ECON FINAL TERMS AND THEMES

price ceiling

A price ceiling is a government-imposed price control or limit on how high a price is charged for a product. Governments intend price ceilings to protect consumers from conditions that could make necessary commodities unattainable

price floor

A price floor is a government- or group-imposed price control or limit on how low a price can be charged for a product. A price floor must be higher than the equilibrium price in order to be effective.

nominal GDP

A gross domestic product (GDP) figure that has not been adjusted for inflation. Also known as "current dollar GDP" or "chained dollar GDP."

capitalism

an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state.

keynesian economics

are the various theories about why in the short run, and especially during recessions, economic output is strongly influenced by aggregate demand (total spending in the economy).

fiscal policy

fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy. It is the sister strategy to monetary policy through which a central bank influences a nation's money supply.

representative money

has been used variously to mean: A claim on a commodity, for example gold certificates or silver certificates. In this sense it may be called "commodity-backed money". Any type of money that has face value greater than its value as material substance.

business cycles

he fluctuations in economic activity that an economy experiences over a period of time. A business cycle is basically defined in terms of periods of expansion or recession. "Boom and Bust cycle"

market economy

A market economy is an economy in which decisions regarding investment, production, and distribution are based on supply and demand, and prices of goods and services are determined in a free price system.

medium exchange

An intermediary instrument used to facilitate the sale, purchase or trade of goods between parties. In modern economies the medium of exchange is currency.

monopoly

A market structure characterized by a single seller, selling a unique product in the market. Definition: A market structure characterized by a single seller, selling a unique product in the market. In a monopoly market, the seller faces no competition, as he is the sole seller of goods with no close substitute

right-to-work

"Right-to-work" laws are statutes in a number of states in the United States that prohibit union security agreements, or agreements between labor unions and employers, that govern the extent to which an established union can require employees' membership, payment of union dues, or fees as a condition of employment, ...

partnership

A business organization in which two or more individuals manage and operate the business. Both owners are equally and personally liable for the debts from the business.

401k

A qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on a post-tax and/or pretax basis. Employers offering a 401(k) plan may make matching or non-elective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis.

mediation

A settlement of a dispute or controversy by setting up an independent person between two contending parties in order to aid them in the settlement of their disagreement.

blue-collar

A working-class person historically defined by hourly rates of pay and manual labor. A blue collar worker refers to the fact that most manual laborers at the turn of the century wore blue shirts, which could hold a little dirt around the collar without standing out.

investment

An asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth.

trade deficit

An economic measure of a negative balance of trade in which a country's imports exceeds its exports. A trade deficit represents an outflow of domestic currency to foreign markets.

trade surplus

An economic measure of a positive balance of trade, where a country's exports exceeds its imports. A trade surplus represents a net inflow of domestic currency from foreign markets, and is the opposite of a trade deficit, which would represent a net outflow.

IRA

An individual retirement account (IRA) that allows individuals to direct pretax income, up to specific annual limits, toward investments that can grow tax-deferred (no capital gains or dividend income is taxed).

mutual fund

An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by money managers, who invest the fund's capital and attempt to produce capital gains and income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.

labor union

An organization of workers formed to promote collective bargaining with employers over wages, hours, fringe benefits, job security, and working conditions.

Compound interest

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan. Compound interest can be thought of as "interest on interest," and will make a deposit or loan grow at a faster rate than simple interest, which is interest calculated only on the principal amount. The rate at which compound interest accrues depends on the frequency of compounding; the higher the number of compounding periods, the greater the compound interest. Thus, the amount of compound interest accrued on $100 compounded at 10% annually will be lower than that on $100 compounded at 5% semi-annually over the same time period. Compound interest is also known as compounding.

fiat money

Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat money is derived from the relationship between supply and demand rather than the value of the material that the money is made of.

federal reserve

DEFINITION of 'Federal Reserve System - FRS' The central bank of the United States. The Fed, as it is commonly called, regulates the U.S. monetary and financial system. The Federal Reserve System is composed of a central governmental agency in Washington, D.C. (the Board of Governors) and twelve regional Federal Reserve Banks in major cities throughout the United States.

law of demand

DEFINITION of 'Law Of Demand' A microeconomic law that states, all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease, and vice versa. The law of demand says that the higher the price, the lower the quantity demanded, because consumers' opportunity cost to acquire that good or service increases, and they must make more tradeoffs to acquire the more expensive product.

FDIC

Federal Deposit Insurance Corporation - FDIC' The U.S. corporation insuring deposits in the U.S. against bank failure. The FDIC was created in 1933 to maintain public confidence and encourage stability in the financial system through the promotion of sound banking practices.

