve difficult equations. For example, Bitcoins need to be 'mined' by computers that solve mathematical problems. Digital currencies tend to be anonymous by design, and can only be spent by using computers to handle the transaction. Branded currencies, like airline and credit card points, or in-game credits are valued in relationship to the value of the products or services they're tied to. Control over digital currencies is entirely decentralized, and the exchange rate of a digital currency can vary widely in a short period of time. What is 'Currency' Currency is a generally accepted form of money, including coins and paper notes, which is issued by a government and circulated within an economy. Used as a medium of exchange for goods and services, currency is the basis for trade. BREAKING DOWN 'Currency' Generally speaking, each country has its own currency. For example, Switzerland's official currency is the Swiss franc, and Japan's official currency is the yen. An exception would be the euro, which is used as the currency for several European countries. While these currencies can be specific to a nation, other countries have declared foreign currency to be legal tender in their own country. For example, El Salvador and Panama allow the use of the U.S. dollar as legal tender, and immediately after the founding of the U.S. mint in 1792, U.S. residents used Spanish coins because they were heavier. Some currencies, like cryptocurrencies​, bitcoin​, dogecoin​ and other online currencies and branded currencies are not tied to any country. Local currencies are currencies intended for trade over a small area and aren't nationally backed. There are a wide variety of local currencies within the United States, which itself has a history of local currencies before the establishment of state and national banks. Other instances in which local currencies have been used include a kind of quasi local currency in the form of local government that have been used as currency.

Stock Market (bolsa de valores)/Equity Market/equities or shares/New York Stock Exchange (NYSE)/Nasdaq/The Securities and Exchange Commission (SEC)/Stockbrokers/stockholder, shareholder

a place where shares are bought and sold, i.e. a stock exchange What is the 'Stock Market' The stock market refers to the collection of markets and exchanges where the issuing and trading of equities (stocks of publicly held companies), bonds and other sorts of securities takes place, either through formal exchanges or over-the-counter markets. Also known as the equity market, the stock market is one of the most vital components of a free-market economy, as it provides companies with access to capital in exchange for giving investors a slice of ownership. How Does the Stock Market Work? The stock market can be split into two main sections: the primary market and the secondary market. The primary market is where new issues are first sold through initial public offerings (IPOs). Institutional investors typically purchase most of these shares from investment banks; the worth of the company "going public" and the amount of shares being issued determine the opening stock price of the IPO. All subsequent trading goes on in the secondary market, where participants include both institutional and individual investors. (A company uses money raised from its IPO to grow, but once its stock starts trading, it does not receive funds from the buying and selling of its shares). Stocks of larger companies are usually traded through exchanges, entities that bring together buyers and sellers in an organized manner where stocks are listed and traded (although today, most stock market trades are executed electronically, and even the stocks themselves are almost always held in electronic form, not as physical certificates). Such exchanges exist in major cities all over the world, including London and Tokyo. In terms of market capitalization, the two biggest stock exchanges in the United States are the New York Stock Exchange (NYSE), founded in 1792 and located on Wall Street (which colloquially is often used as synonym for the NYSE), and the Nasdaq, founded in 1971. The Nasdaq originally featured over-the-counter (OTC) securities, but today it lists all types of stocks. Stocks can be listed on either exchange if they meet the listing criteria, but in general technology firms tend to be listed on the Nasdaq. The NYSE is still the largest and, arguably, most powerful stock exchange in the world. The Nasdaq has more companies listed, but the NYSE has a market capitalization that is larger than Tokyo, London and the Nasdaq combined. Who Regulates the Stock Market? The Securities and Exchange Commission (SEC) is the regulatory body charged with overseeing the U.S. stock markets. A federal agency that is independent of the political party in power, the SEC states its "mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation." (Learn more about it in Policing The Securities Market: An Overview Of The SEC.) Stock Trading Two general types of securities are most frequently traded on stock markets: over-the-counter (OTC) and listed securities. Listed securities are those stocks traded on exchanges. These securities need to meet the reporting regulations of the SEC as well as the requirements of the exchanges on which they are listed. Over-the-counter securities are traded directly between parties, usually via a dealer network, and are not listed on any exchange, although these securities may be listed on pink sheets. Pink sheet securities often do not meet the requirements for being listed on an exchange and tend to have low float, such as closely held companies or thinly-traded stocks. Companies in bankruptcy are typically listed here, as are penny stocks, loosely defined as those that trade below $5 a share. OTC securities do not need to comply with SEC reporting requirements, so finding credible information on them can be difficult. The lack of information makes investing in pink sheet securities similar to investing in private companies. The number of stocks that exchanges handle daily is called volume. Market makers are required to buy and sell stocks that don't interest other investors. Who Works on the Stock Market? There are many different players associated with the stock market, including stockbrokers, traders, stock analysts, portfolio managers and investment bankers. Each has a unique role, but many of the roles are intertwined and depend on each other to make the market run effectively. Stockbrokers, also known as registered representatives in the U.S., are the licensed professionals who buy and sell securities on behalf of investors. The brokers act as intermediaries between the stock exchanges and the investors by buying and selling stocks on the investors' behalf. (Learn more in Evaluating Your Stock Broker.) Stock analysts perform research and rate the securities as buy, sell or hold. This research gets disseminated to clients and interested parties to decide whether to buy or sell the stock. Portfolio managers are professionals who invest portfolios, collections of securities, for clients. These managers get recommendations from analysts and make buy/sell decisions for the portfolio. Mutual fund companies, hedge funds and pension plans use portfolio managers to make decisions and set the investment strategies for the money they hold. Investment bankers represent companies in various capacities such as private companies that want to go public via an IPO or companies that are involved with pending mergers and acquisitions. The Performance Indicators If you want to know how the stock market is performing, you can consult an index of stocks for the whole market or for a segment of the market. Indexes are used to measure changes in the overall stock market. There are many different indexes, each made up of a different pool of stocks (though there may be overlap among them). In the U.S., examples of indexes include the Dow Jones Industrial Average, NASDAQ Composite Index, Russell 2000, and Standard and Poor's 500 (S&P 500). The Dow Jones Industrial Average (DJIA) is perhaps the best-known. The Dow is comprised of the 30 largest companies in the U.S., and the daily Dow shows how their stocks perform on a given day. The Dow average is a price-weighted average, meaning its number is based on the price of the stocks. The S&P 500 is comprised of the 500 largest capitalization stocks traded in the U.S. These two indexes are the most followed measurements of the U.S. stock market, and as such, the most generally accepted representatives of the American overall economy. However, there are many other indexes that represent mid- and small-sized U.S. companies, such as the Russell 2000. (For more on indexes and their function, check out The History Of Stock Market Indexes.) Why is the Stock Market Important? The stock market allows companies to raise money by offering stock shares and corporate bonds. It lets investors participate in the financial achievements of the companies, making money through the dividends (essentially, cuts of the company's profits) the shares pay out and by selling appreciated stocks at a profit, or capital gain. (Of course, the downside is that investors can lose money if the share price falls or depreciates, and the investor has to sell the stocks at a loss.) In the U.S., the indexes that measure the value of stocks are widely followed and are a critical data source used to gage the current state of the American economy. As a financial barometer, the stock market has become an integral and influential part of decision-making for everyone from the average family to the wealthiest executive. Is the Stock Market Rigged? Which is not to say that everyone is equal when it comes to trading. Technically speaking, the stock market is not rigged. One of the whole points of an open exchange is to provide transparency and opportunity for all; furthermore, laws and governing bodies such as the SEC exist to "level the playing field" for investors. However, there are undeniable advantages that institutional investors and professional money managers have over individual investors: timely access to privileged information, full-time researchers, huge amounts of capital to invest (which results in discounts on commissions, transactional fees and even share prices), political influence and greater experience. While the Internet has been somewhat of an equalizing factor, the reality is that many institutional clients get news and analysis before the public does, and can act on information more quickly. History of the Stock Market It can be difficult for investors to imagine a time when the stock market in general, and the NYSE in particular, wasn't synonymous with investing. But, of course, it wasn't always this way; there were many steps along the road to our current system of exchange. In fact, the first stock exchange thrived for decades without a single stock actually being traded. The First Stock Exchange - Sans the Stock Belgium boasted a stock exchange as far back as 1531, in Antwerp. Brokers and moneylenders would meet there to deal in business, government and even individual debt issues. It is odd to think of a stock exchange that dealt exclusively in promissory notes and bonds, but in the 1500's there were no real stocks. There were financier partnerships that produced income like stocks do, but there was no official share that changed hands. All Those East India Companies In the 1600's, the Dutch, British, and French governments all gave charters to companies with East India in their names. On the cusp of imperialism's high point, it seems like everyone had a stake in the profits from the East Indies and Asia except the people living there. Sea voyages that brought back goods from the East were extremely risky - on top of Barbary pirates, there were the more common risks of bad weather and poor navigation. In order to lessen the risk of a lost ship ruining their fortunes, ship owners had long been in the practice of seeking investors who would put up money for the voyage - outfitting the ship and crew in return for a percentage of the proceeds if the voyage was successful. These early limited liability companies often lasted for only a single voyage. When the East India companies formed, they changed the way business was done. These companies had stocks that would pay dividends on all the proceeds from all the voyages the companies undertook, rather than going voyage by voyage. These were the first modern joint stock companies. This allowed the companies to demand more for their shares and build larger fleets. The size of the companies, combined with royal charters forbidding competition, meant huge profits for investors. A Little Stock With Your Coffee? Because the shares in the various East India companies were issued on paper, investors could sell their holdings to other investors. Unfortunately, there was no stock exchange in existence, so the investor would have to track down a broker to carry out a trade. In England, most brokers and investors did their business in the various coffee shops around London. Debt issues and shares for sale were written up and posted on the shops' doors or mailed as a newsletter. The South Seas Bubble Bursts The British East India Company had one of the biggest competitive advantages in financial history - a government-backed monopoly. When the investors began to receive huge dividends and sell their shares for fortunes, other investors were hungry for a piece of the action. The budding financial boom in England came so quickly that were no rules or regulations for the issuing of shares. The South Seas Company (SSC) emerged with a similar charter from the king and its shares, and the numerous re-issues, sold as soon as they were listed. Before the first ship ever left the harbor, the SSC had used its newfound investor fortune to open posh offices in the best parts of London. Encouraged by the success of the SSC - and realizing that the company hadn't done a thing except issue shares - other "businessmen" rushed in to offer new shares in their own ventures. Some of these were as ludicrous as reclaiming the sunshine from vegetables or, better yet, a company promising investors shares in an undertaking of such vast importance that they couldn't be revealed - something known today as a blind pool. Inevitably, the bubble burst when the SSC failed to pay any dividends off its meager profits, highlighting the difference between these new share issues and the British East India Company. The subsequent crash caused the government to outlaw the issuing of shares - a ban held until 1825. The New York Stock Exchange The first stock exchange in London was officially formed in 1773, a scant 19 years before the New York Stock Exchange. Whereas the London Stock Exchange (LSE) was handcuffed by the law restricting shares, the New York Stock Exchange has dealt in the trading of stocks since its inception. The NYSE wasn't the first stock exchange in the U.S.: That honor goes to the Philadelphia Stock Exchange (1790). But it quickly became the most powerful. Formed by brokers under the spreading boughs of a buttonwood tree, the New York Stock Exchange made its home on Wall Street. The exchange's location, more than anything else, led to the dominance that the NYSE quickly attained. It was in the heart of all the business and trade coming to and going from the United States, as well as the domestic base for most banks and large corporations. By setting listing requirements and demanding fees, the New York Stock Exchange became a very wealthy institution. The NYSE faced very little serious domestic competition for the next two centuries. Its international prestige rose in tandem with the burgeoning American economy in the 20th century, and it was soon the most important stock exchange in the world. London emerged as the major exchange for Europe, but many companies that were able to list internationally still listed in New York. Other countries, including Germany, France, the Netherlands, Switzerland, South Africa, Hong Kong, Japan, Australia and Canada, developed their own stock exchanges, but these were largely seen as proving grounds for domestic companies to inhabit until they were ready to make the leap to the LSE and from there to the big leagues of the NYSE. The NYSE had its share of ups and downs during the same period, too. Everything from the Great Depression to the Wall Street bombing of 1920 left scars on the exchange (in the last case, literally: marks remain on the buildings from the blast, which left 38 people dead). After the Stock Market Crash of 1929, less literal scars came in the form of stricter listing and reporting requirements, and increased government regulation. Still, the NYSE suffered relatively little disruption during the world wars and didn't have the prolonged declines that many of the European and Asian markets experienced in the late 1940s. Reflecting the economic dominance of the U.S. throughout the world, it was arguably the most powerful stock exchange domestically and internationally, despite the existence of stock exchanges in Chicago, Los Angeles and Philadelphia. In 1971, however, an upstart emerged to challenge the NYSE hegemony. The New Kid on the Block The Nasdaq was the brainchild of the National Association of Securities Dealers (NASD), now called the Financial Industry Regulatory Authority (FINRA). From its inception, it has been a different type of stock exchange. It does not inhabit a physical space, as does the NYSE at 11 Wall Street. Instead, it is a network of computers that execute trades electronically. The introduction of an electronic exchange made trades more efficient and reduced the bid-ask spread - a spread the NYSE wasn't above profiting from. The competition from Nasdaq has forced the NYSE to evolve, both by listing itself and by merging with Euronext (created in 2000 from the merger of the Amsterdam, Brussels and Paris stock exchanges) in 2007 to form the first trans-Atlantic exchange. With this merger, the influence of movements on the NYSE truly became global in scope. (To learn more, check out The Tale Of Two Exchanges: NYSE And Nasdaq and The Global Electronic Stock Market.) A Newer Kid on the Block For years, the Nasdaq was the second-largest equity U.S. exchange, after the NYSE. In the 21st century, however, it was superseded - in terms of market share, at least - by another electronic exchange, currently known as BATS Global Markets. (Nasdaq is still number two in terms of market capitalization.) Founded in 2005, BATS (which stands for "Better Alternative Trading System") now runs four domestic stock exchanges, representing 20.5% of the U.S. equities markets, and has also branched out into forex​, options, European equities and ETFs; in fact, it's the largest ETF exchange in the country. The Bottom Line Once upon a time, "stock market" was synonymous with "stock exchange" - a place where people literally gathered to buy and sell securities. In this era of computerized trading and electronic communication networks (ECNs) like those run by Nasdaq and BATS, that's no longer true. And the human element has been reduced even further by the advent of high-speed or high frequency trading, automated trading platforms which use computer algorithms to transact a large number of orders at extremely high speeds - millions of orders in a matter of seconds, in fact. High-frequency trading became popular when exchanges started to offer incentives for companies to become market makers in stocks, thus providing liquidity to the market. For example, after the subprime mortgage crisis of 2008 and the failure of broker-dealers like Lehman Brothers, the NYSE launched a program that pays firms a per-transaction fee or rebate for actively trading securities. While physical exchanges of paper are now rare, and actual trading floors may continue to dwindle, the concept of a stock market remains intact. Be it literal or figurative, societies, companies and individuals all like the idea of an open, public forum for raising, investing and making money. Read more: Stock Market http://www.investopedia.com/terms/s/stockmarket.asp#ixzz4mX93DHyK Follow us: Investopedia on Facebook

