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Common Glossary Related to Indian Economy Union Budget Under Article 112 of the constitution, a statement of estimated receipts

and expenditure, called the Annual Financial Statement, has to be placed before Parliament for each financial year. This Statement is the main budget document. It is an estimate of the Governments revenue and expenditure at the end of a fiscal year, which runs from April 1 to March 31. A Union Budget is the most comprehensive report of the Governments finances, in which revenues from all sources and outlays to all activities are consolidated. The budget also contains estimates of the Governments accounts for the nex t fiscal, called budgeted estimates. Capital Budget The capital budget consists of capital receipts and payments. Capital receipts are Government loans raised from the public, Government borrowings from the Reserve Bank and treasury bills, divestment of equity holding in public sector enterprises, loans received from foreign Governments and bodies, securities against small savings, State provident funds, and special deposits. Capital payments refer to capital expenditures on construction of capital projects and acquisition of assets like land, buildings machinery and equipment. It also includes investments in shares, and loans and advances granted by the Central Government to State Governments, Government companies, corporations and other parties. Revenue Budget The revenue budget consists of revenue receipts of the Government and its expenditure. Revenue receipts are divided into tax and non-tax revenue. Tax revenues constitute taxeslike income tax, corporate tax, excise, customs, service and other duties that the Government levies. The non-tax revenue sources include interest on loans, dividend on investments etc. Revenue expenditure is the expenditure incurred on the day-to-day running of the Government and its various departments, and for services that it provides. It also includes interest on its borrowings, subsidies and grants given to State Governments and other parties. This expenditure does not result in the creation of assets. In case the difference between revenue receipts and revenue expenditure is negative, there is a revenue deficit. It shows the shortfall of the Governments current receipts over cur rent expenditure. If the capital expenditure and capital receipts are taken into account too, there will be a gap between the receipts and expenditure in a year. This gap constitutes the overall budgetary deficit, and it is covered by issuing 91-day Treasury Bills, mostly held by the Reserve Bank. Revenue surplus is the excess of revenue receipts over revenue expenditure. Fiscal Deficit This is the gap between the Governments total spending and the sum of its revenue receipts and non -debt capital receipts. It represents the total amount of borrowed funds required by the Government to completely meet its expenditure. The gap is bridged through additional borrowing from the Reserve Bank of India, issuing Government securities etc. Fiscal deficit is one of the major contributors to inflation. Primary Deficit The primary deficit is the fiscal deficit minus interest payments. It tells how much of the Governments borrowings are going towards meeting expenses other than interest payments. Finance Bill The Government proposals for the levy of new taxes, alterations in the present tax structure, or continuance of the current tax structure are placed before the Parliament in this bill. The bill contains amendments proposed to direct and indirect taxes. Direct and Indirect Taxes Direct taxes are levied on the incomes of individuals and corporates. For example, income tax, corporate tax etc. Indirect taxes are paid by consumers when they buy goods and services. These include excise duty, customs duty etc. Some Other Terms

Central plan outlay : It refers to the allocation of monetary resources among the different sectors in the economy and the ministries of the Government. Public account : The Government acts like a banker for transactions relating to provident funds, small savings collection etc. The funds that the Government thus receives from its bank like operations are kept in the public account, from which the related disbursements are made. These funds do not belong to the Government and have to be paid back to the persons and authorities who have deposited them. Ad-valorem duties : These are the duties determined as a certain percentage of the price of products. Balance of payments : Balance of payments is the difference between the demand for, and supply of, a countrys currency on the foreign exchange market. Budget estimates : It is an estimate of fiscal and revenue deficits for the year. The term is associated with the estimates of the Centres spending during the financial year and the income received through taxes. Capital receipt : Loans raised by the Centre from the market. Government borrowings from the Reserve Bank and other parties, sale of Treasury Bills, and loans received from foreign governments form a part of capital receipt. Other items that also fall under this category include recovery of loans granted by the Centre to State Governments and proceeds from disinvestments of Government stake in public sector undertakings. Consolidated fund : Under this, the Government pools all its funds together. It includes all Government revenues, loans raised, and recoveries of loans granted. All expenditure of the Government is incurred from the consolidated fund and no amount can be withdrawn from the fund without authorisation of the Parliament. Contingency fund : This is a fund used for meeting emergencies where the Government cannot wait for an authorisation of the Parliament. The Government subsequently obtains Parliamentary approval for the expenditure. The amount spent from the contingency fund is returned to the fund later. Monetary policy : This comprises actions taken by the central bank to regulate the level of