These flashcards are compiled with the purpose of developing general knowledge in a wide variety of subject.
Terms in this set (119)
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. The retail gas market is a good example of an oligopoly because a small number of firms control a large majority of the market.
Economic/ Business Cycle:
Predictable long term pattern changes in national income. Traditional business cycles undergo four stages: expansion, prosperity, contraction and recession. After a recessionary phase, the expansionary phase can start again. The phases of the business cycle are characterized by changing employment, industrial productivity and interest rates. Some economist believe that stock price trends precede business cycle stages.
(National Association of Security Dealers Automated Quotation Systems).
A computer system established by the NASD (National Association of Security Dealers) by providing dealers with current bid and ask price quotes on over the counter stocks and some listed stocks. Unlike the AMEX and the NYSE, the NASDAQ:
1. Does not have a trading floor that brings together buyers and sellers. Instead all trading done in the Nasdaq exchange is done on a network of computers and telephones. 2.It does not employ market specialists to buy unfilled orders like the NYSE does. The NASDQ BEGAN WHEN BROKERS STARTED INFORMALLY trading via telephone; the network was later fomalized and linked by computer in the early 1970s. In 1998, the parent company of the NASDAQ purchased the AMEX, although the two continue to operate separately. Oders for stock are sent out electronically on the NASDAQ, where the markets list their buy and sell prices. Once a price is agreed upon, the transaction is executed electronically.
Letter of Intent
A letter from one comapny to another acknowledging a willingness and ability to do business. A letter of intent is most often issued as acknowledgement of the fact that a merger between companies or an acquisition is being considered seriously. In other cases, it is issued by a mutual fund shareholder to indicate that he/she would like to invest certain amounts of money at certain specified times. In exchange for signing a letter of intent, the shareholder would often qualify for reduced sales charges. A letter of intent is not a contract and cannot be enforced, it is just a document stating serious intent to carry out certain business activities.
Believes that markets react very slowly to changes in equilibrium (special changes in prices) and that active government intervention is sometimes the best method to get the economy back into equilibrium.
An approach to economics that relates supply and demand to an individual's rationality and his or her ability to maximize utility or profit. It also increased the use of mathematical equations in the study of various aspects of the economy.
An approach to economics that relates supply and demand to an individual's rationality and his or her ability to maximize utility or profit. It also increased the use of mathematical equations in the study of various aspects of the economy.
The antitrust laws apply to virtually all industries and to every level of business, including manufacturing, transportation, distribution, and marketing. They prohibit a variety of practices that restrain trade.
Examples of illegal practices are price-fixing conspiracies, corporate mergers likely to reduce the competitive vigor of particular markets, and predatory acts designed to achieve or maintain monopoly power.
Microsoft, ATT, and J.D. Rockefeller Oil are companies who have been convicted of antitrust practices.
Establishing the price of a product or service, rather than allowing it to be determined naturally through free market forces. This procedure is often an illegal practice.Unfortunately, different retailers have been accused of this for a long time.
Study of economics based on objective analysis. Most economists today focus on positve economic analysis, which uses what is and what has been occurring in an economy as the basis for any statements about the future. Positive economics stands in contrast to normative economics, which uses value judgements.
Xample: A positive economics statement would be: " Increasing interest rates will encourage people to save". This is considered a positive economic statement because it does not contain value judgments and its accuracy can be tested.
Most of the information that we hear in the media today is a combination of positive and normative economics statement or theories. Because of this, investors should always be careful to separate out what is objective and what is subject analysis.
Economic perspective that incorporates subjectivity within its analyses. Is the study or presentation of "what it ought to be" rather than what it actually is. It deals heavily in value judgments and theoretical scenarios (opposite of positive economics).
Normative statements are often heard in the media because they tend to represent a theory or opinion rather than objective analysis. It is a great way to establish goals and generates ideas, but it should not be used as a basis for policy decisions.
Xample: " We should cut taxes in haalf to increase disposable income levels". On the other hand a positive/ objective economic observation would be, " Big tax cuts would help many people, but government budget constraints make that option infeasible".
Branch of economics that analyzes the market behavior of individual consumers and firms in an attempt to understand the decision-making process of firms and households. It is concerned with the interaction between individual buyers and sellers and the factors that influence the choices made by buyers and sellers. In particular, microeconomics focuses on PATTERNS of supply and demand and the determination of price and output in individual markets (e.g. coffee industry).
Microeconomics looks at the smaller pictureand focuses more on basic theories of supply and demand and how individual businesses decide how much of something to produce and how much to charge for it. People who hav any desire to start their own buinsess or who want to learn the rationale behind the pricing of particualr products and seervices would be more interested in this area.
Field of economics that studies the behavior of the aggregate economy. It examines economy-wide phenomena such as changes in:
3.rate of growth,
4.gross dometic product, 5.inflation and price levels.