Credit Unions

Financial cooperative created for and by its members who are its depositors, borrowers, and shareholders (accionistas). Operated on non-profit basis, credit unions offer many banking services, such as consumer and commercial loans (usually at lower than market interest rates), time deposits (usually at higher than market interest rates), credit cards, and guaranties. Credit unions are normally taxed at rates lower than those applied to commercial banks and other financial institutions. Their members often have a common-bond, such as employment in the same firm or domicile in the same community. Credit unions are a type of mutual association.

Government

Government Government is the institutional authority that rules a community of people. The primary purpose of government is to maintain order and stability so that people can live safely, productively, and happily. In a democracy, the source of a government's authority is the people, the collective body of citizens by and for whom the government is established. The ultimate goal of government in a democracy is to protect individual rights to liberty within conditions of order and stability. Every government exercises three main functions: making laws, executing or implementing laws, and interpreting and applying laws. These functions correspond to the legislative, executive, and judicial institutions and agencies of any government. In an authentic democracy the government is constitutional and limited. A constitution of the people, written by their representatives and approved directly or indirectly by them, restrains or harnesses the powers of government to make sure they are used only to secure the freedom and common good of the people. There are at least five means to limit the powers of government through a well-constructed constitution. First, the constitution can limit the government by enumerating or listing its powers. The government may not assume powers that are not listed or granted to it. Second, the legislative, executive, and judicial powers of government can be separated. Different individuals and agencies in the government have responsibility for different functions and are granted constitutional authority to check and balance the exercise of power by others in order to prevent any person or group from using its power abusively or despotically. An independent judiciary that can declare null and void an act of the government it deems contrary to the constitution is an especially important means to prevent illegal use of power by any government official. The legislature can use its powers of investigation and oversight to prevent excessive or corrupt actions by executive officials and agencies. Third, power can be decentralized throughout the society by some kind of federal system that enables the sharing of powers by national and local units of government. Widespread distribution of power to various individuals, groups, and institutions throughout a country can also be accomplished by constitutional protections of individuals' rights to form and maintain the voluntary associations of civil society and the economic institutions of a free-market economy. Fourth, the people can limit the power of government by holding their representatives accountable to them through periodic elections, which are conducted freely, fairly, and competitively according to provisions of the constitution. The people can also use their constitutionally protected rights of free speech, press, assembly, and association to mobilize force against abusive or irresponsible exercise of power by their government. Fifth, a broad range of human rights can be included in the constitution, which the government is prohibited from denying to the people. In addition to such political rights as voting and expressing opinions through the media, the constitution can guarantee personal rights to private property, freedom of conscience, and so forth. The existence of a written constitution does not always dignify the practice of constitutional and limited government. There were written constitutions in Fascist Italy, Nazi Germany and the Soviet Union, but there was not constitutional government. Instead, there was arbitrary use of power as it suited the rulers, irrespective of the wishes of the people. Thus, only governments that usually, if not perfectly, function according to the terms of a constitution may be considered examples of constitutional and limited government

Imports/exports

Imports: Products of foreign origin brought into a country. Export: Products of local origin sold to other countries.

Parliamentary System

Parliamentary System Countries around the world practice democracy through different types of institutions. However, most democracies in the world today use the parliamentary system as opposed to a presidential system like that used in the United States. A few examples among the many parliamentary democracies are Canada, Great Britain, Italy, Japan, Latvia, the Netherlands, and New Zealand. Defining characteristics of the parliamentary system are the supremacy of the legislative branch within the three functions of government—executive, legislative, and judicial—and blurring or merging of the executive and legislative functions. The legislative function is conducted through a unicameral (one-chamber) or bicameral (two-chamber) parliament composed of members accountable to the people they represent. A prime minister and the ministers of several executive departments of the government primarily carry out the executive function. The political party or coalition of parties that make up a majority of the parliament's membership select the prime minister and department ministers. The prime minister usually is the leader of the majority party, if there is one, or the leader of one of the parties in the ruling coalition. Some ceremonial executive duties are carried out by a symbolic head of state—a hereditary king or queen in a democratic constitutional monarchy, such as Great Britain, Japan, Norway, or Spain, or an elected president or chancellor in a democratic constitutional republic such as Germany, Italy, or Latvia. The judicial function typically is independent of the legislative and executive components of the system. In a parliamentary system, laws are made by majority vote of the legislature and signed by the head of state, who does not have an effective veto power. In most parliamentary democracies, the head of state can return a bill to the legislative body to signify disagreement with it. But the parliament can override this ''veto'' with a simple majority vote. In most parliamentary systems, there is a special constitutional court that can declare a law unconstitutional if it violates provisions of the supreme law of the land, the constitution. In a few parliamentary systems, such as Great Britain, New Zealand, and the Netherlands, there is no provision for constitutional or judicial review, and the people collectively possess the only check on the otherwise supreme legislature, which is to vote members of the majority party or parties out of office at the next election. A parliamentary democracy is directly and immediately responsive to popular influence through the electoral process. Members of parliament may hold their positions during an established period between regularly scheduled elections. However, they can be turned out of office at any point between the periodic parliamentary elections if the government formed by the majority party loses the support of the majority of the legislative body. If the governing body, the prime minister and his cabinet of executive ministers, suffers a ''no confidence'' vote against it in the parliament, then it is dissolved and an election may be called immediately to establish a new parliamentary membership. A new prime minister and cabinet of executive ministers may be selected by newly elected members of the parliament. A few parliamentary democracies function as semi-presidential systems. They have a president, elected by direct vote of the people, who exercises significant foreign policy powers apart from the prime minister. They also have a constitutional court with strong powers of constitutional or judicial review. For example, the constitutional democracy of Lithuania is a parliamentary system with characteristics of a presidential system, such as a president of the republic who is directly elected by the people and who has significant powers regarding national defense, military command, and international relations. Advocates of the parliamentary system claim it is more efficient than the presidential alternative because it is not encumbered by checks and balances among power-sharing departments, which usually slow down the operations of government and sometimes create paralyzing gridlocks. Further, in the parliamentary system, a government that has lost favor with the people can be voted out of office immediately. Advocates claim that by responding more readily to the will of the people the parliamentary system is more democratic than the presidential alternative. However, both parliamentary and presidential systems can be genuine democracies so long as they conform to the essential characteristics by which a democracy is distinguished from a non-democracy, including constitutionalism, representation based on democratic elections, and guaranteed rights to liberty for all citizens.

recession

Period of general economic decline, defined usually as a contraction in the GDP for six months (two consecutive quarters) or longer. Marked by high unemployment, stagnant wages, and fall in retail sales, a recession generally does not last longer than one year and is much milder than a depression. Although recessions are considered a normal part of a capitalist economy, there is no unanimity of economists on its causes.

Cost of Living/The Bureau of Labor Statistics keeps track of annual inflation rates and is a great resource for comparing today's prices to those of yesteryear./Consumer Price Index is especially useful. This metric measures the average price change over time of all consumer products purchased in urban areas, comprising approximately 87% of the U.S. population./A cost of living index compares the cost of living in a major city as compared to a corresponding metropolitan area.

