69. 100 Basic Terms of Economy
One-stop solution for the concept of economy
The topic of "Basic terms of Economy" covers fundamental concepts used to understand and analyze the workings of an economic system. These terms provide a foundation for comprehending topics. Understanding these key economic terms is crucial for gaining insights into how economies function and the factors that shape their performance.
1. Balance of Trade (BoT): The difference in value between a country's exports and imports in its trade with another country.
2. Balance Sheet: A financial statement that provides a snapshot of a business concern's accounts at the end of a year, showing assets, liabilities, and equity.
3. Banker's Cheque: A type of cheque issued by one bank to another as a secure form of payment.
4. Bank Rate: The interest rate at which the Reserve Bank of India lends money to commercial banks.
5. Barter: The act of trading goods or commodities by directly exchanging one for another.
6. Bearer: A term used on cheques and bills indicating that the holder has the same rights as the person who issued it.
7. Black Money: Unaccounted money, concealed income, or undisclosed wealth that remains unreported.
8. Bond: A legal agreement to repay a specific sum of money (principal) with a fixed rate of interest at a future date.
9. Budget: An estimate of expected revenues and expenditures for a specific period, typically a year, presented in detail.
10. Budget Deficit: When a government's expenditure exceeds its revenue, resulting in a negative balance between the two.
11. Bulls: Speculators in the stock market who buy goods with the anticipation of prices rising, sometimes without having the funds to pay for them. (Bears are somewhat opposite)
12. Buyer's Market: A market condition where the supply of goods exceeds demand, giving buyers the advantage in negotiating favorable deals.
13. Commercial Banks: Financial institutions that create credit, accept deposits, provide loans, and offer other financial services.
14. Call Money: Short-term loans typically provided for a brief period at low interest rates.
15. Deflation: A state in the monetary market characterized by a decrease in the money supply in circulation.
16. Depreciation: A reduction in the value of fixed assets due to wear and tear.
17. Devaluation: An official reduction in the foreign value of a domestic currency, aimed at boosting exports and discouraging imports.
18. Dividend: The earnings distributed to shareholders from a company's profits.
19. Dumping: The practice of selling a product at different prices in different markets, often at a lower price in markets with more elastic demand.
20. Exchange Rate: The rate at which the central bank exchanges one country's currency for another.
21. Excise Duty: A tax imposed on the manufacture, sale, and consumption of various commodities, such as textiles, liquor, etc.
22. Fiscal Policy: The government's decisions regarding expenditure, taxation, and borrowing to manage the economy.
23. Gross Domestic Product (GDP): A measure of the total value of goods and services produced by a country's economy over a specific period, usually a year.
24. Inflation: A sustained and significant increase in the general price level over an extended period of time.
25. Monopoly: A market situation where a single seller dominates the sale of a particular product.
26. Monopolistic Competition: Market structure with many sellers offering differentiated products.
27. Bilateral Monopoly: A market situation with a single buyer and a single seller.
28. Monopsony: A market situation where there is a single buyer for a unique product.
29. Oligopoly: Market structure characterized by a few sellers offering a limited number of products, often leading to price competition.
30. Repo Rate: The interest rate at which banks borrow funds from the Reserve Bank of India, injecting liquidity into the market.
31. Reverse Repo Rate: The rate at which the Reserve Bank of India borrows funds from banks for a short-term, withdrawing liquidity from the market.
32. Automatic stabilizers: Refers to certain spending and tax rules that automatically increase expenditures or decrease taxes during economic downturns, helping stabilize the economy.
33. Autonomous expenditure multiplier: The ratio of the change in aggregate output or income to a change in autonomous spending.
34. Balance of payments: A set of accounts summarizing a country's transactions with the rest of the world.
35. Balanced budget: A budget in which government spending equals tax revenue.
36. Balanced budget multiplier: The change in equilibrium output resulting from an equal increase or decrease in both taxes and government spending.
37. Base year: The reference year used to calculate real GDP by using its prices as a benchmark.
38. Broad money: Includes narrow money and time deposits held by commercial banks and post office savings organization.
39. Capital: A factor of production that has been produced itself and is not entirely consumed in the production process.
40. Capital gain/loss: The increase or decrease in the value of wealth held by bondholders due to appreciation or reduction in bond prices in the market.
41. Capital goods: Goods purchased for the purpose of producing other goods rather than meeting immediate consumer needs.
42. Cash Reserve Ratio (CRR): The percentage of deposits that commercial banks are required to keep with the Reserve Bank of India (RBI).
43. Circular flow of income: The concept that the value of goods and services produced in an economy circulates in a circular manner as factor payments, expenditures, and aggregate production.
44. Consumer durables: Goods consumed by consumers that last over a period of time, such as appliances or vehicles.
45. Consumer Price Index (CPI): The percentage change in the weighted average price level, calculated using prices from a specific basket of consumption goods.
46. Consumption goods: Goods and services consumed by individuals to satisfy immediate needs or desires.
47. Corporate tax: Taxes imposed on the income earned by corporations or private sector firms.
48. Currency deposit ratio: The ratio of money held by the public in the form of currency to that held as deposits in commercial banks.