Causes of Shortages

Increase in demand (outward shift in demand curve) Decrease in supply (inward shift in supply curve) Government intervention

comparative advantage

comparative advantage states that if countries specialise in producing goods where they have a lower opportunity cost - then there will be an increase in economic welfare. Note this is different to absolute advantage which looks at the monetary cost of producing a goo

purchasing power

is the value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing power is important because, all else being equal, inflation decreases the amount of goods or services you would be able to purchase.

opportunity cost

the value of the next-highest-valued alternative use of that resource;the basic relationship between scarcity and choice". The notion of opportunity cost plays a crucial part in ensuring that scarce resources are used efficiently.

types of inflation

1. Creeping Inflation Creeping or mild inflation is when prices rise 3% a year or less. According to the U.S. Federal Reserve, when prices rise 2% or less, it's actually beneficial to economic growth. That's because this mild inflation sets expectations that prices will continue to rise. As a result, it sparks increased demand as consumers decide to buy now before prices rise in the future. By increasing demand, mild inflation drives economic expansion. 2. Walking Inflation This type of strong, or pernicious, inflation is between 3-10% a year. It is harmful to the economy because it heats up economic growth too fast. People start to buy more than they need, just to avoid tomorrow's much higher prices. This drives demand even further, so that suppliers can't keep up. More important, neither can wages. As a result, common goods and services are priced out of the reach of most people. 3. Galloping Inflation When inflation rises to ten percent or greater, it wreaks absolute havoc on the economy. Money loses value so fast that business and employee income can't keep up with costs and prices. Foreign investors avoid the country, depriving it of needed capital. The economy becomes unstable, and government leaders lose credibility. Galloping inflation must be prevented. Demand pull inflation - this occurs when the economy grows quickly and starts to 'overheat' - Aggregate demand (AD) will be increasing faster than aggregate supply (LRAS). Cost push inflation - this occurs when there is a rise in the price of raw materials, higher taxes, e.t.c

CPI

A consumer price index (CPI) measures changes in the price level of a market basket of consumer goods and services purchased by households. The CPI is a statistical estimate constructed using the prices of a sample of representative items whose prices are collected periodically.

checkings and savings accounts

A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate. Depending on the specific type of savings account, the account holder may not be able to write checks from the account (without incurring extra fees or expenses) and the account is likely to have a limited number of free transfers/transactions. Savings account funds are considered one of the most liquid investments outside of demand accounts and cash. In contrast to savings accounts, checking accounts allow you to write checks and use electronic debit to access your funds inside the account. Savings accounts are generally for money that you don't intend to use for daily expenses. To open a savings account, simply go down to your local bank with proper identification and ask to open an account.

white-collar

A descriptive term for office workers, who use a minimum of physical exertion, as opposed to blue-collar laborers. Managerial, clerical, and sales jobs are common white-collar occupations.

bull market

A financial market of a group of securities in which prices are rising or are expected to rise. The term "bull market" is most often used to refer to the stock market, but can be applied to anything that is traded, such as bonds, currencies and commodities.

corporation

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.

expansionary policy

A macroeconomic policy that seeks to expand the money supply to encourage economic growth or combat inflation (price increases). One form of expansionary policy is fiscal policy, which comes in the form of tax cuts, rebates and increased government spending.

bear market

A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining. As investors anticipate losses in a bear market and selling continues, pessimism only grows.

mixed economy

A mixed economy is variously defined as an economic system consisting of a mixture of either markets and economic planning, public ownership and private ownership, or free markets and economic interventionism.

diversification

A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio. Diversification strives to smooth out unsystematic risk events in a portfolio so that the positive performance of some investments will neutralize the negative performance of others. Therefore, the benefits of diversification will hold only if the securities in the portfolio are not perfectly correlated

scarcity vs .shortage

A shortage occurs whenever quantity demanded is greater than quantity supplied at the market price. More people are willing and able to buy the good at the current market price than what is currently available. When a shortage exists, the market is not in equilibrium. At equilibrium, the quantity demanded equals the quantity supplied at the market price. The term 'shortage' can be easily confused with scarcity, which is one of the underlying basic problems of economics. The easiest way to distinguish between the two is that scarcity is a naturally occurring limitation on the resource that cannot be replenished. A shortage is a market condition of a particular good at a particular price. Over time, the good will be replenished and the shortage condition resolved.

oligopoly

A situation in which a particular market is controlled by a small group of firms. An oligopoly is much like a monopoly, in which only one company exerts control over most of a market. In an oligopoly, there are at least two firms controlling the market.

budget surplus

A situation in which income exceeds expenditures. The term "budget surplus" is most commonly used to refer to the financial situations of governments; individuals speak of "savings" rather than a "budget surplus."

tight money policies

A situation in which money or loans are very difficult to obtain in a given country. If you do have the opportunity to secure a loan, then interest rates are usually extremely high. Also known as "dear money".

shortage

A situation where demand for a product or service exceeds the available supply. Possible causes of a shortage include miscalculation of demand by a company producing a good or service (i.e., the company can't produce enough to keep up with demand) or government policies (i.e., price fixing/rationing). Natural disasters that devastate the physical landscape of a region can also cause shortages of such essential products as food and housing, also leading to higher prices of those goods.