Price of goods and services required for maintaining an average level standard of living. Cost of living varies from place to place, and from time to time. What is 'Cost of Living' Cost of living is the amount of money needed to sustain a certain level of living, including basic expenses such as housing, food, taxes and health care. Cost of living is often used to compare how expensive it is to live in one city versus another locale. Cost of living is tied to wages, as salary levels are measured against expenses required to maintain a basic standard of living throughout specific geographic regions. BREAKING DOWN 'Cost of Living' Cost of living can be a significant factor in personal wealth accumulation, because a smaller salary can go further in a city where it doesn't cost a lot to get by, while a large salary can seem insufficient in an expensive city. According to Mercer's 2015 Cost of Living Survey, cities with the highest cost of living standards included Tokyo, Osaka, Moscow, Geneva, Hong Kong, Zurich, Copenhagen and New York City. U.S. cities with a high cost of living as of 2015 included Honolulu, Los Angeles, Washington and San Francisco. Cost of Living Index A cost of living index compares the cost of living in a major city as compared to a corresponding metropolitan area. The index incorporates the expense of various components that comprise basic human needs, creating an aggregate measure to which new entrants into the workforce may refer. As college graduates weigh employment alternatives and currently employed job seekers consider relocation, the index provides an informative snapshot of rental, transportation and grocery costs. In 2016, using New York City as a benchmark for other U.S. cities, San Francisco maintains the highest cost of living in the Americas. Rental costs in San Francisco are about 3% higher than in New York, and food prices sit 22% above corresponding levels found in New York. By contrast, the citizens of Reno, Nevada enjoy a cost of living approximately 43% below that of New York residents when analyzing basic expenses on an aggregate basis. Cost of Living and Wages For a family with two adults and two children, the average cost of living in the United States hovered around $65,000 per year in 2015. The figure excludes discretionary spending on nonessential goods and services, such as leisure, entertainment and luxury items. The debate over raising the U.S. federal minimum wage is deeply rooted in the disparity between the lowest wage allowed by law and the earnings needed to maintain an adequate cost of living. Proponents of a minimum wage hike cite increased worker productivity levels since 1968 as inequitably correlated to the minimum hourly rate of pay in 2012. As the minimum wage once tracked the increase in productivity, the divergence between earnings and worker efficiency have reached historically disproportionate levels. By contrast, opponents of a minimum wage increase contend that a raise could spur higher consumer prices as employers offset rising labor costs. Coast of Living Raise Many people feel that, even with full-time work, they simply don't have the income necessary to live the lives they want. Even when it comes to just the basic essentials such as food, rent, car payments, or tuition fees, it can often seem that a dollar today just doesn't buy what it should. As it happens, this isn't just economic paranoia. In fact, the prices for daily goods have increased considerably since 1994, above and beyond what can be accounted for by inflation, giving the dollar much less buying power than it had just 20 years ago. The Bureau of Labor Statistics keeps track of annual inflation rates and is a great resource for comparing today's prices to those of yesteryear. A metric called the Consumer Price Index is especially useful. This metric measures the average price change over time of all consumer products purchased in urban areas, comprising approximately 87% of the U.S. population. While not exactly a cost of living index, the CPI is an excellent indicator of inflation and is widely used to inform public policy and legislative changes in programs such as Social Security. The BLS also makes available an inflation calculator to find out how much inflation has degraded the dollar during a certain period. For example, according to the most recent data collected by the BLS, current as of August 2014, what would have cost $20 in 1994 would now cost over $32. Because things such as wages, Social Security payments and taxes are adjusted for inflation annually, however, it would seem that while things may cost more than they did 20 years ago, people should also be making more money to pay for those things. The information provided by the CPI doesn't show the cost of living change directly, but the amount of price change that is not attributable to inflation can be extrapolated from the CPI figures. For example, the Census Bureau reports that the average price of a new home in July 1994 was $144,400. According to the inflation calculator, that price today should be $232,141. The same report places the average sale price for July 2014 at $339,100, however, more than 46% higher than the price when accounting for inflation alone. A gallon of gas in 1994 cost $1.20, making it $1.93 in July 2014, when adjusted for inflation. The actual average price, as of July 2014, is $3.69, nearly twice what it would be if inflation were the only cause for the increase. The same method can be applied to see if household incomes have similarly increased. The median household income in 1994 was $32,264. The most recent year with full data available is 2013, so adjusting for inflation as of that year gives a median income of $51,868. The Census Bureau reports that the actual median income was $51,939, only slightly higher than the predicted figure. Taken together, these figures indicate that while the average person is still making the same amount of money when accounting for inflation, prices for many of the daily necessities have gone up considerably, which means that each dollar earned does, in fact, buy less than it did 20 years ago.

Needs and wants

Unsatisfied human desires that motivate their actions and enhance their fulfillment when met. Many business marketing departments pay close attention to the needs and wants of their target market since both drive consumer purchases. These can be further described as those needs that are based on biological necessities, and those wants that make life more pleasant and which largely depend on psychological factors.

Division of Labor

Narrow specialization of tasks within a production process so that each worker can become a specialist in doing one thing, especially on an assembly line. In traditional industries (see sunset industries), division of labor is a major motive force for economic-growth. However, in the era of mass customization (which requires multiple skills and very short machine change-over time), division of labor has become much more flexible. Also called specialization of labor. DEFINITION of 'Assembly Line' A production process that breaks the manufacture of a good into steps that are completed in a pre-defined sequence. Assembly lines are the most commonly used method in the mass production of products. They are able to reduce labor costs because unskilled workers could be easily trained to perform specific tasks. Rather than hire a skilled craftsmen to put together an entire piece of furniture or vehicle engine, companies would hire a worker to only add a leg to a stool or bolt to a machine. BREAKING DOWN 'Assembly Line' The introduction of the assembly line drastically changed the way goods were manufactured. Before their introduction, workers would assemble a product (or a large part of it) in place, often with one worker completing all tasks associated with product creation. Assembly lines, on the other hand, have workers (or machines) complete a specific task on the product as it continues along the production line rather than complete a series of tasks. This increases efficiency by maximizing the amount a worker could produce relative to the cost of labor. Determining what individual tasks must be completed, when they need to be completed, and who will complete them is a crucial step in establishing an effective assembly line. Complicated products, such as cars, have to be broken down into components that machines and workers can quickly assemble. Companies use a design for assembly (DFA) approach to analyze a product and its design in order to determine assembly order, as well as to determine issues that can affect each task. Each task is then categorized as either manual, robotic, or automatic, and then assigned to individual stations along the manufacturing plant floor. Companies can also design products with their assembly in mind, referred to as concurrent engineering. This allows the company to start the manufacture of a new product that has been designed with mass production in mind, with the tasks, task order, and assembly line layout already predetermined. This can significantly reduce the lead time between the initial product design release and the final product roll out. Read more: Assembly Line Definition | Investopedia http://www.investopedia.com/terms/a/assembly-line.asp-0#ixzz4mmsDJZwx Follow us: Investopedia on Facebook

Free Market Economy

An economic system where the government does not interfere in business activity in any way. Definition: A market economy is when competition from free enterprise makes economic decisions. It allows the laws of supply and demand to direct the production of goods and services. Supply includes natural resources, capital, and labor. Demand includes purchases by consumers, businesses and the government. Producers sell their wares at the highest price consumers will pay. At the same time, shoppers look for the lowest prices for the goods and services they want. Workers bid their services at the highest possible wages that their skills allow. Employers seek to get the best employees at the lowest possible price. Capitalism requires a market economy to set prices and distribute goods and services. Socialism and communism use a command economy to set a central plan. Market economies evolve from traditional economies. Most societies in the modern world have elements of all three types of economies. That makes them mixed economies. Six Characteristics of a Market Economy The following six characteristics define a market economy. 1. Private Property. Most goods and services are privately-owned. The owners can make legally-binding contracts to buy, sell, or lease their property. In other words, their assets give them the right to profit from ownership. But U.S. law excludes some assets. Since 1865, you cannot buy and sell human beings. That includes you, your body, and your body parts. (Source: "Market Economy," University of Auburn.) 2. Freedom of Choice. Owners are free to produce, sell and purchase goods and services in a competitive market. They only have two constraints. First, is the price at which they are willing to buy or sell. Second is the amount of capital they have. 3. Motive of Self-Interest. Everyone sells their wares to the highest bidder while negotiating the lowest price for their purchases. Although the reason is selfish, it benefits the economy over the long run. That's because this auction system sets prices for goods and services that reflect their market value. It gives an accurate picture of supply and demand at any given moment. 4. Competition. The force of competitive pressure keeps prices low. It also ensures that society provides goods and services most efficiently. As soon as demand increases for a particular item, prices rise thanks to the law of demand. Competitors see they can enhance their profit by producing it, adding to supply. That lowers prices to a level where only the best competitors remain. This force of competitive pressure also applies to workers and consumers. Employees vie with each other for the highest-paying jobs. Buyers compete for the best product at the lowest price. For more, see What Is Competitive Advantage: 3 Strategies That Work. 5. System of Markets and Prices. A market economy relies on an efficient market in which to sell goods and services. That's where all buyers and sellers have equal access to the same information. Price changes are pure reflections of the laws of supply and demand. Find out the Five Determinants of Demand. 6. Limited Government. The role of government is to ensure that the markets are open and working. For example, it is in charge of national defense to protect the markets. It also makes sure that everyone has equal access to the markets. The government penalizes monopolies that restrict competition. It makes sure no one is manipulating the markets and that everyone has equal access to information. (Source: National Council on Economic Education.) Four Market Economy Advantages Since a market economy allows the free interplay of supply and demand, it ensures the most desired goods and services are produced. That's because consumers are willing to pay the highest price for the things they want the most. Businesses will only create those things that return a profit. Second, goods and services are produced in the most efficient way possible. The most productive companies will earn more than less productive ones. Third, it rewards innovation. Creative new products will meet the needs of consumers in better ways that existing goods and services. These cutting-edge technologies will spread to other competitors so they, too, can be more profitable. For more, see Silicon Valley: America's Innovative Advantage. Fourth, the most successful businesses invest in other top-notch companies. That gives them a leg up and leads to increased quality of production. (Source: "Pure Capitalism and the Market System," Harper College.) Four Market Economy Disadvantages The key mechanism of a market economy is competition. As a result, it has no system to care for those who are at an inherent competitive disadvantage. That includes the elderly, children and people with mental or physical disabilities. Second, the caretakers of those people are also at a disadvantage. Their energies and skills go toward caretaking, not competing. Many of these people might become contributors to the economy's overall comparative advantage if they weren't caretakers. That leads to the third disadvantage. The human resources of the society may not be optimized. For example, a child who might otherwise discover the cure for cancer might instead work at McDonald's to support her low-income family. Fourth, the society reflects the values of the winners in the market economy. That's why a market economy may produce private jets for some while others starve and are homeless. A society based on a pure market economy must decide whether it's in its larger self-interest to care for the vulnerable. If it decides it is, the society will grant the government a significant role in redistributing resources. That's why there are so many mixed economies. Most so-called market economies are mixed economies. (Source: Louis Putterman, Markets vs. Controls, Brown University.) Market Economy Examples The United States is the world's premier market economy. One reason for its success is the U.S. Constitution. It has provisions that facilitate and protect the market economy's six characteristics. Here are the most important: Article I, Section 8 protects innovation as property by establishing a copyright clause. Article I, Sections 9 and 10 protects free enterprise and freedom of choice by prohibiting states from taxing each others' goods and services. Amendment IV protects private property and limits government powers by protecting people from unreasonable searches and seizures. Amendment V protects the ownership of private property. Amendment XIV prohibits the state from taking away property without due process of law. Amendments IX and X limit the government's power to interfere in any rights not expressly outlined in the Constitution. The Preamble of the Constitution includes a goal to "promote the general welfare." This means the government could take a larger role than what a market economy prescribes. This led to many social safety programs, such as Social Security, food stamps and Medicare.