Macroeconomics is focused on the movement and trends in the economy as a whole, while in microe the focus is placed on factors that affect the decisions made by firms and individuals. The factors that are studied by macro and micro will often influence each other, such as, the current level of unemployment in the economy as a whole will affect the supply of workers which an oil company can hire from, for example.
A bond secured by a mortgage on a property. Mortgage bonds are backed by real estate or physical equipment that can be liquidated. These are usually considered high-grade, save investments. If an issuer in default has both secured and unsecured bonds outstanding, secured bondholders ar paid off first, then unsecured bondholders. Naturally, because unsecured bonds carry greater risk than secured bonds, they usually pay higher yields.
A standardized, transferable, exchange-traded contract that requires delivery of a commodity, bond, currency, or stock index, at a specified price, on a specified future date. Unlike options, futures convey an obligation to buy. The risk futures convey and obligation to buy.The risk to the holder is unlimited, and because the payoff pattern is symmetrical, the risk to the seller is unlimited as well. Dollars lost and gained by each party on a futures contract are equal and oppossite. In other words, futures trading is a zero-sum game. Futures contracts are forward contracts, meaning the represent a pledge to make a certain transaction at a future date. The exchange of assets occurs on the date specified in the contract. Futures are distinguised from generic forward contracts in that they contain standardized terms, trade on a formal exchange, are regulated by overseeing agencies, and are guaranteed by clearing houses. Also, in order to insure that payment will occur, futures have a margin requirement that mu
Situation or interaction in which one participant's gains result only from another's equivalent losses.
School of economic thought which stresses that economies function most efficiently if everyone is allowed to pursue his or her self interest, in an environment of free and open competition. In other words, its Lazzies Fares economics or "let it be economics" which the financial system functions at its best with the least of government intervention or regulation. In addition, believers or supporters of classical economics are also against increases of the minimum wage, duties and restrinctions on free trade.
Body of economics thought popular during the mid 16th and late 17th centuries. It held that money was wealth accumulation of gold and silver was the key to properity, and one nation's gain was another's loss. It exhorted governments to maintain surplus of exports over imports through tariffs (duties), colonialism, and other such measures. This economic view dissapeared until a UK economist John Maynard Keynes stated that a surplus in balance-of-trade stimulates demand, thus increasing the national wealth. When corporations, politicians, and unions demand control over imports throught higher-duties to proctect local jobs and industries, they are resorting to mercantilism.
Balance of trade (BOT)
Largest component of a country's current account in its balance of payments (BOP) accounts, it shows the difference between export earnings and import expenditure. Called "favorable" when the amount realized from physical (or tangible or visible) exports is more than the amount spent on physical imports, otherwise called "unfavorable". Also called trade balance.
An economic system in which economic decisions and the pricing of goods and services are guided solely by the aggregate interactions of a country's citizens and businesses and there is little goverment intervention or central planning. This is the opposite of a centrally planned economy, in which government decisions drive most aspects of a country's econoic activity. This type of economy works on the assumption that market forces, such as, supply and demand, are the best determinantes of what is right for a nation's well-being. These economies rarely engage in government interventions such as price fixing, license quotas and industry subsidizations.
Production Possibility Frontier (PPF).
A curve that compares the trade offs between two goods produced by an economy in order to demonstrate the efficient use of resources. Points along the curve are considered efficient and obtainable, and show the maximum amount of one good that can be produced in relation to another. Points within the curve are considered obtainable but inefficient. Points outside the curve are considered impossible to obtain. A classic example considers and economy that can produce either guns or butter, and shows how a government can spend a finite amount of resources on guns (defense), butter (non-defense) or a combination of the two.
Bond backed by collateral, such as a mortgage or lien, the title to which would be transferred to the bondholders in the event of default. The most common form of secured bonds are mortgage bonds. These bonds are backed by real estate or physical equipment that can be liquidated. These are thought to be high-grade, safe investments. Other bonds are secured by the revenues created by projects. If an issuer in default has both secured and unsecured bonds outstanding, secured bondholders are paid off first, then unsecured bondholders. Naturally, because unsecured bonds carry greater risk than secured bonds, they usually pay higher yields.
Loans extended to companies or individuals that already have considerable amounts of debt. Lenders consider leveraged loans to carry a higher risk of default and, as a result, a leveraged loan is more costly to the borrower.
Leveraged loans for companies or individuals with debt tend to have higher interest rates than typical loans. These rates reflect the higher level of risk involved in issuing the loan. In business, leveraged loans are also used in the leveraged buy-outs (LBOs) of other companies.