money or liquidity in the economy, or change the interest rates. Active Market This is a term used by stock exchange which specifies the particular stock or share which deals in frequent and regular transactions. It helps the buyers to obtain reasonably large amounts at any time. Administered Price The administrative body e.g., the government a marketing board or a trading group determines this price. The competitive market force are not entitled to determine this price. The government fixes a price in accordance with demand supply portion in the market. Ad-valorem Tax Ad-valorem tax is a kind of indirect tax in which goods are taxed by their values. In the case of ad-volorem tax, the tax amount is calculated as the proportion of the price of the goods. Value added Tax (VAT) is an ad-volorem Tax. Advanced Countries Advanced countries are countries which are industrially advanced, having high national and per capita income and ensure high rate of capital formation. These countries possess highly developed infrastructure and apply most updated and advanced technical knowhow in their productive activities. A strong and well organised financial structure is found in these advanced countries. Amalgamation It means merger. As and when necessity arises two or more companies are merged into a large organisation. This merger takes place in order to effect economies, reduce competition and capture market. The old firms completely lose their identity when the merger takes place. Appreciation Appreciation means an increase in the value of something e.g., stock of raw materials or manufactured goods. It also includes an increase in the traded value of a currency. It is the antonym of Depreciation. When the prices rise due to inflation, appreciation may occur. It causes scarcity or increase in earning power. Arbitrage When a person performs functions of middle man and buys and sells goods at a particular time to cash the price differences of two

markets, this action is termed as arbitrage. Purchases are made in the market where price is low and at the same time, goods are sold in other market where the price are high. Thus the middleman earns profit due to price difference in two markets. Arbitration Where there is an industrial dispute, the Arbitration comes to the force. The judgement is given by the Arbitrator. Both the parties have to accept and honour the Arbitration. Arbitration is the settlement of labour disputes that takes place between employer and the employees. Auction When a commodity is sold by auction, the bids are made by the buyers. Whose ever makes the highest bid, gets the commodity which is being sold. The buyers make the bid taking into consideration the quality and quantity of the commodity. Autarchy If a country is self-sufficient, it does not require the imports for the country. Autarchy is an indicator of self-sufficiency. It means that the country itself can satisfy the needs of its population without making imports from other countries. Automation Automation means the use of machinery & technology to replace the labo urs work. Automation increases the demand of skilled workers. Unskilled and semiskilled workers are reduced as a result of automation. Balanced Budget When the total revenue of the government exactly equals the total expenditure incurred by the government, the budget becomes a balanced budget. But it is a conservative view point. In present days, the welfare government has to regulate a number of economic and social activities which increase the expenditure burden on the government and results in deficit budget. Balance of Payment Balance of payment of a country is a systematic record of all economic transactions completed between its residents and the residents of remaining world during a year. In other words, the balance of payment shows the relationship between the one country's total payment to all other countries and its total receipts from them. Balance of payment is a comprehensive term which includes both visible and invisible items. Balance of payment not only include visible export and imports but also invisible trade like shipping, banking, insurance, tourism, royalty, payments of interest on foreign debts. Balance of Trade Balance of trade refers to the total value of a country's export commodities and total value of imports commodities. Thus balance of trade includes only visible trade i.e., movement of goods (exports and imports of goods). Balance of trade is a part of Balance of payment statement. Balance Sheet Balance sheet is a statement showing the assets and liabilities of a business at a certain date. Balance sheet helps in estimating the real financial situation of a firm. Bank Bank is a financial institution. It accepts funds on current and deposit accounts. It also lends money. The bank pays the cheques drawn by customers against current and deposits accounts. The bank is a trader that deals in money and credit. Bank Draft Banker's draft is a negotiable claim drawn upon a bank. Drafts are as good as cash. The drafts cannot be returned and unpaid. Draft is issued when a customer shows his unwillingness to accept cheque in payment for his services or mercantile goods. Bank Draft is safer than a cheque. Bank Rate Bank Rate is the rate of discount at which the central bank of the country discounts first class bills. It is the rate of interest at which the central bank lends money to the lower banking institutions. Bank rate is a direct quantitative method of credit control in the economy. Bilateralism It implies an agreement between two countries to extend to each other specific privileges in their international trade which are not extended to others. Birth Rate Birth Rate (or Crude Birth Rate) is number of the births per thousand of the population during a period, usually a year. Only live births are included in the calculation of birth rate. Black Money It is unaccounted money which is concealed from tax authorities. All illegal economic activities are dealt with this black Money.