Command Economy

An economy in which market mechanisms are replaced by a centralized state authority which coordinates all economic activity through commands, directives and regulations for the purpose of achieving broader socio-economic and political objectives. In a command economy, most forms of output are publicly owned but the state exerts control over production, distribution and prices. For example, Nazi Germany was considered to be a command economy as was the Soviet Union under Stalin. A command economy is where a central government makes all economic decisions. The government or a collective owns the land and the means of production. It doesn't rely on the laws of supply and demand that operate in a market economy. A command economy also ignores the customs that guide a traditional economy. In recent years, many centrally-planned economies began adding aspects of the market economy. The resultant mixed economy better achieves their goals. Five Characteristics of a Command Economy You can identify a modern centrally planned economy by the following five characteristics. 1. The government creates a central economic plan. The five-year plan sets economic and societal goals for every sector and region of the country. Shorter-term plans convert the goals into actionable objectives. 2. The government allocates all resources according to the central plan. It tries to use the nation's capital, labor and natural resources in the most efficient way possible. It promises to use each person's skills and abilities to their highest capacity. It seeks to eliminate unemployment. 3. The central plan sets the priorities for the production of all goods and services. These include quotas and price controls. Its goal is to supply enough food, housing, and other basics to meet the needs of everyone in the country. It also sets national priorities. These include mobilizing for war or generating robust economic growth. 4. The government owns monopoly businesses. These are in industries deemed essential to the goals of the economy. That usually includes finance, utilities, and automotive. There is no domestic competition in these sectors. 5. The government creates laws, regulations, and directives to enforce the central plan. Businesses follow the plan's production and hiring targets. They can't respond on their own to free market forces. Advantages Planned economies can quickly mobilize economic resources on a large scale. They can execute massive projects, create industrial power, and meet social goals. They aren't slowed down by lawsuits from individuals or environmental impact statements. Command economies can wholly transform societies to conform to the government's vision. The new administration nationalizes private companies. Its previous owners attend "re-education" classes. Workers receive new jobs based on the government's assessment of their skills. Disadvantages This rapid mobilization often means command economies mow down other societal needs. For example, the government tells workers what jobs they must fulfill. It discourages them from moving. The goods it produces aren't always based on consumer demand. But citizens find a way to fulfill their needs. They often develop a shadow economy, or black market. It buys and sells the things the command economy isn't producing. Leaders' attempts to control this market weakens support for them. They often produce too much of one thing and not enough of another. It's difficult for the central planners to get up-to-date information about consumers' needs. Also, prices are set by the central plan. They no longer measure or control demand. Instead, rationing often becomes necessary. Command economies discourage innovation. They reward business leaders for following directives. This doesn't allow for taking the risks required to create new solutions. Command economies struggle to produce the right exports at global market prices. It's challenging for central planners to meet the needs of the domestic market.

Demand

1. Commerce: A claim for a sum of money as due, necessary, or required. 2. Economics: (1) Desire for certain good or service supported by the capacity to purchase it. (2) The aggregate quantity of a product or service estimated to be bought at a particular price. (3) The total amount of funds which individuals or organizations want to commit for spending on goods or services over a specific period. See also law of supply and demand. 3. Law: An assertion of a legal right, such as to seek a compensation or relief.

Natural Resources

Asset or material that constitutes the natural capital of a nation. Natural resources require application of capital and human resources (mental and physical labor) to be exploited (extracted, processed, refined) for the realization of their economic value.

Private Enterprise

Basis of a free market capitalist system, it is a business unit established, owned, and operated by private individuals for profit, instead of by or for any government or its agencies. DEFINITION of 'Privately Owned' A company that is not publicly traded on a securities exchange. The majority of companies are privately owned, usually by either one individual or by a small group of individuals. Although offering securities for sale to the public can be a good way to obtain large amounts of financing, public ownership requires considerable effort to ensure compliance with securities regulations. Public ownership is generally impractical for small and medium-sized business. BREAKING DOWN 'Privately Owned' For a variety of reasons, ownership stakes in privately owned companies are often much more difficult to sell or transfer. Securities laws place higher restrictions on selling private ownership stakes, since dealing in these securities is often much more complex. For instance, accounting records may be inaccurate, unaudited, and/or not in compliance with Generally Accepted Accounting Principles.

Opportunity Cost

A benefit, profit, or value of something that must be given up to acquire or achieve something else. Since every resource (land, money, time, etc.) can be put to alternative uses, every action, choice, or decision has an associated opportunity cost. Opportunity costs are fundamental costs in economics, and are used in computing cost benefit analysis of a project. Such costs, however, are not recorded in the account books but are recognized in decision making by computing the cash outlays (desembolso) and their resulting profit or loss.

Capital Resource

A productive asset such as equipment, inventory, and plant, that (unlike a natural resource) is man-made and employed in generation of income.

Trade (comercio)

Commercial transaction involving the sale and purchase of a good, service, or information.

Minimun wage

Lowest hourly rate an employer can pay an employee. In some countries (such as the US) the minimum wage is set by a statute while in others (such as the UK) it is set by the wage council of each industry. The minimum wage in the US is 7$ an hour. What is 'Minimum Wage' A minimum wage is a legally mandated price floor on hourly wages, below which non-exempt workers may not be offered or accept a job. As of June 2016, the minimum hourly wage rate in the United States is $7.25. This means it is illegal for an American worker to sell their labor for less than $7.25 per hour unless the worker falls into a category specifically exempted from the Fair Labor Standards Act (FLSA). BREAKING DOWN 'Minimum Wage' Minimum wage laws were first used in Australia and New Zealand in an attempt to raise the incomes of unskilled workers. Most modern developed economies and many underdeveloped economies enforce a national minimum wage. Examples of countries with no established minimum wage include Sweden, Denmark, Iceland, Norway, Switzerland and Singapore. Even though the United States enforces a federal minimum wage, individual states and localities may also pass different minimum wage laws. As of 2016, minimum wage rates exceeded the federal rate in 29 of the 50 states, led by California and Massachusetts at $10 per hour. Economics of the Minimum Wage Like all price floors, a minimum wage law only has a measurable effect when set above the market clearing price for a transaction. For example, a minimum wage of $10 per hour will have no effect for workers whose marginal productivity in a given line of work is greater than $10 per hour. The legal supply and demand remains unchanged for such labor. For those with a marginal productivity less than $10 per hour, however, a $10 per hour minimum wage creates an artificial shortage for profitable labor. An unskilled worker with a marginal productivity of $8 per hour in California or Massachusetts can only offer to work at a loss to his or her potential employer — that is, the employer can only hire the worker if they are willing to pay more in salary than marginal revenue produced by the worker, or unless the employer incorrectly estimates the worker's marginal productivity to be above $10 per hour. Effects on Unemployment There is a high elasticity of demand for low-skilled labor. This means a small change in the price for low-skilled labor tends to have a large effect on its demand. For these reasons, too high a minimum wage can lead to increasing unemployment among the low-skilled. Low-skilled laborers in the United States can be exempted from the minimum wage if a sizable portion of their income is derived from tips. If exempted, a lower minimum wage of $2.13 per hour is applied. Eight states enforce a "tipped minimum wage," which forbids tipped workers from selling their labor for less than the normal minimum wage rate. In modern times, the proliferation of improved technology also increases the marginal rate of technical substitution for low-skilled labor. When the cost of labor increases, companies find it increasingly profitable to switch to labor-replacing technology, such as the decision by Wendy's Co. in 2016 to introduce self-serve kiosks in response to higher minimum wage laws. Trading Center

Tariff

1. General: Published list of fares, freight charges, prices, rates, etc. 2. Foreign trade: Popular term for import tariff and import tariff schedule. 3. Shipping: Popular term for shipping tariff And shipping tariff schedule. What is a 'Tariff' A tax imposed on imported goods and services. Tariffs are used to restrict trade, as they increase the price of imported goods and services, making them more expensive to consumers. A specific tariff is levied as a fixed fee based on the type of item (e.g., $1,000 on any car). An ad-valorem tariff is levied based on the item's value (e.g., 10% of the car's value). Tariffs provide additional revenue for governments and domestic producers at the expense of consumers and foreign producers. They are one of several tools available to shape trade policy. BREAKING DOWN 'Tariff' Governments may impose tariffs to raise revenue or to protect domestic industries from foreign competition, since consumers will generally purchase foreign-produced goods when they are cheaper. While consumers are not legally prohibited from purchasing foreign-produced goods, tariffs make those goods more expensive, which gives consumers an incentive to buy domestically produced goods that seem competitively priced or less expensive by comparison. Tariffs can make domestic industries less efficient, since they aren't subject to global competition. Tariffs can also lead to trade wars as exporting countries reciprocate with their own tariffs on imported goods. Groups such as the World Trade Organization exist to combat the use of egregious tariffs. Governments typically use one of the following justifications for implementing tariffs: To protect domestic jobs. If consumers buy less-expensive foreign goods, workers who produce that good domestically might lose their jobs. To protect infant industries. If a country wants to develop its own industry producing a particular good, it will use tariffs to make it more expensive for consumers to purchase the foreign version of that good. The hope is that they will buy the domestic version instead and help that industry grow. To retaliate against a trading partner. If one country doesn't play by the trade rules both countries previously agreed on, the country that feels jilted might impose tariffs on its partner's goods as a punishment. The higher price caused by the tariff should cause purchases to fall. To protect consumers. If a government thinks a foreign good might be harmful, it might implement a tariff to discourage consumers from buying it.

Constitution

A constitution is the basic law and general plan of government for a people within a country. The purposes, powers, and limitations of government are prescribed in the constitution. It thus sets forth the way a people is governed or ruled. A constitution is the supreme law of a country. Laws later enacted by the government must conform to the provisions of the constitution. All institutions, groups, and individuals within the community are expected to obey the supreme law of the constitution. A constitution is a framework for organizing and conducting the government of a country, but it is not a blueprint for the day-to-day operations of the government. The Constitution of the United States of America, for example, is less than 7,500 words long. It does not specify the details of how to run the government. The officials who carry out the business of the constitutional government supply the details, but these specifics must fit the general framework set forth in the U.S. Constitution. A defining attribute of a democratic constitution is its granting and limiting of powers to the government in order to guarantee national safety and unity as well as individuals' right to liberty. It sets forth generally what the constitutional government is and is not permitted to do. There cannot be an authentic democracy unless the powers of government are limited constitutionally to protect the people against tyranny of any kind. Constitutions vary in length, design, and complexity, but all of them have at least seven common attributes: a statement of the purposes of government, usually in a preamble specification of the structure of government enumeration, distribution, and limitation of powers among the legislative, executive, and judicial functions of government provisions about citizenship guarantees of human rights means of electing and appointing government officials procedures for amendment Most countries of the world today have a constitution that is written in a single document. Very few countries, such as Israel, New Zealand, and the United Kingdom have ''unwritten'' constitutions. These so-called unwritten constitutions are composed of various fundamental legislative acts, court decisions, and customs, which have never been collected or summarized in a single document. However, as long as an unwritten constitution really limits and guides the actions of the government to provide the rule of law, then the conditions of constitutional government are fulfilled. The Constitution of the United States, written in 1787 and ratified by the required nine states in 1788, is the oldest written constitution in use among the countries of the world today. However, the constitution of the State of Massachusetts was written and ratified in 1780 and, although extensively amended, is still operational, which makes it the world's oldest written constitution in use today. Most of the world's working constitutions have existed only since 1960, and many of the world's democracies have adopted their constitutions since 1990.