Accounts receivable financing
The selling of a company's accounts receivable, at a discount, to a factor, who then assumes the risk of the account debtors and receives cash as the debtors settle their accounts. A firm that sells its accounts receivable may not be confident of its ability to collect those debts, or might think that the cost of collecting that debt is more than the discount which must be provided to the factor when of selling their receivables. also called accounts receivable financing.
Fed's Fund Rate
The interest rate that banks charge each other for the use of Fed funds. It changes daily and is a sensitive indicator of general interest rate trends. The Fed funds rate is one of the two interest rates set by the Fed, the other being the discount rate. While the Fed can't directly affect this rate, it effectively controls it in the way it buys and sells Treasuries to banks. This is the rate that reaches individual investors, though the changes usually aren't felt for a period of time. also called Federal funds rate.
The G-20 (more formally, the Group of Twenty Finance Ministers and Central Bank Governors) is a group of finance ministers and central bank governors from 20 economies: 19 of the world's largest national economies, plus the European Union (EU). It also met twice at heads-of-government level, in November 2008 and again in April 2009. Collectively, the G-20 economies comprise 85% of global gross national product, 80% of world trade (including EU intra-trade) and two-thirds of the world population.
The G-20 is a forum for cooperation and consultation on matters pertaining to the international financial system. It studies, reviews, and promotes discussion among key industrial and emerging market countries of policy issues pertaining to the promotion of international financial stability, and seeks to address issues that go beyond the responsibilities of any one organization.
G20 Member countries
is the meeting of the finance ministers from a group of seven industrialized nations. It was formed in 1976, when Canada joined the Group of Six: France, Germany, Italy, Japan, United Kingdom, and United States. The finance ministers of these countries meet several times a year to discuss economic policies. Their work is supported by regular, functional meetings of officials, including the G7 Finance Deputies.
The Group of Eight (G8, and formerly the G6 or Group of Six) is a forum, created by France in 1975, for governments of eight nations of the northern hemisphere: Canada, France, Germany, Italy, Japan, Russia, the United Kingdom, and the United States; in addition, the European Union is represented within the G8, but cannot host or chair. "G8" can refer to the member states or to the annual summit meeting of the G8 heads of government. The former term, G6, is now frequently applied to the six most populous countries within the European Union (see G6 (EU)). G8 ministers also meet throughout the year, such as the G7/8 finance ministers (who meet four times a year), G8 foreign ministers, or G8 environment ministers.
Prime Minister Stephen Harper
President Nicolas Sarkozy
Chancellor Angela Merkel
Prime Minister Silvio Berlusconi
President of the G8 for 2009
Prime Minister Taro Aso
President Dmitry Medvedev
Prime Minister Gordon Brown
President Barack Obama
Commission President José Manuel Barroso
Council President Mirek Topolánek
Balance of Payments
A record of all transactions made between one particular country and all other countries during a specified period of time. BOP compares the dollar difference of the amount of exports and imports, including all financial exports and imports. A negative balance of payments means that more money is flowing out of the country than coming in, and vice versa.
An economic principle that describes a consumer's desire and willingness to pay a price for a specific good or service. Holding all other factors constant, the price of a good or service increases as its demand increases and vice versa.
Factors that influence demand:
1. Price of goods.
2. Tastes or preferences from
3. Prices of other goods.
4. Consumer's incomes.
5. Number of consumers.
6. Expectations concerning future
prices and income.
A fundamental economic concept that describes the total amount of a specific good or service that is available to consumers. Supply can relate to the amount available at a specific price or the amount available across a range of prices if displayed on a graph. This relates closely to the demand for a good or service at a specific price; all else being equal, the supply provided by producers will rise if the price rises because all firms look to maximize profits.
Factors that determine supply:
1. Change in productivity due to
change in tech.
2. Change in the profitability of
producing other goods.
3. Change in the scarcity (and
prices) of various productive
The difference between a nation's total exports of goods, services and transfers, and its total imports of them. Current account balance calculations exclude transactions in financial assets and liabilities.
The basic economic problem that arises because people have unlimited wants but resources are limited. Because of scarcity, various economic decisions must be made to allocate resources efficiently.
When we talk of scarcity within an economic context, it refers to limited resources, not a lack of riches. These resources are the inputs of production: land, labor and capital. People must make choices between different items because the resources necessary to fulfill their wants are limited. These decisions are made by giving up (trading off) one want to satisfy another.
1. The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action.
The next best alternative surrendered when a choice is made.
2. The difference in return between a chosen investment and one that is necessarily passed up. Say you invest in a stock and it returns a paltry 2% over the year. In placing your money in the stock, you gave up the opportunity of another investment - say, a risk-free government bond yielding 6%. In this situation, your opportunity costs are 4% (6% - 2%).
A situation in which a country, individual, company or region can produce a good at a lower opportunity cost than a competitor.