Hawala market has deep roots with this black money. Black money creates parallel economy. It puts an adverse pressure on equitable distribution of wealth and income in the economy. Blue Chip It is concerned with such equity shares whose purchase is extremely safe. It is a safe investment. It does not involve any risk. Blue Collar Jobs These Jobs are concerned with factory. Persons who are unskilled and depend upon manual jobs that require physical strain on human muscle are said to be engaged in Blue Collar Jobs. In the age of machinery, such Jobs are on the decline these days. Brain-Drain It means the drift of intellectuals of a country to another country. Scientists, doctors and technology experts generally go to other prominent countries of the world to better their lot and earn huge sums of money. This Brain-Drain deprives a country of its genius and capabilities. Bridge Loan A loan made by a bank for a short period to make up for a temporary shortage of cash. On the part of borrower, mostly the companies for example, a business organization wants to install a new company with new equipments etc. while his present installed company / equipments etc. are not yet disposed off. Bridge loan covers this period between the buying the new and disposing of the old one. Budget It is a document containing a preliminary approved plan of public revenue and public expenditure. It is a statement of the estimated receipt and expenses during a fixed period, it is a comparative table giving the accounts of the receipts to be realized and of the expenses to be incurred. Budget Deficit Budget may take a shape of deficit when the public revenue falls short to public expenditure. Budget deficit is the difference between the estimated public expenditure and public revenue. The government meets this deficit by way of printing new currency or by borrowing. Bull Bull is that type of speculator who gains with the rise in prices of shares and stocks. He buys share or commodities in anticipation of rising prices and sells them later at a profit. Bull Market It is a market where the speculators buy shares or commodities in anticipation of rising prices. This market enables the speculators to resale such shares and make a profit. Buoyancy When the government fails to check inflation, it raises income tax and the corporate tax. Such a tax is called Buoyancy. It concerns with the revenue from taxation in the period of inflation. Business Cycle Business cycle (also known as trade cycle) are species of fluctuations in the economic activity of organised communities. It is composed of period of good trade characterised by rising prices and low unemployment, alternating with period of bad trade characterised by falling prices and high unemployment. Every trade cycle have five different subphasesdepression, recovery, full employment, prosperity (boom) and recession. Call Money Call money is in the form of loans and advances which are payable on demand or within the number of days specified for the purpose. Capital Budgeting Capital budgeting represents the process of preparing budget for a period of a year or even for several years allocating capital outlays for the various investment projects. In other words, it is the process of budgeting capital expenditure by means of an annual or longer period capital budget. Capital-labour Ratio Latest models of machinery and equipment raise the labour efficiency and the output is maximized. Capitallabour ratio is the amount of capital against the given labours that a firm employs. Capital-labour ratio is the ratio of capital to labour. Capital Market Capital market is the market which gives medium term and long term loans. It is different from money market which deals only in short term loans.

Capitalism Capitalism is an economic system in which all means of production are owned by private individuals Selfprofit motive is the guiding feature for all the economic activates under capitalism. Under pure capitalism system economic conditions are regulated solely by free market forces. This system is based on La issez-faire system i.e., no state intervention. Sovereignty of consumer prevails in this system. Consumer behaves like a king under capitalism. Cash Reserve Ratio (CRR) The commercial banks are required to keep a certain amount of cash reserves at the central bank. This percentage amount is called CRR. It influences the commercial banks volume of credit because variation in CRR affects the liquidity position of the bank s and hence their ability to lend. Census Census gives us estimates of population. Census is of great economic importance for the country. It tells us the rate at which the total population is increasing among different age groups. In India census is done after every 10 years. The latest census in India has been done in 2001. Central Bank Central Bank may be defined as the apex barking and monetary institution whose main function is to control, regulate and stabilize the banking and the monetary system of the country in the national interest. Cheque Cheque is an order in writing issued by the drawer to a bank. If the customer has sufficient amount in his account, the cheque is paid by the bank. Cheques are used in place of cash money. Clearing Bank Clearing bank is one which settles the debits and credits of the commercial banks. Even of the cash balances are lesser, clearing bank facilitates banking operation of the commercial bank. Clearing House Clearing house is an institution which helps to settle the mutual indebtedness that occurs among the members of its organisation. Closed Economy Closed economy refers to the economy having no foreign trade (i.e., export and import). Such economies depend exclusively on their own internal domestic resources and have no dependence on outside world. Collusion Producers of an industry reduce competition among themselves to raise their profits. They fix the price themselves with a clear understanding in this regard. This understanding among different firms is called collusion. Coinage Art and practice of making coins is called coinage. The metal is melted and moulded to shape into a coin. The coinage is a medium of exchange (money). Collectivism Collectivism is a belief that nation's interest is superior to individual interest. This is the collective thinking of the society and polity national leaders and also communist opine the theory of collection. Commercial Bank Commercial Bank is an institution of finance. It deals with the banking services through its branches in whole of the country. Operation of current accounts, deposits, granting of loans to individuals and companies etc. are various functions of the commercial bank. Communism Communism is a political and economic system in which the state makes the major economic decision State owns the bulk of capital assets. Responsibility for production and distribution lies with the state in this system. Core Sector Economy needs basic infrastructure for accelerating development. Development of infrastructure industries like cement, iron and steel, petroleum, heavy machinery etc. can only ensure the development of the economy as a whole. Such industries are core sector industries. Corporation Tax It is a tax on company's profit. It is a direct tax which is calculated on profits after interest payments and allowance (i.e., Capital allowance) have been deducted but before dividends are allowed for.