Taxes

A means by which governments finance their expenditure by imposing charges on citizens and corporate entities. Governments use taxation to encourage or discourage certain economic decisions. For example, reduction in taxable personal (or household) income by the amount paid as interest on home mortgage loans results in greater construction activity, and generates more jobs. Basic concepts by which a government is meant to be guided in designing and implementing an equitable taxation regime. These include: (1) Adequacy: taxes should be just-enough to generate revenue required for provision of essential public services. (2) Broad Basing: taxes should be spread over as wide as possible section of the population, or sectors of economy, to minimize the individual tax burden. (3) Compatibility: taxes should be coordinated to ensure tax neutrality and overall objectives of good governance. (4) Convenience: taxes should be enforced in a manner that facilitates voluntary compliance to the maximum extent possible. (5) Earmarking: tax revenue from a specific source should be dedicated to a specific purpose only when there is a direct cost-and-benefit link between the tax source and the expenditure, such as use of motor fuel tax for road maintenance. (6) Efficiency: tax collection efforts should not cost an inordinately high percentage of tax revenues. (7) Equity: taxes should equally burden all individuals or entities in similar economic circumstances. (8) Neutrality: taxes should not favor any one group or sector over another, and should not be designed to interfere-with or influence individual decisions-making. (9) Predictability: collection of taxes should reinforce their inevitability and regularity. (10) Restricted exemptions: tax exemptions must only be for specific purposes (such as to encourage investment) and for a limited period. (11) Simplicity: tax assessment and determination should be easy to understand by an average taxpayer.

Consumer Price Index CPI

A measure of changes in the purchasing-power of a currency and the rate of inflation. The consumer price index expresses the current prices of a basket of goods and services in terms of the prices during the same period in a previous year, to show effect of inflation on purchasing power. It is one of the best known lagging indicators. What is the 'Consumer Price Index - CPI' The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. Changes in the CPI are used to assess price changes associated with the cost of living; the CPI is one of the most frequently used statistics for identifying periods of inflation or deflation. BREAKING DOWN 'Consumer Price Index - CPI' The U.S. Bureau of Labor Statistics reports the CPI on a monthly basis. Two types of CPIs are reported each time. The CPI-W measures the Consumer Price Index for Urban Wage Earners and Clerical Workers. The CPI-U is the Consumer Price Index for Urban Consumers. It accounts for 89% of the U.S. population and is the better representation of the general public. The CPI-W is a subset that covers 28% of the U.S. population. The CPI is used by the president, Congress and Federal Reserve Board to formulate fiscal policies based on the monthly findings and how inflation or deflation is presented. The CPI rate is expected to be 2% or under by the U.S. Department of Labor. If this inflation measure hits above the 2% level, borrowing rates may be raised to help fight off inflation. Sometimes, such as in 2014, the CPI rising above 2% is not enough to get rates raised. Other inflation gauges are also used to decide the level of inflation. What Is in the CPI? The CPI statistics cover professionals, self-employed, poor, unemployed and retired people in the country. People not included in the report are nonmetro populations, farm families, armed forces, and people serving in prison and those in mental hospitals. The CPI represents the cost of a basket of goods and services across the country on a monthly basis. Those goods and services are broken into eight major groups: • Food and beverages • Housing • Apparel • Transportation • Medical care • Recreation • Education and communication • Other goods and services CPI Regional Data The Bureau of Labor Statistics also breaks down the CPI based on regions. Each month, the report is broken out into the four major Census regions: Northeast, Midwest, South and West. Three major metro areas are also broken out each month. The regions are Chicago-Gary-Kenosha, Los Angeles-Riverside-Orange County and New York-Northern NJ-Long Island. Along with the regional information provided each month, the Bureau of Labor Statistics also publishes reports for 11 additional metro areas every other month and an additional 13 metro areas semi-annually. These reports cover areas with large populations and represent a particular region subset.

Specialization

An agreement within a community, group, or organization under which the members most suited (by virtue of their natural aptitude, location, skill, or other qualification) for a specific activity or task assume greater responsibility for its execution or performance. Economies that realize specialization have a comparative advantage in the production of a good or service. A comparative advantage refers to the ability to produce a good or service at a lower marginal cost and opportunity cost than another good or service. When an economy can specialize in production, it benefits from international trade. If, for example, a country can produce bananas at a lower cost than oranges, it can choose to specialize and dedicate all of its resources to the production of bananas, using some of them to trade for oranges. Specialization also occurs within a country's borders, as is the case with the United States. For example, citrus goods grow better in the warmer climate of the South and West, many grain products come from the farms of the Midwest, and maple syrup comes from the maple trees of New England. All of these areas focus on the production of these specific goods, and they trade or purchase other goods.

Resources

An economic or productive factor required to accomplish an activity, or as means to undertake an enterprise and achieve desired outcome. Three most basic resources are land, labor, and capital; other resources include energy, entrepreneurship, information, expertise, management, and time. Economic resources can be divided into human resources, such as labor and management, and nonhuman resources, such as land, capital goods, financial resources, and technology. There are typically 3 categories of Economic Resources: Land, Labor, and Capital. You can consider these the "classical categories" of economics. Land would include items such as natural resources (water, oil, etc.) as well as actual size (acreage). Labor is really just that: humans to create goods or services. Primary driver here is that products can be created in exchange for wage. Capital really refers to things like infrastructure, buildings, or machinery in order to build goods. This can also include things like actual capital (cash). In order to produce goods, capital is required.

Unitary state

In a unitary state, the central or national government has complete authority over all other political divisions or administrative units. For example, the Republic of France is a unitary state in which the French national government in Paris has total authority over several provinces, known as departments, which are the subordinate administrative components of the nation-state. The local governments of a unitary state carry out the directives of the central government, but they do not act independently. The federal system of political organization is the exact opposite of the unitary state. For example, in contrast to the unitary state of France, Germany is a federal republic, which means that the national or federal government in Berlin shares political authority with the governments of several Lander, or political units within the nation-state. However,as in all federal states, including Australia, India, and the United States of America, the central or national government of Germany is supreme within the sphere of authority granted to it through the constitution. Unitary states, like federal states, can be constitutional democracies or unfree non-democracies. Both the unitary Republic of France and the Federal Republic of Germany, for example, are constitutional democracies, but the unitary states of Algeria, Libya, and Swaziland are unfree non-democracies. The Republic of Sudan is an example of an unfree and non-democratic federal state.

Elasticity

Is the absolute value, when you divide the % change of quantity by the % change of price. The less is the number, your elasticity is lower. In a demand curve: If you have a high elasticity (high prices, more than 1), when your prices go down, your revenue increses. If you have elasticity=1, your revenue is the greatest you could have. If you have lower elasticity (low prices, less than 1), when your prices go down, your revenue is going to decrease. Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price. It is computed as the percentage change in quantity demanded—or supplied—divided by the percentage change in price. Elasticity can be described as elastic—or very responsive—unit elastic, or inelastic—not very responsive. Elastic demand or supply curves indicate that the quantity demanded or supplied responds to price changes in a greater than proportional manner. An inelastic demand or supply curve is one where a given percentage change in price will cause a smaller percentage change in quantity demanded or supplied. Unitary elasticity means that a given percentage change in price leads to an equal percentage change in quantity demanded or supplied. What is price elasticity? Both demand and supply curves show the relationship between price and the number of units demanded or supplied. Price elasticity is the ratio between the percentage change in the quantity demanded, The price elasticity of demand is the percentage change in the quantity demanded of a good or service divided by the percentage change in the price. The price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price. Elasticities can be usefully divided into three broad categories: elastic, inelastic, and unitary. An elastic demand or elastic supply is one in which the elasticity is greater than one, indicating a high responsiveness to changes in price. An Inelastic demand or inelastic supply is one in which elasticity is less than one, indicating low responsiveness to price changes. Unitary elasticities indicate proportional responsiveness of either demand or supply. To calculate elasticity, instead of using simple percentage changes in quantity and price, economists use the average percent change in both quantity and price. This is called the Midpoint Method for Elasticity: Q2-Q1 %changeinquantity = ----------- × 100 (Q2+ Q1)/2 ------------------------ P2- P1 %changeinprice = ----------- × 100 (P2+ P1)/2 Infinite elasticity, or perfect elasticity, is the extreme case where either the quantity demanded or supplied changes by an infinite amount in response to any change in price. Zero elasticity, or perfect inelasticity, is the extreme case where a percentage change in price—no matter how large—results in zero change in quantity. Constant unitary elasticity in either a supply or demand curve means a price change of 1% results in a quantity change of 1%. The advantage of the Midpoint Method is that we get the same elasticity between two price points whether there is a price increase or decrease. This is because the formula uses the same base for both cases.

Demand

Key points The law of demand states that a higher price leads to a lower quantity demanded and that a lower price leads to a higher quantity demanded. Demand curves and demand schedules are tools used to summarize the relationship between demand and price. Demand for goods and services Economists use the term demand to refer to the amount of some good or service consumers are willing and able to purchase at each price. Demand is based on needs and wants—a consumer may be able to differentiate between a need and a want, but from an economist's perspective they are the same thing. Demand is also based on ability to pay. If you cannot pay, you have no effective demand. What a buyer pays for a unit of the specific good or service is called price. The total number of units purchased at that price is called the quantity demanded. A rise in price of a good or service almost always decreases the quantity demanded of that good or service. Conversely, a fall in price will increase the quantity demanded Demand curves will be somewhat different for each product. They may appear relatively steep or flat, and they may be straight or curved. Nearly all demand curves share the fundamental similarity that they slope down from left to right, embodying the law of demand: As the price increases, the quantity demanded decreases, and, conversely, as the price decreases, the quantity demanded increases. In economic terminology, demand is not the same as quantity demanded. When economists talk about demand, they mean the relationship between a range of prices and the quantities demanded at those prices, as illustrated by a demand curve or a demand schedule. When economists talk about quantity demanded, they mean only a certain point on the demand curve or one quantity on the demand schedule. In short, demand refers to the curve, and quantity demanded refers to a specific point on the curve.

Supply

Key points The law of supply states that a higher price leads to a higher quantity supplied and that a lower price leads to a lower quantity supplied. Supply curves and supply schedules are tools used to summarize the relationship between supply and price. Supply of goods and services When economists talk about supply, they mean the amount of some good or service a producer is willing to supply at each price. Price is what the producer receives for selling one unit of a good or service. A rise in price almost always leads to an increase in the quantity supplied of that good or service, while a fall in price will decrease the quantity supplied. When the price of gasoline rises, for example, it encourages profit-seeking firms to take several actions: expand exploration for oil reserves, drill for more oil, invest in more pipelines and oil tankers to bring the oil to plants where it can be refined into gasoline, build new oil refineries, purchase additional pipelines and trucks to ship the gasoline to gas stations, and open more gas stations or keep existing gas stations open longer hours. Economists call this positive relationship between price and quantity supplied—that a higher price leads to a higher quantity supplied and a lower price leads to a lower quantity supplied—the law of supply. The law of supply assumes that all other variables that affect supply are held constant. In economic terminology, supply is not the same as quantity supplied. When economists refer to supply, they mean the relationship between a range of prices and the quantities supplied at those prices—a relationship that can be illustrated with a supply curve or a supply schedule. When economists refer to quantity supplied, they mean only a certain point on the supply curve, or one quantity on the supply schedule. In short, supply refers to the curve, and quantity supplied refers to a specific point on the curve.