Suppose that two firms both produce two main products: ice cream and bicycles. The first firm, the Danish Ice Cream and Bicycle Co., is located in Denmark, where dairy milk is abundant; the second firm, the Gobi Ice Cream and Bicycle Co., is smack in the middle of the Gobi Desert.
The Gobi Ice Cream and Bicycle Co. must spend a lot of money to make ice cream, whereas the Danish Ice Cream and Bicycle Co. spends way less to produce the same amount. The two firms are dead even in their production costs for bicycles.
Because the Danish Ice Cream and Bicycle Co. has a comparative advantage with ice cream production, it should probably consider turning exclusively to ice cream. Along the same vein, the Gobi Ice Cream and Bicycle Co. should probably give up the ice cream and focus on the product in which it is the least disadvantaged (bicycles).
The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost at which any other entity produces that good or service.
Entities with absolute advantages can produce something using a smaller number of inputs than another party producing the same product. As such, absolute advantage can reduce costs and boost profits
Law of Demand
A. The Law of Demand
The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded. The amount of a good that buyers purchase at a higher price is less because as the price of a good goes up, so does the opportunity cost of buying that good. As a result, people will naturally avoid buying a product that will force them to forgo the consumption of something else they value more.
Ceteris paribus, if the price of an item falls, then buyers are willing to buy more of it.
Law of Supply
The Law of Supply
Like the law of demand, the law of supply demonstrates the quantities that will be sold at a certain price. But unlike the law of demand, the supply relationship shows an upward slope. This means that the higher the price, the higher the quantity supplied. Producers supply more at a higher price because selling a higher quantity at a higher price increases revenue.
Ceteris Paribus, if buyers are willing to pay a higher price for an item, then sellers are
willing to sell more of it
Time of Supply
Unlike the demand relationship, however, the supply relationship is a factor of time. Time is important to supply because suppliers must, but cannot always, react quickly to a change in demand or price. So it is important to try and determine whether a price change that is caused by demand will be temporary or permanent.
Let's say there's a sudden increase in the demand and price for umbrellas in an unexpected rainy season; suppliers may simply accommodate demand by using their production equipment more intensively. If, however, there is a climate change, and the population will need umbrellas year-round, the change in demand and price will be expected to be long term; suppliers will have to change their equipment and production facilities in order to meet the long-term levels of demand.
Supply and Demand Relationship
Now that we know the laws of supply and demand, let's turn to an example to show how supply and demand affect price.
Imagine that a special edition CD of your favorite band is released for $20. Because the record company's previous analysis showed that consumers will not demand CDs at a price higher than $20, only ten CDs were released because the opportunity cost is too high for suppliers to produce more. If, however, the ten CDs are demanded by 20 people, the price will subsequently rise because, according to the demand relationship, as demand increases, so does the price. Consequently, the rise in price should prompt more CDs to be supplied as the supply relationship shows that the higher the price, the higher the quantity supplied.
If, however, there are 30 CDs produced and demand is still at 20, the price will not be pushed up because the supply more than accommodates demand. In fact after the 20 consumers have been satisfied with their CD purchases, the price of the leftover CDs may drop as CD prod
When supply and demand are equal (i.e. when the supply function and demand function intersect) the economy is said to be at equilibrium. At this point, the allocation of goods is at its most efficient because the amount of goods being supplied is exactly the same as the amount of goods being demanded. Thus, everyone (individuals, firms, or countries) is satisfied with the current economic condition. At the given price, suppliers are selling all the goods that they have produced and consumers are getting all the goods that they are demanding.
As you can see on the chart, equilibrium occurs at the intersection of the demand and supply curve, which indicates no allocative inefficiency. At this point, the price of the goods will be P
and the quantity will be Q
. These figures are referred to as equilibrium price and quantity.
In the real market place equilibrium can only ever be reached in theory, so the prices of goods and services are constantly changing in relation to fluctuations in demand and supply.
Disequilibrium occurs whenever the price or quantity is not equal to P
1. Excess Supply
If the price is set too high, excess supply will be created within the economy and there will be allocative inefficiency.
At price P1 the quantity of goods that the producers wish to supply is indicated by Q2. At P1, however, the quantity that the consumers want to consume is at Q1, a quantity much less than Q2. Because Q2 is greater than Q1, too much is being produced and too little is being consumed. The suppliers are trying to produce more goods, which they hope to sell to increase profits, but those consuming the goods will find the product less attractive and purchase less because the price is too high.
2. Excess Demand
Excess demand is created when price is set below the equilibrium price. Because the price is so low, too many consumers want the good while producers are not making enough of it.