Cost-push Inflation It arises due to an increase in production cost. Such type of inflation is caused by three factors : (i) an increase in wages, (ii) an increase in the profit margin and (iii) imposition of heavy taxation. Credit Rationing Credit rationing takes place when the banks discriminates between the borrowers. Credit rationing empowers the bank to lend to some and to refuse to lend to others. In this way credit rationing restricts lending on the part of bank. Credit Squeeze Monetary authorities restrict credit as and when required. This credit restriction is called credit squeeze. Monetary authorities adopt the policy of credit squeeze to control inflationary pressure in the economy. Custom Duty Custom duty is a duty that is imposed on the products received from exporting nations of the world. It is also called protective duty as it protects the home industries. Cyclical Unemployment It is that phase of unemployment which appears due to the occurrence of the downward phase of the trade cycle. Such an employment is reduced or eliminated when the business cycle turns up again. Dear Money Dear money is that money which can only be borrowed at a high rate of interest. In dear money policy, bank rate and other rates of interest are high and as a result borrowing becomes expensive. Dear money policy is deliberate policy which is adopted by the monetary authorities to check inflation in the economy. Death Duty It is a direct tax which is imposed on the estate of deceased person. Death duty or Death Tax is a form of personal tax on property which is levied when property passes from one person to other at the time of death of the former. Death Rate Death rate signifies the number of deaths in a year per thousand of the population. It is mostly known as crude death rate. Life expectancy is important determinant of death rate. A country having high life expectancy will have a high crude death rate. Decentralisation Decentralisation means the establishment of various unit of the same industry at different places. Large scale organisation or industry can not be run at one particular place or territory. In order to increase the efficiency of the industry, various units at different places are located. Debt Service (Total) The sum of principal repayments and interest actually paid in foreign currency, goods and services on longterm debt (having maturity of more than one year), interest paid on shortterm debt and repayments to IMF. Deficit Financing It is a practice resorted to by modern government of spending more money than it receives in revenue. It is a policy of bridging a deficit between governments expenditure and revenue. Deliberately budgeting for a deficit is called deficit financing. This practice was popularised by Prof. J. M. Keynes to deal with the depression and unemployment situations and to stimulate economic activity. Deficit financing, though having inflationary effects, has now become a common practice in all countries. Deflation Deflation is the reverse case of inflation. Deflation is that state of falling prices which occurs at that time when the output of goods and services increases more rapidly than the volume of money in the economy. In the deflation the general price level falls and the value of money rises. Devaluation The loss of value of currency of a country relative to other foreign currency is known as devaluation. Devaluation is a process in which the government deliberately cheapens the exchange value of its own currency in terms of other currency by giving it a lower exchange value. Devaluation is used for improving, the balance of payment situation in the country. Direct Tax A tax is said to be a direct tax when it is not intended to be shifted to anybody else. The person who pays it in the first instance is also excepted to bear it. Thus the impact and incidence of direct tax fall on the same person shifting of direct tax is not possible Income Tax is a example of direct tax. Disinflation

It refers to a process of bringing down prices moderately from their high level without any adverse impact on production and employment. Thus, disinflation is an anti-inflationary measure. Dissaving Dissaving occurs when expenditure exceeds income. Raising of loans or utilization of past accumulated savings takes place in such eventuality. Dividend Dividend is the amount which the company distributes to shareholders when the profits of the company are calculated by the board of directors. Economic Integration Economic integration appears when two or more nations coordinate themselves and their economies are linked up. It may exhibit itself in the form of free trade area or a full economic union. EEC is an example of economic integration. Engel's Law This law was formulated by Ernst Engel. This law states that, with given taste and preference, the portion of income spend on food diminishes as income increases. According to this law, smaller a person's income, the greater the proportion of it that he will spend on food and vice versa. Estate Duty It is a tax which is levied on the estate of a decreased person. It is also known as death duty. The ownership of state changes hands only after the payments of the estate duty. It is an progressive tax in