Inflation vs Deflation

Most of us don't stop to think about it, but the value of a dollar is always changing. It swings up and down with the financial fortunes of the United States. Sometimes a dollar is worth more than others, and sometimes it seems like a dollar is worth nearly nothing. The differences in the value of a dollar from one point to another are caused by inflation and deflation. Inflation When a dollar buys less than you would expect it to, we call that inflation. Inflation is caused by a variety of factors, but most of them are related to interest and debt. When the Federal Reserve bank raises interest rates, it causes the dollar to inflate. There is more money in the system, so every dollar is worth just a little bit less. Wage push inflation is a general increase in the cost of goods that is preceded by and results from an increase in wages. To maintain corporate profits after an increase in wages, employers must increase the prices they charge for the goods and services they provide. The overall increased cost of goods and services has a circular effect on the wage increase; eventually, as goods and services in the market overall increase, then higher wages will be needed to compensate for the increased prices of consumer goods. BREAKING DOWN 'Wage Push Inflation' Companies can increase wages for a number of reasons. The most common reason for an increased level of wages is an increase to the minimum wage. The federal and state governments have the power to increase the minimum wage. Consumer goods companies are also known for making incremental wage increases for their workers. These minimum wage increases are a leading factor for wage push inflation. In consumer goods companies especially, wage push inflation is highly prevalent, and its effect is a function of the percentage increase in wages. Industry Factors Industry factors also play a part in driving wage increases. If a specific industry is growing rapidly, companies might raise wages to attract talent or provide higher compensation for their workers as an incentive to help business growth. All such factors have a wage push inflation effect on the goods and services the company provides. Deflation Deflation is the opposite of inflation. When there are fewer dollars to go around, every one of them is worth more in terms of real goods and property. Deflation comes about when interest rates are low, and when the economy is performing better than the rest of the world. Deflation makes it cheaper to buy things in the store, but companies who sell their products overseas often see a slowdown in sales.

Revenue

The income generated from sale of goods or services, or any other use of capital or assets, associated with the main operations of an organization before any costs or expenses are deducted. Revenue is shown usually as the top item in an income (profit and loss) statement from which all charges, costs, and expenses are subtracted to arrive at net income. Also called sales, or (in the UK) turnover. Total Revenue = price x quantity

Exchange currrency effects of dollar fluctuation

The rate at which two currencies in the market can be exchanged. International currency exchange rates display how much of one unit of a currency can be exchanged for another currency. Currency exchange rates can be floating, in which case they change continually based on a multitude of factors. Alternatively, the exchange rates of some foreign currencies are pegged, or fixed, to other currencies, in which case they move in tandem with the currencies to which they are pegged. BREAKING DOWN 'International Currency Exchange Rate' International currency exchange rates are important in today's global economy. Knowing the value of your home currency in relation to different foreign currencies helps investors to analyze investments priced in foreign dollars. For example, for a U.S. investor, knowing the dollar to euro exchange rate is valuable when choosing European investments. A declining U.S. dollar could increase the value of foreign investments, just as an increasing U.S. dollar value could hurt the value of foreign investments. Adjustment The use of mechanisms by a central bank to influence a home currency's exchange rate. An adjustment is specifically made if the exchange rate is not pegged to another currency, meaning that the currency is valued according to a floating exchange rate. Because the central bank intervenes in the home currency's exchange rate to reduce short-term fluctuations, this is considered a managed floating exchange rate. BREAKING DOWN 'Adjustment' Central banks may become involved if they believe that movements in the home currency are too "extreme", especially since a rapid increase or decrease in a currency's value can lead to a significant effects on its economy. Inconsistent adjustment policies in terms of an exchange rate mechanism (ERM) result in uncertainty on the part of investors, and is referred to as a "dirty" managed exchange rate policy.

Employment/Unemployment

What is 'Full Employment' Full employment is an economic situation in which all available labor resources are being used in the most efficient way possible. Full employment embodies the highest amount of skilled and unskilled labor that can be employed within an economy at any given time. Any remaining unemployment is considered to be frictional, structural or voluntary. BREAKING DOWN 'Full Employment' Full employment is considered to be any acceptable level of unemployment above 0%. Full employment exists without any cyclical or deficient-demand unemployment, but does exists with some level of frictional, structural and voluntary unemployment. Full employment is seen as the ideal employment rate within an economy and is normally represented by a range of rates that are specific to regions, time periods and political climates. A government or economy often defines full employment as any rate of unemployment below a defined number. If, for example, a country sets full employment at a 5% unemployment rate, any level of unemployment below 5% is considered acceptable. Full employment, once attained, often results in an inflationary period. The inflation is a result of workers having more disposable income, which would drive prices upward. Types of Unemployment That Affect Full Employment Full employment can also be defined as any economic situation that is devoid (carente de) of cyclical or deficient-demand unemployment. 1. Cyclical unemployment is the fluctuating type of unemployment that rises and falls within the normal course of the business cycle. This unemployment rises when an economy is in a recession and falls when an economy is growing. Therefore, for an economy to be at full employment, it cannot be in a recession that's causing cyclical unemployment. 2. Deficient-demand unemployment is similar to cyclical unemployment in that it arises when there isn't enough aggregate demand in an economy to support full employment. Declining aggregated demand is a characteristic of a recession. Full employment cannot exist when there isn't enough demand to support the workforce. The final three types of unemployment can exist in situations in which full employment also exists. 3. Structural unemployment arises outside of the business cycle when there is a skills gap. This unemployment occurs when there are jobs available but the unemployed population does not have the knowledge or skill level to perform the required tasks. Technology is a leading cause of structural unemployment. 4. Frictional unemployment represents the amount of unemployment that results from workers who are in between jobs, but are still in the labor force. Many economists have estimated that the average amount of frictional unemployment in the United States ranges from 2 to 7%. 5. Finally, voluntary employment occurs when a person makes a conscious decision to remain unemployed. This happens when there are jobs available but a worker cannot find a job of his or her specific choice.

Gross national product GNP

What is 'Gross National Product - GNP' Gross national product (GNP) is an estimate of total value of all the final products and services produced in a given period by the means of production owned by a country's residents. GNP is commonly calculated by taking the sum of personal consumption expenditures, private domestic investment, government expenditure, net exports, and any income earned by residents from overseas investments, minus income earned within the domestic economy by foreign residents. Net exports represent the difference between what a country exports minus any imports of goods and services. GNP is related to another important economic measure called gross domestic product (GDP), which takes into account all output produced within a country's borders regardless of who owns the means of production. GNP starts with GDP, adds residents' investment income from overseas investments, and subtracts foreign residents' investment income earned within a country. BREAKING DOWN 'Gross National Product - GNP' GNP measures the total monetary value of the total output produced by a country's residents. Therefore, any output produced by foreign residents within the country's borders must be excluded in calculations of GNP, while any output produced by the country's residents outside of its borders must be counted. GNP does not include intermediary goods and services to avoid double-counting since they are already incorporated in the value of final products and services. The Difference Between GNP and GDP GNP and GDP are very closely related concepts, and the main differences between them comes from the fact that there may be companies owned by foreign residents that produce goods in the country, and companies owned by domestic residents that produce products for the rest of the world and revert earned income to domestic residents. For example, there are a number of foreign companies that produce products and services in the United States and transfer any income earned to their foreign residents. Likewise, many U.S. corporations produce goods and services outside of the U.S. borders and earn profits for U.S. residents. If income earned by domestic corporations outside of the United States exceeds income earned within the United States by corporations owned by foreign residents, the U.S. GNP is higher than its GDP. While GDP is the most widely-followed measure of a country's economic activity, GNP is still worth looking at because large differences between GNP and GDP may indicate that a country is getting more engaged in international trade , production or financial operations. Finally, real GNP may prove to be a more useful measure, since it factors out any changes in national income due to inflation. The real GNP takes nominal GNP measured in current prices and adjusts for any changes in price level for goods and services included in the calculation of GNP.

Private enterprise

What is the 'Private Sector' The private sector encompasses all for-profit businesses that are not owned or operated by the government. Companies and corporations that are government run are part of what is known as the public sector, while charities and other nonprofit organizations are part of the voluntary sector. The Bureau of Labor Statistics tracks and reports both private and public unemployment rates for the United States. BREAKING DOWN 'Private Sector' The private sector is the segment of a national economy owned, controlled and managed by private individuals or enterprises. The private sector has a goal of making money and employs more workers than the public sector. A private-sector organization is created by forming a new enterprise or privatizing a public sector organization. A large private-sector corporation may be privately or publicly traded. Businesses in the private sector drive down prices for goods and services while competing for consumers' money; in theory, customers do not want to pay more for something when they can buy the same item elsewhere at a lower cost. Private and Public Sector Differences The private sector employs workers through individual business owners, corporations or other nongovernment agencies. Jobs include those in financial services, law firms, newspapers, aviation, hospitality or other nongovernment positions. Workers are paid with part of the company's profits. Private-sector workers tend to have more pay increases, more career choices, greater opportunities for promotions, less job security and less-comprehensive benefit plans than public-sector workers. Working in a more competitive marketplace often means longer hours in a more demanding environment than working for the government. The public sector employs workers through the federal, state or local government. Typical civil service jobs are in health care, teaching, emergency services, armed forces and city council. Workers are paid through a portion of the government's tax dollars. Public-sector workers tend to have more comprehensive benefit plans and more job security than private-sector workers; once a probationary period concludes, many government positions become permanent appointments. Moving among public-sector positions while retaining the same benefits, holiday entitlements and sick pay is relatively easy while receiving pay increases and promotions is difficult. Working with a public agency provides a more stable work environment free of market pressures, unlike working in the private sector.