In this situation, at price P1, the quantity of goods demanded by consumers at this price is Q2
Shift vs. Movement
For economics, the "movements" and "shifts" in relation to the supply and demand curves represent very different market phenomena:
A movement refers to a change along a curve. On the demand curve, a movement denotes a change in both price and quantity demanded from one point to another on the curve. The movement implies that the demand relationship remains consistent. Therefore, a movement along the demand curve will occur when the price of the good changes and the quantity demanded changes in accordance to the original demand relationship. In other words, a movement occurs when a change in the quantity demanded is caused only by a change in price, and vice versa.
Like a movement along the demand curve, a movement along the supply curve means that the supply relationship remains consistent. Therefore, a movement along the supply curve will occur when the price of the good changes and the quantity supplied changes in accordance to the original supply relationship. In other words, a
The degree to which a demand or supply curve reacts to a change in price is the curve's XXXX. XXXX varies among products because some products may be more essential to the consumer. Products that are necessities are more insensitive to price changes because consumers would continue buying these products despite price increases. Conversely, a price increase of a good or service that is considered less of a necessity will deter more consumers because the opportunity cost of buying the product will become too high.
A good or service is considered to be highly XXXX if a slight change in price leads to a sharp change in the quantity demanded or supplied. Usually these kinds of products are readily available in the market and a person may not necessarily need them in his or her daily life. On the other hand, an inelastic good or service is one in which changes in price witness only modest changes in the quantity demanded or supplied, if any at all. These goods tend to be things that are more of a need.
ISM- Institue of Supply Management.
A monthly INDEX released by the ISM which tracks the amount of manufactruing activity that occurred in the previous month.
1. Trusted economic measure.
2. If the index has a value below
50 due to a decrease in
activity, it tends to indicate
SPECIALLY, if the trend
continues for several months.
3. A value above 50 likely
indicates a time of growth.
4. The values of the index can
be between 0 and 100.
A capital good, or simply capital in economics, is saved-up wealth or a manufactured means of production.
Individuals, organizations and governments use capital goods in the production of other goods or commodities. Capital goods include factories, machinery, tools, equipment, and various buildings which are used to produce other products for consumption.
Capital goods, then, are products which are not produced for immediate consumption rather, they are objects that are used to produce other goods and services. These types of goods are important economic factors because they are key to developing a positive return from manufacturing other products and commodities.
Manufacturing companies also use capital goods. Capital goods help their company make functional goods to sell individuals valuable services. As a result, capital goods are sometimes referred to as producers goods or means of production. An important distinction should also be made between capital goods and consumer goods, which are products dire
1. An economic term referring to the total satisfaction received from consuming a good or service.
2. A consumer's utility is hard to measure. However, we can determine it indirectly with consumer behavior theories, which assume that consumers will strive to maximize their utility. Utility is a concept that was introduced by Daniel Bernoulli. He believed that for the usual person, utility increased with wealth but at a decreasing rate.
3. Since consumer demand for utilities does not change dramatically with a change in price, these companies are regulated by the state or provincial and federal governments.
Group of buyers and sellers coming together.
An economic system in which the means of production and distribution are privately owned and operated for profit; decisions regarding supply, demand, price, distribution, and investments are not made by the government; Profit is distributed to owners who invest in businesses, and wages are paid to workers employed by businesses.
A situation in which a single company or group owns all or nearly all of the market for a given type of product or service. By definition, monopoly is characterized by an absence of competition, which often results in high prices and inferior products
The eurozone ( pronunciation (help·info)), officially the euro area, is an economic and monetary union (EMU) of 16 European Union (EU) member states which have adopted the euro currency as their sole legal tender. It currently consists of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. Eight (not including Sweden, which has a de facto opt out) other states are obliged to join the zone once they fulfil the strict entry criteria.
Monetary policy of the zone is the responsibility of the European Central Bank, though there is no common representation, governance or fiscal policy for the currency union. Some cooperation does however take place through the euro group, which makes political decisions regarding the eurozone and the euro.
The eurozone can also be taken informally to include third countries that have adopted the euro, for example Montenegro (see details on these countries below). Three European
is an economic and political theory advocating public or common ownership and cooperative management of the means of production and allocation of resources.
is a sociopolitical movement that aims for a classless society structured upon communal ownership of the means of production and the end of wage labour and private property. The exact definition of communism varies and it is commonly used interchangeably with socialism, however, communist theory contends that socialism is just a transitional stage on the way to communism.
Perfect competition is a theoretical market structure. It is primarily used as a benchmark against which other market structures are compared. The industry that best reflects perfect competition in real life is the agricultural industry.
A market structure in which the following five criteria are met:
1. All firms sell an identical product.
2. All firms are price takers.
3. All firms have a relatively small market share.
4. Buyers know the nature of the product being sold and the prices
charged by each firm.
5. The industry is characterized by freedom of entry and exit.
Sometimes referred to as "pure competition
Monopoly is the extreme case in capitalism. Most believe that, with few exceptions, the system just doesn't work when there is only one provider of a good or service because there is no incentive to improve it to meet the demands of consumers. Governments attempt to prevent monopolies from arising through the use of antitrust laws.
