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.
Mortgage: A mortgage is a special kind of credit, usually longer-term in duration, used to finance the construction or purchase of property or a long-lasting structure (such as a home or building).
Multinational Corporation: A multinational corporation (MNC) is a company which directly undertakes productive facilities or operations in more than one country. Foreign direct investment is the act of investing in, or expanding, those actual productive operations in other countries.
Multiplier: An initial stimulus to spending (in the form of new business, consumer, or government purchases) usually results in a larger final increase in total spending, production, and employment in the economy. This magnifying effect is called the multiplier. The strength of the multiplier depends on many factors, including the type of initial spending, the importance of imports in spending, and the amount of unused capacity that initially existed in the economy.
Mutual Fund: A financial vehicle which involves pooling investments in the shares of many different joint stock (or publicly traded) companies, in order to reduce the risk and overhead costs associated with investing in corporate shares. An investor buys a unit in the mutual fund, and receives a pro-rated portion of the fund’s total income (including both dividends and capital gains).
Natural Monopoly: In some industries, economies of scale are so strong that it makes most economic sense for there to be only one supplier. This type of industry is considered a natural monopoly, since competition will eventually tend to concentrate output in one producer (and this is, in any event, the most efficient way to organize production). Governments usually attempt to oversee the operation of natural monopolies through either public ownership or regulation.
Natural Rate of Unemployment: According to neoclassical economics, the wage rate is determined by a process of labour-market clearing (in which workers and employers compete with each other, ensuring that labour supply equals labour demand). Why, then, do we almost always observe unemployment? Neoclassical theorists argue that observed unemployment reflects frictional, structural, or disguised effects that are consistent with labour market clearing. In other words, this “natural” level of unemployment is, in fact, full employment. It is fruitless, in this view, to try to reduce unemployment below this natural level: misguided attempts to do so only create inflation. Unions, minimum wages, and other “market-inhibiting” measures will tend to increase the natural rate of unemployment.
Neoclassical Economics: Neoclassical economics is the dominant approach to economics currently taught and practiced in most of the world (and especially dominant in Anglo-Saxon countries). It attempts to explain the behaviour of the economy on the basis of competitive, utility-maximizing behaviour by companies, workers, and consumers. Their actions in the markets for both factors of production and final products will ensure that all available resources are fully utilized (that is, the economy is supply-constrained) and every factor is paid according to its productivity.
Neoliberalism: A modern, more harsh incarnation of capitalism which became dominant globally beginning in the early 1980s, largely as a reaction to international economic and political problems encountered at the end of the postwar “Golden Age.” Neoliberal policies have emphasized deregulation (including of labour markets), privatization, globalization, and strict monetary policy.
Nominal GDP: Nominal gross domestic product measures the total value of all the goods and services produced and traded for money in the formal economy, evaluated at their current money prices. Nominal GDP can grow from one period to the next because of an increase in actual (real) output, and/or because of an increase in average prices (that is, as a result of inflation).
Non-Accelerating-Inflation Rate of Unemployment (NAIRU): This theory is a variant of the neoclassical natural rate of unemployment. As in original natural rate theory, NAIRU advocates believe that unemployment cannot be reduced below a certain level without sparking a continuous acceleration in inflation. Unlike the original natural rate theory, however, the NAIRU doctrine does not strictly define this position as “full employment.” The policy prescriptions of the natural rate and NAIRU theories are practically identical (namely, don’t try to reduce unemployment through demand-side measures, but instead attack unions and minimum wages to allow labour markets to function more “efficiently”).
Non-Tradeable: Some products cannot be transported over long distances, or otherwise sold to consumers from far-off locations. These products (including some goods and most services) are hence considered non-tradeable: they must be consumed near to where they are produced. Non-tradeable products include most construction, some manufacturing (such as highly perishable or extremely bulky products), most private services, and nearly all public services.
Paradox of Thrift: An individual household, business, or government may attempt to save money by reducing their current expenditures. However, those attempts to save, once amalgamated at the level of the overall economy, may reduce aggregate spending levels and hence output and employment, thus undermining overall growth or even causing a recession. If this occurs, the revenue of households, businesses, and governments will decline, and overall saving may end up no higher (and potentially be even lower) than before the effort to boost savings. Because of this paradox, it is not usually possible to improve economic performance by boosting saving.
Participation Rate: The proportion of working-age individuals who decide to “participate” in the labour force, by either being employed or actively seeking work. The precise definition of what constitutes “actively seeking work” varies from one country to another, and this can affect measurements of the labour force and unemployment.
Pay-As-You-Go Pension: A pay-as-you-go pension plan sponsor simply pays for pension benefits to retired plan members out of its current incoming revenues. Many government pension plans are funded on a pay-as-you-go (or “paygo”) basis, with pension benefits financed directly from current taxes. It is difficult for private companies to pay for pensions on this basis, however, since their long-term revenue streams are not as reliable as governments’. For this reason, many private employers use (or are required to use) pre-funded pensions.
Payroll Tax: A tax levied on current employment or payrolls (collected either as a fixed amount per employee, or as a percentage of total wages and salaries paid). Payroll taxes are most commonly used to finance employment-related social programs, such as pension or unemployment insurance programs.
Pensions: Pension benefits are paid to individuals who have retired from active employment, in order to support themselves in the last years of their lives. Pension programs can be sponsored by governments or by individual employers; they can be based on pre-retirement years of service and wage levels, or paid on a universal per-person basis.
Perfect Competition: An abstract assumption, central to neoclassical economics, in which companies are so small that none can influence total output or price levels in an industry, none can distinguish its products from those of competing firms, and none can anticipate or interact with the actions of its competitors. Perfect competition has never existed in real life; it is a theoretical assumption developed solely in order to defend the internal logical integrity of neoclassical economic theories.
Physical Capital: A tangible tool, building, machine, or other productive asset which is used to produce other goods or services.
Physiocrats: A very early school of economics (originating in France in the 18th Century) which likened the interactions between different sectors and classes of the economy, and the monetary flows between them, to the circulation of blood through the human body.
Pollution: Many economic activities involve the discharge of waste products (including solid waste, air pollution, and water pollution) into the natural environment, as a negative side-effect of production.