Inflation/ Demand-Pull Inflation/ Cost-Push Inflation/ Monetary Inflation

A sustained, rapid increase in prices, as measured by some broad index (such as Consumer Price Index) over months or years, and mirrored in the correspondingly decreasing purchasing power of the currency. It has its worst effect on the fixed-wage earners, and is a disincentive to save. There is no one single, universally accepted cause of inflation, and the modern economic theory describes three types of inflation: (1) Cost-push inflation is due to wage increases that cause businesses to raise prices to cover higher labor costs, which leads to demand for still higher wages (the wage-price spiral), (2) Demand-pull inflation results from increasing consumer demand financed by easier availability of credit; (3) Monetary inflation caused by the expansion in money supply (due to printing of more money by a government to cover its deficits). is defined as a sustained increase in the general level of prices for goods and services in a county, and is measured as an annual percentage change. Under conditions of inflation, the prices of things rise over time. Put differently, as inflation rises, every dollar you own buys a smaller percentage of a good or service. When prices rise, and alternatively when the value of money falls you have inflation. The value of a dollar (or any unit of money) is expressed in terms of its purchasing power, which is the amount of real, tangible goods or actual services that money can buy at a moment in time. When inflation goes up, there is a decline in the purchasing power of money. For example, if the inflation rate is 2% annually, then theoretically a $1 pack of gum will cost $1.02 in a year. After inflation, your dollar does not go as far as it did in the past. This why a pack of gum cost just $0.05 in the 1940's - the price has risen, or from a different perspective, the value of the dollar has declined. In recent years, most developed countries have attempted to sustain an inflation rate of 2-3% by using monetary policy tools put to use by central banks. This general form of monetary policy is known as inflation targeting. Causes of Inflation There is no single theory for the cause of inflation that is universally agreed upon by economists and academics, but there are a few hypotheses that are commonly held. Demand-Pull Inflation - Inflation is caused by the overall increase in demand for goods and services, which bids up their prices. This theory can be summarized as "too much money chasing too few goods". In other words, if demand is growing faster than supply, prices will increase. This usually occurs in rapidly growing economies. This theory is often promoted by the Keynesian school of economics. Cost-Push Inflation - Inflation is caused when companies' costs of production go up. When this happens, they need to increase prices to maintain their profit margins. Increased costs can include things such as wages, taxes, or increased costs of natural resources or imports. Monetary Inflation - Inflation is caused by an oversupply of money in the economy. Just like any other commodity, the prices of things are determined by their supply and demand. If there is too much supply, the price of that thing goes down. If that thing is money, and too much supply of money makes its value go down, the result is that the prices of everything else priced in dollars must go up! This theory is often promoted by the "Monetarist" school of economics. Costs of Inflation Inflation affects different people in different ways, with some benefiting from its effects at the expense of some who lose out. It also depends on whether changes to the rate of inflation are anticipated or unanticipated. If the inflation rate corresponds to what the majority of people are expecting (anticipated inflation), then we can compensate and the impact isn't necessarily as severe. For example, banks can vary their interest rates and workers can negotiate contracts that include automatic wage hikes as prices go up. Here is a brief account of the typical winners and losers from inflation: Creditors (lenders) lose and debtors (borrowers) gain under inflation. For example, suppose a bank issues you a 30-year mortgage to buy a house at a fixed interest rate of 5% per year, costing $1,000 per month. As inflation rises, the "cost" of that $1,000 per month decreases, which benefits the homeowner, especially if the rate of inflation exceeds the interest rate on the loan. Inflation hurts savers since a dollar saved will be worth less in the future. Unless the money is saved in an account that pays an interest rate at or above the rate of inflation, the purchasing power of savings will erode. This phenomenon is sometimes called "cash-drag." Workers with fixed salaries or contracts that do not adjust with inflation will be hurt as the buying power of their incomes stay the same relative to rising prices. Similarly, people living off a fixed-income, such as those below the poverty line, retirees or annuitants, see a decline in their purchasing power and, consequently, their standard of living. Landlords benefit, if they have a fixed mortgage (or no mortgage) as they are able to raise the rent more each year. Uncertainty about what will happen next makes corporations and consumers less likely to spend. This hurts economic output in the long run. The entire economy must absorb repricing costs (menu costs) as price lists, labels, menus and more have to be updated. If the domestic inflation rate is greater than that of other countries, domestic products become less competitive. Variations on the Theme of Inflation There are several variations on the theme of inflation. Deflation is when the general level of prices are falling. It is the opposite effect of inflation. Deflation tends to occur more rarely and for shorter periods of time than inflation. Deflation occurs typically during times of recession or economic crisis and can lead to deep economic crises including depression. The reason for this is the so-called deflationary spiral: when prices are going down, why would you spend your money today, when each dollar will be more valuable tomorrow? And why spend tomorrow when each dollar can buy more the day after? The result is that people stop spending and hoard their money in anticipation of prices falling even further. If money is being hoarded, it isn't being spent, so business profits collapse and people are laid off. Increasing unemployment leaves the economy with even less spending, and the spiral continues. Disinflation is a condition where inflation is still positive, but the rate of inflation is decreasing - for example from +3% to +2%. Hyperinflation is unusually rapid inflation, typically more than 50% in a single month. In extreme cases, this inflation gone awry can lead to the breakdown of a nation's monetary system or even its economy. One of the most notable examples of hyperinflation occurred in Germany in 1923, when prices rose 2,500% in one month! Likewise, in Zimbabwe, hyperinflation led to Z$100 trillion bills being printed that were worth only a few U.S. dollars. Hyperinflations have also famously occurred in Hungary and Argentina in the 20th century. Stagflation is the rare combination of high unemployment and economic stagnation along with high rates of inflation. This happened in industrialized countries during the 1970s, when a rocky economy was confronted with OPEC raising oil prices resulting in a demand shock for oil. This sent the price of oil - and all of the products and services that use oil as an input - higher, even as the economy slackened. People often complain when prices go up, but they often ignore the fact that wages should be rising as well. The question shouldn't be whether inflation is rising, but whether it's rising at a quicker pace than your wages. A modest inflation is a sign that an economy is growing. In some situations, little inflation can be just as bad as high inflation. The lack of inflation may be an indication that the economy is weakening. As you can see, it's not so easy to label inflation as either good or bad - it depends on the overall economy as well as your personal situation. Causes of inflation There are three causes of inflation. The first, demand-pull inflation occurs when demand outstrips supply. The second is cost-push inflation. It's the supply of goods or services is restricted, while demand stays the same. For example, since there is a shortage of highly skilled software engineers, their wages are skyrocketing. The third, overexpansion of the nation's money supply, is when too much capital chases too few goods and services. It's caused by too-expansive fiscal or monetary policy, creating too much liquidity. Deflation is usually caused by a drop in demand. Fewer shoppers mean businesses have to lower prices, which can turn into a bidding war. It's also caused by technology changes, such more efficient computer chips. Deflation can also be caused by exchange rates. For example, China keeps its currencies value low compared to the U.S. dollar. That allows it to underprice U.S. manufacturers, lowering prices on its exports to the United States.

Capitalism

Economic system based (to a varying degree) on private ownership of the factors of production (capital, land, and labor) employed in generation of profits. It is the oldest and most common of all economic systems and, in general, is synonymous with free market system.

Competition

Economics: Rivalry in which every seller tries to get what other sellers are seeking at the same time: sales, profit, and market share by offering the best practicable combination of price, quality, and service. Where the market information flows freely, competition plays a regulatory function in balancing demand and supply.

Consumption

The process in which the substance of a thing is completely destroyed, used up, or incorporated or transformed into something else. Consumption of goods and services is the amount of them used in a particular time period.

Good/free goods/economic goods

1. Any tangible thing that is not money or real estate (bienes raices) 3. Economics: A commodity (mercancía), or a physical, tangible item that satisfies some human want or need, or something that people find useful or desirable and make an effort to acquire it. Goods that are scarce (are in limited supply in relation to demand) are called economic goods, whereas those whose supply is unlimited and that require neither payment nor effort to acquire, (such as air) are called free goods. 2. Commerce: An inherently useful and relatively scarce tangible item produced from agricultural, construction, manufacturing, or mining activities. According to the UN Convention On Contract For The International Sale Of Goods, the term 'good' does not include (1) items bought for personal use, (2) items bought at an auction or foreclosure (juicio hipotecario) sale, (3) aircraft or oceangoing vessels (Buques).

Property

1. General: Quality or thing owned or possessed. 2. Hotel industry: Specific hotel or hotel complex owned by an entity such as a hotel chain. 3. Law: Article, item, or thing owned with the rights of possession, use, and enjoyment, and which the owner can bestow (otorgar), collateralize, encumber, mortgage, (Colateralizar, gravar, hipotecar), sell, or transfer, and can exclude everyone else from it. Two basic kinds of property are (1) Real (land), involving a degree of geographical fixity, and (2) Personal (anything other than real property) which does not involve geographical fixity. Personal property is subdivided into tangible property (any physical animate or inanimate object) and intangible property (intellectual property).

Insurance Company

A business that provides coverage, in the form of compensation resulting from loss, damages, injury, treatment or hardship in exchange for premium payments. The company calculates the risk of occurrence then determines the cost to replace (pay for) the loss to determine the premium amount.

Private Good/Public Good

A private goos is an item of consumption that, if used by one party, may not be available for others, such as food and clothing. An item whose consumption is not decided by the individual consumer but by the society as a whole, and which is financed by taxation. A public good (or service) may be consumed without reducing the amount available for others, and cannot be withheld (retenido) from those who do not pay for it. Public goods (and services) include economic statistics and other information, law enforcement (cumplimiento de la ley), national defense, parks, and other things for the use and benefit of all. No market exists for such goods, and they are provided to everyone by governments.

Market

An actual or nominal place where forces of demand and supply operate, and where buyers and sellers interact (directly or through intermediaries) to trade goods, services, or contracts or instruments, for money or barter (permuta). Markets include mechanisms or means for (1) determining price of the traded item, (2) communicating the price information, (3) facilitating deals and transactions, and (4) effecting (efectuando) distribution. The market for a particular item is made up of existing and potential customers who need it and have the ability and willingness to pay for it.

Deflation

A sustained, rapid increase in prices, as measured by some broad index (such as Consumer Price Index) over months or years, and mirrored in the correspondingly decreasing purchasing power of the currency. It has its worst effect on the fixed-wage earners, and is a disincentive to save. There is no one single, universally accepted cause of inflation, and the modern economic theory describes three types of inflation: (1) Cost-push inflation is due to wage increases that cause businesses to raise prices to cover higher labor costs, which leads to demand for still higher wages (the wage-price spiral), (2) Demand-pull inflation results from increasing consumer demand financed by easier availability of credit; (3) Monetary inflation caused by the expansion in money supply (due to printing of more money by a government to cover its deficits). See also deflation and hyperinflation.

Bank

An establishment authorized by a government to accept deposits, pay interest, clear checks, make loans, act as an intermediary in financial transactions, and provide other financial services to its customers.

Nonprofit Institutions

Associations, charities, cooperatives, and other voluntary organizations formed to further cultural, educational, religious, professional, or public service objectives. Their startup funding is provided by their members, trustees, or others who do not expect repayment, and who do not share in the organization's profits or losses which are retained or absorbed. Approved, incorporated, or registered NPOs are usually granted tax exemptions, and contributions to them are often tax deductible. Most non governmental organizations (NGOs) are NPOs. Also called not for profit organization.

Service/ Private service/Public Service

Service: Intangible products such as accounting, banking, cleaning, consultancy, education, insurance, expertise, medical treatment, or transportation. Sometimes services are difficult to identify because they are closely associated with a good; such as the combination of a diagnosis with the administration of a medicine. No transfer of possession or ownership takes place when services are sold, and they (1) cannot be stored or transported, (2) are instantly perishable, and (3) come into existence at the time they are bought and consumed. Public service: 1. Service provided or supported by a government or its agencies. 2. Agency involved in providing public service for or on behalf (por o en nombre de) of a government.

Socialism

Socialism can refer to a vast swath of the political spectrum, in theory and in practice. Its intellectual history is more varied than that of communism: the Communist Manifesto devotes a chapter to criticizing the half-dozen forms of socialism already in existence at the time, and proponents have taken just about every left-of-center stance on the ideal (or best achievable) structure of economic and political systems. Socialists can be pro- or anti-market. They may consider the ultimate goal to be revolution and the abolition of social classes, or they may seek more pragmatic outcomes: universal healthcare, for example, or a universal pension scheme. Social Security is a socialist policy that has been adopted in the unabashedly capitalist U.S. (as are the eight-hour working day, free public education and arguably universal suffrage). Socialists may run for election, forming coalitions with non-socialist parties, as they do in Europe, or they may govern as authoritarians, as the Chavista regime does in Venezuela.

Supply

The total amount of a product (good or service) available for purchase at any specified price. Supply is determined by: (1) Price: producers will try to obtain the highest possible price whereas the buyers will try to pay the lowest possible price both settling at the equilibrium price where supply equals demand. (2) Cost of inputs: the lower the input price the higher the profit at a price level and more product will be offered at that price. (3) Price of other goods: lower prices of competing goods will reduce the price and the supplier may switch to more profitable products thus reducing the supply.