Of course, there are gray areas; take for example the granting of patents on new inventions. These give, in effect, a monopoly on a product for a set period of time. The reasoning behind patents is to give innovators some time to recoup what are often large research and development costs. In theory, they are a way of using monopolies to promote innovation. Another example are public monopolies set up by governments to provide essential services. Some believe that utilities should offer public goods and services such as water and electricity at a price that is affordable to everyone.
The dominant social system in medieval Europe, in which land granted by the Crown to the nobility was in turn held by vassals and worked by peasants, with each group owing homage and service to that above it
The total amount of goods and services demanded in the economy at a given overall price level and in a given time period. It is represented by the aggregate-demand curve, which describes the relationship between price levels and the quantity of output that firms are willing to provide. Normally there is a negative relationship between aggregate demand and the price level. Also known as "total spending"
Aggregate Demand II
Aggregate demand is the demand for the gross domestic product (GDP) of a country, and is represented by this formula:
Aggregate Demand (AD) = C + I + G + (X-M) C = Consumers' expenditures on goods and services. I = Investment spending by companies on capital goods. G = Government expenditures on publicly provided goods and services. X = Exports of goods and services. M = Imports of goods and services.
The total supply of goods and services produced within an economy at a given overall price level in a given time period. It is represented by the aggregate-supply curve, which describes the relationship between price levels and the quantity of output that firms are willing to provide. Normally, there is a positive relationship between aggregate supply and the price level. Rising prices are usually signals for businesses to expand production to meet a higher level of aggregate demand.
Also known as "total output".
Aggregate Supply II
A shift in aggregate supply can be attributed to a number of variables. These include changes in the size and quality of labor, technological innovations, increase in wages, increase in production costs, changes in producer taxes and subsidies, and changes in inflation. In the short run, aggregate supply responds to higher demand (and prices) by bringing more inputs into the production process and increasing utilization of current inputs. In the long run, however, aggregate supply is not affected by the price level and is driven only by improvements in productivity and efficiency.
The interest rate that an eligible depository institution is charged to borrow short-term funds directly from a Federal Reserve Bank. Different types of loans are available from Federal Reserve Banks and each corresponding type of credit has its own discount rate.
Suppy Side theory
An economic theory holding that bolstering an economy's ability to supply more goods is the most effective way to stimulate economic growth.
Investopedia explains Supply-Side Theory
Supply-side theorists advocate income tax reduction because it increases private investment in corporations, facilities, and equipment.
The network created amongst different companies producing, handling and/or distributing a specific product. Specifically, the supply chain encompasses the steps it takes to get a good or service from the supplier to the customer. Supply chain management is a crucial process for many companies, and many companies strive to have the most optimized supply chain because it usually translates to lower costs for the company. Quite often, many people confuse the term logistics with supply chain. In general, logisitics refers to the distribution process within the company whereas the supply chain includes multiple companies such as suppliers, manufacturers, and the retailers.
Investopedia explains Supply Chain
Supply chains include every company that comes into contact with a particular product. For example, the supply chain for most products will encompass all the companies manufacturing parts for the product, assembling it, delivering it and selling it.
An economic theory which states that investing money in companies and giving them tax breaks is the best way to stimulate the economy.
Investopedia explains Trickle Down Theory
Proponents of this theory believe that when government helps companies, they will produce more and thereby hire more people and raise salaries. The people, in turn, will have more money to spend in the economy.
The tertiary sector of the economy (also known as the service sector or the service industry) is one of the three economic sectors, the others being the secondary sector (approximately the same as manufacturing) and the primary sector (agriculture, fishing, and extraction such as mining).
Examples of service sector employment include:
Hospitality industry (e.g. restaurants, hotels, casinos)
The tertiary sector of industry involves the provision of services to other businesses as well as final consumers. Services may involve the transport, distribution and sale of goods from producer to a consumer, as may happen in wholesaling and retailing, or may involve the provision of a service, such as in pest control or entertainment. The goods may be transformed in the process of providing the service, as happens in the restaurant industry. However, the focus is on people interacting with people and serving the customer rather than transforming physical goods.
For the last 30 years, there has been a substantial shift from the primary and secondary sectors to the tertiary sector in industrialised countries. This shift is called tertiarisation. The tertiary sector is now the largest sector of the economy in the Western world, and is also the fastest-growing sector.
Manufactured goods are goods that have been processed by way of machinery. As such, they are the opposite of raw materials, but include intermediate goods as well as final goods.
XXXX are final goods specifically intended for the mass market. For instance, XXXX goods do not include investment assets, like precious antiques, even though these antiques are final goods.