sole proprietorship

A sole proprietorship, also known as the sole trader or simply a proprietorship, is a type of business entity that is owned and run by one natural person and in which there is no legal distinction between the owner and the business.

credit score

A statistically derived numeric expression of a person's creditworthiness that is used by lenders to access the likelihood that a person will repay his or her debts. A credit score is based on, among other things, a person's past credit history. It is a number between 300 and 850 - the higher the number, the more creditworthy the person is deemed to be.

deficit

A status of financial health in which expenditures exceed revenue. The term "budget deficit" is most commonly used to refer to government spending rather than business or individual spending.

command economy

A system where the government, rather than the free market, determines what goods should be produced, how much should be produced and the price at which the goods will be offered for sale;The command economy is a key feature of any communist society. China, Cuba, North Korea and the former Soviet Union are examples of countries that have command economies.

traditional economy

A traditional economy is an original economic system in which traditions, customs, and beliefs 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.

contridictionary policy

A type of policy that is used as a macroeconomic tool by the country's central bank or finance ministry to slow down an economy. Contractionary policies are enacted by a government to reduce the money supply and ultimately the spending in a country.

stock

A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. There are two main types of stock: common and preferred.

strike

If the object of a strike is to obtain from the employer some economic concession such as higher wages, shorter hours, or better working conditions, the striking employees are called economic strikers.

easy money policies

In the most literal sense, money that is easily acquired. Academically speaking, the term specifically denotes a condition in the money supply. Easy money occurs when the Federal Reserve allows cash flow to build up within the banking system. This lowers interest rates and makes it easier for banks and lenders to loan money. Money is therefore easily acquired by borrowers.

monopolistic competition

Monopolistic Competition is a market structure in which many firms sell products that are similar but not identical. Characteristics of Monopolistic Competition: 1. Many Sellers =) Firms compete. 2.

perfect competition

Perfect competition is the opposite of a monopoly, in which only a single firm supplies a particular good or service, and that firm can charge whatever price it wants because consumers have no alternatives and it is difficult for would-be competitors to enter the marketplace.

reserve requirement

Requirements regarding the amount of funds that banks must hold in reserve against deposits made by their customers. This money must be in the bank's vaults or at the closest Federal Reserve bank.

surplus

Surplus is the amount of an asset or resource that exceeds the portion that is utilized. A surplus is used to describe many excess assets including income, profits, capital and goods. A surplus often occurs in a budget, when expenses are less than the income taken in or in inventory when fewer supplies are used than were retained. Economic surplus is related to supply and demand.

equilibrium price

The equilibrium price is the market price where the quantity of goods supplied is equal to the quantity of goods demanded. This is the point at which the demand and supply curves in the market intersect.

law of supply

The law of supply is a fundamental principle of economic theory which states that, all else equal, an increase in price results in an increase in quantity supplied. In other words, there is a direct relationship between price and quantity: quantities respond in the same direction as price changes.

elasticity of demand

a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price, ceteris paribus. More precisely, it gives the percentage change in quantity demanded in response to a one percent change in price ;

socialism

a political and economic theory of social organization that advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole.

communism

a political theory derived from Karl Marx, advocating class war and leading to a society in which all property is publicly owned and each person works and is paid according to their abilities and needs.

collective bargaining

a process of negotiation between employers and a group of employees aimed at reaching agreements to regulate working conditions. The interests of the employees are commonly presented by representatives of a trade union to which the employees belong.

Real GDP

is a macroeconomic measure of the value of economic output adjusted for price changes (i.e., inflation or deflation). This adjustment transforms the money-value measure, nominal GDP, into an index for quantity of total output.

inflation

is a sustained increase in the general price level of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services.

arbitration

is binding and non-binding arbitration is therefore technically not arbitration. Arbitration is a proceeding in which a dispute is resolved by an impartial adjudicator whose decision the parties to the dispute have agreed, or legislation has decreed, will be final and binding.

GDP

is the broadest quantitative measure of a nation's total economic activity. More specifically, GDP represents the monetary value of all goods and services produced within a nation's geographic borders over a specified period of time.

protectionism

is the economic policy of restraining trade between states (countries) through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow (according to proponents) fair competition between imports and goods and services ...

monetary policy

is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.

commodity money

money whose value comes from a commodity of which it is made. Commodity money consists of objects that have value in themselves as well as value in their use as money.

absolute advantage

refers to the ability of a party (an individual, or firm, or country) to produce a greater quantity of a good, product, or service than competitors, using the same amount of resources.

three types of taxes

the three types of taxes are the proportional tax, the progressive tax, and the regressive tax. A proportional tax imposes the same percentage of taxation on everyone, regardless of income. If the percentage tax rate is constant, the average tax rate is constant, regardless of income.