Capital

1. Wealth in the form of money or assets, taken as a sign of the financial strength of an individual, organization, or nation, and assumed to be available for development or investment. 2. Accounting: Money invested in a business to generate income. 3. Economics: Factors of production that are used to create goods or services and are not themselves in the process. What is 'Capital' Capital refers to financial assets or the financial value of assets, such as funds held in deposit accounts, as well as the tangible machinery and production equipment used in environments such as factories and other manufacturing facilities. Additionally, capital includes facilities, such as the buildings used for the production and storage of the manufactured goods. Materials used and consumed as part of the manufacturing process do not qualify. BREAKING DOWN 'Capital' While money is used simply to purchase goods and services for consumption, capital is more durable and is used to generate wealth through investment. Examples of capital include automobiles, patents, software and brand names. All of these items are inputs that can be used to create wealth. Besides being used in production, capital can be rented out for a monthly or annual fee to create wealth, or it can be sold when it is no longer required. Read more: Capital http://www.investopedia.com/terms/c/capital.asp#ixzz4mTPsW1Mu Follow us: Investopedia on Facebook Ongoing Service to Business In order to qualify as capital, the goods must provide an ongoing service to the business to create wealth. Capital must be combined with labor, the work of individuals who exchange their time and skills for money, to create value. By investing in capital and foregoing current consumption, a business or individual can direct those efforts into future prosperity. Tangible assets that function as capital within a business are subject to depreciation, which occurs as normal wear and tear on an item diminishes its overall value. Depreciation is often noted on a business's financial statements and may be eligible for use as tax deductions. The assertion of property rights designates the value of associated capital. Individuals or companies can claim ownership to their capital and direct its function to suit their needs. Ownership of capital can also be transferred to another individual or corporation with any resulting proceeds from the sale being directed to the previous owner. For example, a business can sell a piece of production equipment to another facility in exchange for cash. The purchasing facility becomes the new owner of the equipment and the selling business can include the funds as revenue. Read more: Capital http://www.investopedia.com/terms/c/capital.asp#ixzz4mTPn5wZ1 Follow us: Investopedia on Facebook

Labor Force/LFPR (The Labor Force Participation Rate)

All person aged 16 years or over economically active within the period of time being reported. people are in the labor force if they are employed, self-employed, in the military, or looking for a job. The labor force can be derived from the sum of the employed population and the unemployed population. If you are not looking for work, you are not in the label of unemployed, even if you don´t have a job. To find the Unemployment Rate, divide the unemployed people by employed plus unemployed peple (Labor Force), multiplied by 100. The Labor Force Participation Rate meassures the proportion of a particular population that is economicalli active The labor force is defined simply as the people who are willing and able to work. The size of the labor force is used to determine the unemployment rate.The percentage of the unemployed in the labor force is called the unemployment rate. Unemployment Rate = (Number of Unemployed / Labor Force) * 100. The labor force participation rate is the percentage of the population that is either employed or unemployed (that is, either working or actively seeking work) People with jobs are employed. People who are jobless, looking for a job, and available for work are unemployed. The labor force is made up of the employed and the unemployed. People who are neither employed nor unemployed are not in the labor force.

price

A value that will purchase a finite quantity, weight, or other measure of a good or service. As the consideration given in exchange for transfer of ownership, price forms the essential basis of commercial transactions. It may be fixed by a contract, left to be determined by an agreed upon formula at a future date, or discovered or negotiated during the course of dealings between the parties involved. In commerce, price is determined by what (1) a buyer is willing to pay, (2) a seller is willing to accept, and (3) the competition is allowing to be charged. With product, promotion, and place of marketing mix, it is one of the business variables over which organizations can exercise some degree of control. It is a criminal offense to manipulate prices (see price fixing) in collusion with other suppliers, and to give a misleading indication of price such as charging for items that are reasonably expected to be included in the advertised, list, or quoted price. Also called sale price and selling price.

Corporation/Legal existence/Limited liability/Continuity of existence

1. Firm that meets certain legal requirements to be recognized as having a legal existence, as an entity separate and distinct from its owners. Corporations are owned by their stockholders (accionistas) (shareholders) who share in profits and losses generated through the firm's operations, and have three distinct characteristics (1) Legal existence: a firm can (like a person) buy, sell, own, enter into a contract, and sue other persons and firms, and be sued by them. It can do good and be rewarded, and can commit offence and be punished. (2) Limited liability: a firm and its owners are limited in their liability to the creditors and other obligors only up to the resources of the firm, unless the owners give personal-guaranties. (3) Continuity of existence: a firm can live beyond the life spans and capacity of its owners, because its ownership can be transferred through a sale or gift of shares. What is a 'Corporation' A corporation is a legal entity that is separate and distinct from its owners. Corporations enjoy most of the rights and responsibilities that an individual possesses; that is, a corporation has the right to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes. It is often referred to as a "legal person." BREAKING DOWN 'Corporation' Corporations are used throughout the world to operate all kinds of businesses. While its exact legal status varies somewhat from jurisdiction to jurisdiction, the most important aspect of a corporation is limited liability. This means that shareholders have the right to participate in the profits, through dividends and/or the appreciation of stock, but are not held personally liable for the company's debts. Almost all well-known businesses are corporations, including Microsoft Corporation, The Coca-Cola Company and Toyota Motor Corporation. Some corporations do business under their names and also under business names, such as Alphabet Inc., which famously does business as Google.

Marxism

A system of economic, social, and political philosophy based on ideas that view social change in terms of economic factors. A central tenet is that the means of production is the economic base that influences or determines the political life. Under Marxism, outdated class structures were supposed to be overthrown with force (revolution) instead of being replaced through patient modification. It held that as capitalism has succeeded feudalism, it too will be removed by a dictatorship of the workers (proletariat) called socialism, followed quickly and inevitably by a classless society which governs itself without a governing class or structure. Developed in the 19th century jointly by two lifelong German friends living in London - Karl Marx (1818-1883) and Friedrich Engels (1820-1895) - it forms the foundation of communism.

Communism

Economic and social system in which all (or nearly all) property and resources are collectively owned by a classless society and not by individual citizens. Based on the 1848 publication 'Communist Manifesto' by two German political philosophers, Karl Marx (1818-1883) and his close associate Friedrich Engels (1820-1895), it envisaged common ownership of all land and capital and withering away of the coercive power of the state. In such a society, social relations were to be regulated on the fairest of all principles: from each according to his ability, to each according to his needs. Differences between manual and intellectual labor and between rural and urban life were to disappear, opening up the way for unlimited development of human potential. In view of the above, there has never been a truly communist state although the Soviet Union of the past and China, Cuba, and North Korea of today stake their claims.

Marquet Equilibrium

Key points Supply and demand curves intersect at the equilibrium price. This is the price at which the market will operate. Where demand and supply intersect Because the graphs for demand and supply curves both have price on the vertical axis and quantity on the horizontal axis, the demand curve and supply curve for a particular good or service can appear on the same graph. Together, demand and supply determine the price and the quantity that will be bought and sold in a market. The equilibrium is the only price where quantity demanded is equal to quantity supplied. At a price above equilibrium, the quantity supplied exceeds the quantity demanded, so there is excess supply or a SURPLUS. At a price below equilibrium, quantity demanded exceeds quantity supplied, so there is excess demand or SHORTAGE.

depression

Lowest point in an economic cycle characterized by (1) reduced purchasing power, (2) mass unemployment, (3) excess of supply over demand, (4) falling prices, or prices rising slower than usual, (5) falling wages, or wages rising slower than usual, and (6) general lack of confidence in the future. Also called a slump, a depression causes a drop in all economic activity. Major depressions may continue for several years, such as the Great Depression (1930-40) that had worldwide impact.

Profits

The surplus remaining after total costs are deducted from total revenue, and the basis on which tax is computed and dividend is paid. It is the best known measure of success in an enterprise. Profit is reflected in reduction in liabilities, increase in assets, and/or increase in owners' equity. It furnishes resources for investing in future operations, and its absence may result in the extinction of a company. As an indicator of comparative performance, however, it is less valuable than return on investment (ROI). Also called earnings, gain, or income.

purposes of government

he foundation of our American Government, its purpose, form and structure are found in the Constitution of the United States. The Constitution, written in 1787, is the "supreme law of the land" because no law may be passed that contradicts its principles. No person or government is exempt from following it. The Constitution establishes a federal democratic republic form of government. That is, we have an indivisible union of 50 sovereign States. It is a democracy because people govern themselves. It is representative because people choose elected officials by free and secret ballot. It is a republic because the Government derives its power from the people. The purpose of our Federal Government, as found in the Preamble of the Constitution, is to "establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our posterity." In order to achieve this purpose the Founding Fathers established three main principles on which our Government is based: Inherent rights: Rights that anyone living in America has; Self Government: Government by the people; and Separation of Powers: Branches of government with different powers. When the Founding Fathers set about creating the American system of government after a successful rebellion from England, they had no idea how the system would evolve over the course of more than 200 years. The system built on a cornerstone of civil liberties now boasts one of the largest world militaries and a commitment to help the needy, maintain transportation networks and protect its citizens from irresponsible manufacturers. Protect Civil Rights The U.S. government is set up to ensure that all Americans regardless of race, gender or creed are afforded the same rights, privileges and participation in government. When the Founding Fathers ratified the U.S. Constitution, they included the Bill of Rights to protect freedoms of speech, freedom of the press and freedom from unlawful searches and seizure of their property. The Bill of Rights was later amended to abolish slavery after the U.S. Civil War and extend the right to vote to former slaves, then women, then to citizens 18 and older. Maintain a Justice System The federal government and each state have laws to protect citizens from criminal activity and punish offenders. Local, city and state governments hire and maintain police forces and court systems to enforce laws. The Federal Bureau of Investigation enforces laws that cross state lines. The FBI enforces the law against terrorists, bank robbers, embezzlers and corrupt federal politicians. The U.S. Department of Justice also defends federal laws. A network of courts metes out punishments for criminal offenders, starting with 94 district courts. You can appeal decisions to the U.S. Circuit Court of Appeals and ultimately the U.S. Supreme Court. Military Protection Whether it's a world war or civil war, the U.S. government has provided military protection for its citizens starting with the American Revolution. The U.S. Department of Defense is the umbrella over the U.S. Army, Navy, Air Force, Marines, Coast Guard and National Guard. In this century, U.S. armed forces invaded Iraq to depose dictator Saddam Hussein and invaded Afghanistan following the destruction of the twin towers in New York City by terrorists. In 2010, the U.S. military had 1.4 million people deployed in active duty and 833,000 in the reserves. Build and Maintain Infrastructure The U.S. government is responsible for building and maintaining the nation's network of highways. The Federal Highway Administration oversees more than 46,000 miles of interstate highways, plus all the bridges, tunnels and ramps built into the system. The federal government subsidizes mass transit systems, such as the New York subway system overseen by the Metropolitan Transportation Authority, as well as commuter rail lines and public bus systems. The government has taken a leading role in some energy production projects, such as the Hoover Dam on the Colorado River between Arizona and Nevada. Provide a Safety Net When you can't earn what you need to survive, the government is there to provide some assistance. The Social Security Administration was set up after the Great Depression in the early 20th century to provide help for the elderly who lack retirement funds. The agency also provides free health care for the elderly and a stipend for the mentally or physically disabled. The government also provides temporary employment benefits for those out of work and welfare funds for low income individuals who qualify. The Affordable Care Act of 2010 extended basic medical care to Americans without health insurance. Keep Products and Services Safe Americans are less likely to eat spoiled food or suffer side effects from untested drugs due to the vigilance of the U.S. Food and Drug Administration. The agency mandates recalls for hazardous products, such as toys that can harm children or mass shipments of spoiled food. Drugs must pass through a years-long screening process before they receive approval from the FDA for widespread distribution. The FDA regulates medical devices, vaccines and cosmetics. It requires cancer warning labels on tobacco products and regulates marketing practices for tobacco products.