In economics final goods are goods that are ultimately consumed rather than used in the production of another good. For example, a car sold to a consumer is a final good; the components such as tires sold to the car manufacturer are not; they are intermediate goods used to make the final good.
Intermediate goods or producer goods are goods used as inputs in the production of other goods, such as partly finished goods. Also, they are goods used in production of final goods. A firm may make then use intermediate goods, or make then sell, or buy then use them. In the production process, intermediate goods either become part of the final product, or are changed beyond recognition in the process.
Intermediate goods are not counted in a country's GDP, as that would mean double counting, as the final product only should be counted.
The use of the term "intermediate goods" can be slightly misleading, since in advanced economies about half of the value of intermediate inputs consist of services.
Sugar - sugar is used as a final good (when it is sold as sugar in the supermarket) or as an input (when it is used to make candy)
Steel - a raw material used in the production of many other goods, such as bicycles.
Car engines - Some firms make and use their own, others buy them from other producers as an intermediate good, then use them in their own car.
paint, plywood, pipe & tube, ancillary parts, etc.
An interesting example is the use of chlorine in the production of polyurethane, which contains no chlorine. Rock salt is electrolyzed to produce chlorine, which is reacted with carbon monoxide to give phosgene. Phosgene, a chlorine compound, and a diamine are then reacted to produce a diisocyanate and hydrochloric acid that is neutralized in situ. The diisocyanate reacts with a diol to produce polyurethane, which contains no chlorine. Chlorine is used because chlorine is electronegative enough to produce an isocyanate, but does not become a part of the product; it lowers the atom economy.
A measure of inflation that excludes certain items that face volatile price movements. Core inflation eliminates products that can have temporary price shocks because these shocks can diverge from the overall trend of inflation and give a false measure of inflation.
Core inflation is most often calculated by taking the Consumer Price Index (CPI) and excluding certain items from the index, usually energy and food products. Other methods of calculation include the outliers method, which removes the products that have had the largest price changes. Core inflation is thought to be an indicator of underlying long-term inflation.
Consumer Price Index
A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living.
Sometimes referred to as "headline inflation."
A measure of the average price level of about 10000 goods purchased by the typical consumer.
Investopedia explains Consumer Price Index - CPI
The U.S. Bureau of Labor Statistics measures two kinds of CPI statistics: CPI for urban wage earners and clerical workers (CPI-W), and the chained CPI for all urban consumers (C-CPI-U). Of the two types of CPI, the C-CPI-U is a better representation of the general public, because it accounts for about 87% of the population.
CPI is one of the most frequently used statistics for identifying periods of inflation or deflation. This is because large rises in CPI during a short period of time typically denote periods of inflation and large drops in CPI during a short period of time usually mark periods of deflation
The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum.
Investopedia explains Inflation
As inflation rises, every dollar will buy a smaller percentage of a good. For example, if the inflation rate is 2%, then a $1 pack of gum will cost $1.02 in a year.
Most countries' central banks will try to sustain an inflation rate of 2-3%
A general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in government, personal or investment spending. The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression. Central banks attempt to stop severe deflation, along with severe inflation, in an attempt to keep the excessive drop in prices to a minimum.
The decline in prices of assets, is often known as Asset Deflation.
Declining prices, if they persist, generally create a vicious spiral of negatives such as falling profits, closing factories, shrinking employment and incomes, and increasing defaults on loans by companies and individuals. To counter deflation, the Federal Reserve (the Fed) can use monetary policy to increase the money supply and deliberately induce rising prices, causing inflation. Rising prices provide an essential lubricant for any sustained recovery because businesses increase profits and take some of the depressive pressures off wages and debtors of every kind.
Deflationary periods can be both short or long, relatively speaking. Japan, for example, had a period of deflation lasting decades starting in the early 1990's. The Japanese government lowered interest rates to try and stimulate inflation, to no avail. Zero interest rate policy was ended in July of 2006.
Organizational structure created by a society to produce and distribute good and services.
Allocation and Production
Allocation=What is produced?
Production= How good and services and produced.
Distribution=Who receives the good and services being produced.
Government makes all decisions about Allocation, Distribution of Production of good and services.
Free Market Economy
People (private sectors and consumers) are free to make almost all the decisions in regards to the allocation, production and distribution of resources.
Government and Individuals make decisions about the allocation, productions and distribution of resources.
Decisions Makers (Mixed Economy)
Consumers, business managers (private sector) and government officials (congress, federal reserve, the president).
Objectively forecast the benefit and cost of an action (to see the relative merits of the actions).
There is no such thing as free lunch. All options have a cost. There is never an option that has no cost.
(a.k.a. inputs, or factors of production):
Land: Gifts of nature used in the production process
Labor: Human talents used in the production process
Capital: Manufactured aids to production
Marginal Rate of Transformation
The number of units of 1 good that must be sacrificed in order to
increase production of another good.