49. Effective demand principle: It states that in the short run, when the supply of final goods is assumed to be infinitely elastic at a constant price, aggregate output is determined primarily by the level of aggregate demand. In other words, the total output of an economy depends on the overall level of demand for goods and services, rather than just the capacity to produce them.
50. Exports: The sale of goods and services by a domestic country to the rest of the world.
51. External sector: Refers to the economic transactions between a domestic country and the rest of the world.
52. Externalities: Benefits or harms that occur to individuals, firms, or entities due to economic activities, without corresponding payment or compensation.
53. Fiat money: Money that has no intrinsic value and is declared as legal tender by the government.
54. Final goods: Goods that do not undergo further transformation in the production process.
55. Fixed exchange rate: An exchange rate between currencies of different countries that is fixed at a certain level and adjusted infrequently.
56. Foreign exchange: Foreign currency, referring to currencies other than the domestic currency of a given country.
57. Foreign exchange reserves: Foreign assets held by a country's central bank.
58. Flexible/floating exchange rate: An exchange rate determined by market forces of demand and supply without central bank intervention.
59. Four factors of production: Land, labor, capital, and entrepreneurship, collectively used in the production of goods and services.
60. GDP Deflator: The ratio of nominal GDP to real GDP, used as a measure of inflation.
61. Government expenditure multiplier: A numerical coefficient indicating the size of the increase in output resulting from each unit increase in government spending.
62. Great Depression: The period of severe economic decline in the 1930s, marked by a significant decrease in output and a rise in unemployment.
63. Gross fiscal deficit: The excess of total government expenditure over revenue receipts and non-debt capital receipts.
64. Gross investment: The addition to capital stock, including replacement for the wear and tear experienced by the capital stock.
65. Gross National Product (GNP): The GDP plus net factor income from abroad, representing the aggregate income earned by all citizens of a country.
66. Gross primary deficit: The fiscal deficit minus interest payments.
67. High-powered money: The money injected into the economy by the monetary authority, primarily consisting of currency.
68. Imports: The purchase of goods and services by the domestic country from the rest of the world.
69. Legal tender: Money issued by the government or monetary authority that cannot be refused as a form of payment.
70. Lender of last resort: The role of the monetary authority in guaranteeing the solvency of commercial banks during liquidity crises or bank runs.
71. Liquidity trap: A situation of very low interest rates where individuals expect rates to rise in the future, causing them to hold their wealth in money rather than investments.
72. Macroeconomic model: A simplified representation of the functioning of a macroeconomy through analytical reasoning or mathematical and graphical representation.
73. Managed floating: A system in which the exchange rate is determined by market forces but is influenced by occasional central bank intervention.
74. Marginal propensity to consume: The ratio of additional consumption to additional income.
75. Money multiplier: The ratio of total money supply to the stock of high-powered money in an economy.
76. Narrow money: Currency notes, coins, and demand deposits held by the public in commercial banks.
77. National disposable income: Net National Product at market prices plus other current transfers from the rest of the world.
78. Net Domestic Product (NDP): The aggregate value of goods and services produced within a country's domestic territory, excluding the depreciation of capital stock.
79. Net interest payments made by households: Interest payments made by households to firms minus interest payments received by households.
80. Net investment: The addition to the capital stock that excludes the replacement for the depletion of the capital stock.
81 .Net National Product (NNP): Gross National Product (GNP) minus depreciation.
82. Nominal exchange rate: The price of one unit of foreign currency in terms of the domestic currency.
83. Nominal GDP: GDP evaluated at current market prices.
84. Non-tax payments: Payments made by households to firms or the government as non-tax obligations, such as fines.
85. Open market operation: The buying or selling of government securities by the central bank from or to the general public in the bond market to adjust the money supply in the economy.
86. Paradox of thrift: The concept that as individuals become more thrifty and save more, aggregate saving may decrease due to a decrease in consumption and aggregate demand.
87. Parametric shift: A shift in a graph resulting from a change in the value of a parameter.
88. Personal Disposable Income (PDI): Personal Income minus personal tax payments and non-tax payments.
89. Personal Income (PI): National Income minus undistributed profits, net interest payments made by households, corporate tax, plus transfer payments to households from the government and firms.
90. Personal tax payments: Taxes imposed on individuals, such as income tax.
91. Planned change in inventories: Intentional changes in the stock of inventories.
92. Present value (of a bond): The current value of future income streams promised by a bond, taking into account the time value of money and discount rate.
93. Private income: Factor income from net domestic product accruing to the private sector, national debt interest, net factor income from abroad, current transfers from the government, and other net transfers from the rest of the world.
94. Product method of calculating national income: A method of calculating national income by measuring the aggregate value of production in an economy over a specific period of time.
95. Public good: Goods or services that are collectively consumed, non-excludable, and non-rivalrous in nature.
96. Purchasing power parity: A theory stating that the price of similar goods in different countries should be the same when measured in a common currency.
97. Real exchange rate: The relative price of foreign goods in terms of domestic goods, adjusted for inflation.
98. Real GDP: GDP evaluated at constant prices, providing a measure of the real output of an economy.
99. Statutory Liquidity Ratio (SLR): The minimum percentage of demand and time deposits that commercial banks are required by the central bank to invest in specified liquid assets.
100. Undistributed profits: Profits earned by private and government-owned firms that are not distributed among factors of production.
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