Definitions of Economics

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Definitions of Economics by Jim Stanford  for preparations of Master of Economics or other Business Studies. These definitions is also useful for anyone who do business.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Fiscal Policy: The spending and taxing activities of government constitute its fiscal policy.

 

Fixed Capital: Real capital which is installed permanently in a specific location, including buildings, infrastructure, and major machinery and equipment.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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