2 goods that serve roughly the same purpose to buyers
2 goods which are often consumed together
A good whose demand falls when buyers' incomes rise.
A good whose demand rises when buyers' incomes rise.
A tax on a good or service.
A legal maximum price.
1.A large amount of money, liquid, or people that moves or is transferred out of a place
- an outflow of foreign currency
Capital outflow is an economic term describing capital flowing out of (or leaving) a particular economy. Outflowing capital can be caused by any number of economic or political reasons but can often originate from instability in either sphere.
Regardless of cause, capital outflowing is generally perceived as always undesirable and many countries create laws to restrict the movement of capital out of the nations' borders (called capital controls). While this can aid in temporary growth, it often causes more economic problems than it helps.
1.Massive capital outflow is usually a sign of a greater problem, not the problem itself.
2.Countries with outflow restrictions can find it harder to attract capital inflows because firms know if an opportunity goes sour they won't be able to recover much more of their investment.
3.Governments that institute capital controls inevitably send a signal to its citizens that something might be wrong with the economy, even if the laws are merely a precautionary measure.
Argentina experienced rampant and sudden capital outflows in the 1990s after its currency underwent dramatic pressure to adjust in light of the fixed exchange rate, leading to a recession. Modern macro-economists often cite the country as a classic example of the difficulties of developing fledgling economies.
capital moving into a country: a movement of capital into a country in the form of securities trading, the acquisition of companies, and loans by foreign companies
Goverment spending/ expenditure
is classified by economists into three main types. Government acquisition of goods and services for current use to directly satisfy individual or collective needs of the members of the community is classed as government final consumption expenditure. Government acquisition of goods and services intended to create future benefits, such as infrastructure investment or research spending, is classed as government investment (gross fixed capital formation), which usually is the largest part of the government gross capital formation. Acquisition of goods and services is made through own production by the government (using the government's labour force, fixed assets and purchased goods and services for intermediate consumption) or through purchases of goods and services from market producers. Government expenditures that are not acquisition of goods and services, and instead just represent transfers of money, such as social security payments, are called transfer payments. Government spending can be financed by seigniorage, taxes, or government borrowing.
The first two types of government spending, namely government final consumption expenditure and government gross capital formation, together constitute one of the major components of gross domestic product.
John Maynard Keynes was one of the first economists to advocate government deficit spending as part of the fiscal policy response to an economic contraction. In Keynesian economics, increased government spending is thought to raise aggregate demand and increase consumption, which in turn leads to increased production. Keynesian economists argue that the Great Depression was ended by government spending programs such as the New Deal and military spending during World War II. According to the Keynesian view, a severe recession or depression may never end if the government does not intervene.
Classical economists and Austrian economists, on the other hand, believe that increased government spending exacerbates an economic contraction by shifting resources from the private sector, which they consider productive, to the public sector, which they consider unproductive. According to Austrian economists, the reason the Great Depression lasted as long as it did was because of significant government spending and government regulation of the economy.
A legal minimum price
When quantity demanded exceeds quantity supplied
When quantity supplied exceeds quantity demanded
Gross Domestic Product (GDP)
the total value of all final goods and services produced in an economy
National Income (NI)
Income earned by households for use of their resources in production.
Disposable Personal Income
Income available for spending and saving by households
Personal Consumptions Expenditures
Total spending by consumers on products.
Gross Private Investments
Total purchases of capital and new housing by the private sector, plus increases
in firms' inventories
Indirect Business Taxes
Taxes and fees levied on products. (An example: sales taxes)
Spending by government for which it receives no good or service in return. (Example:
Exports of goods and services minus imports of goods and services. (When this number is
positive it is known as a trade surplus; when it is negative it is a trade deficit.)
To be officially unemployed, one must not be working at all for pay, be actively
seeking work, and be 16 years of age or older
To be a member of the labor force, one must be working for pay, or be officially unemployed
Official Employment rate
The number of people officially unemployed, divided by the number of
people in the labor force.
Unemployment caused because there is insufficient GDP for jobs to be available
to job seekers with employable skills.
Unemployment caused by obsolete job skills. Job-seekers whose skills do not
match those needed for any job.
Temporary unemployment of people with good job skills, as they take time to
look for jobs that best match their skills
Full Unemployment Rate
The unemployment rate when cyclical unemployment is eliminated
Full Employment (Potential) GDP
The level of GDP at which cyclical unemployment is eliminated.
A measure of the average price level of a basket of goods
A measure of the average price level of all final goods & services produced in the U.S.
Cost Push Inflation
Inflation caused by a general increase in production costs in an economy
Demand Pull Inflation
Inflation caused when demand for products temporarily outstrips the capacity to increase production.