nature. Excise Duty It is a tax which is imposed on certain indigenous production (e.g., petroleum products, cigarettes etc.) of the country. Excise duty may be imposed either to raise revenue or to check the consumption of the commodities on which they are imposed. Excise duty is progressive in nature. Face Value It refers to that normal value of coin at which the coin circulates and is accepted in the discharge of debit or obligation. Broadly speaking, the face value refers to domination stamped on a coin / or documents when it is issued. In securities, it refers to par value. Fascism It is a form of political system. In it every economic consideration rests on one criterion the increase in the people's standard of living. It also lays emphasis on military strength and prestige of the country. It is the extreme nationalism and the ultimate goal is self-sufficiency. Federal Economy It refers to a federation which is an association of two and more states. A federal state is a union of state in which authority is divided between the federal (or central) government and the state governments. In a federal economy both the centre and the states are independent in the exercise of this authority. Fiduciary Issue Generally bank-note are backed by gold. But when they are not backed by gold and government securities replace gold, it is called fiduciary issue. Such fiduciary issue results in inflation. Fertility Rate The term fertility refers to the actual bearing of children or occurrence of births. Fertility rate measures the average nu mber of the live births per 1000 women. This rate is one of the most important and useful aids to population projection. It helps in assessing population trends in the economy. Fiscal Policy Fiscal policy is that part of government economic policy which deals with taxation, expenditure, borrowing, and the management of public debt in the economy. Fiscal policy primarily concerns itself with the flow of funds in the economy. Fiscal policy primarily concerns itself with the flow of funds in the economy. It exerts a very powerful influence on the working of economy as a whole. GEM GEM (Gender Empowerment Measure) is a composite index measuring gender inequality in three basic dimensions of empowermenteconomic participation and decision making, political participation and decision making, and power over economic resources. GDI GDI (Gender Related Development Index) is a composite index measuring average achievement in the three basic dimensions captured in the human development indexa long and healthy life, knowledge and a decent standard of livingadjusted to account for inequalities between men and women.

Gini-coefficient It represents the measurement of inequality derived from the Lorenz Curve, with every increase in the degree of inequality, the curvature of the Lorenz Curve also increases and the area between the curve and 45??line becomes larger. The Gini-coefficient is measured as G =Area between Lorenz Curve & 45??Line/Area above the 45??Line Giffin Goods Giffin goods have the positive relationship between price and quantity demanded and as a result demand curve of Giffin goods slopes upward from left to right. This phenomenon was first observed by Sir Robert Giffin in relation to the demand for bread by poor labours. Gresham's Law Bad money (if not limited in quantity) drives good money out of circulationThis statement was given by Sir Thomas Gresham, the economic Adviser of Queen Elizabeth. This law states that people always want to hoard good money and spend bad money when two forms of money are in circulation at the same time. Gross Domestic Product (GDP) It is the money value of all final goods and services produced within the geographical boundaries of the country during a given period of time (usually a year). GDP can be calculated both at current prices and at constant prices. If we add net factor income from abroad to the GDP, we get Gross National Product (GNP). Gross National Product (GNP) It refers to the money value of total output or production of final goods and services produced by the nationals of a country during a given period of time, generally a year. Gross National Product Deflator It is a Price Index Number used to correct the money value of Gross National Product (GNP) for price changes so as to isolate the changes which have taken place in the physical output of goods and services. Guild Socialism This form of socialism accepts the leadership of artisans. The operation of the whole economy specially the management and control of industries lies in the hands of artisans Socialism established by artisans is termed a Guild Socialism. HDI HDI (Human Development Index) is a composite index measuring average achievement in three basic dimensions of human life a long and healthy life, knowledge and a decent standard of living. Import Duty Import duty is a tax on imports imposed on an ad-valorem basis i.e., fixed in the form of a percentage on the value of the commodity imported. Indirect Tax Indirect tax is that tax which is levied on goods or services produced or purchased. Indirect taxes are those which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense to another. Inflation A situation of a steady and sustained rise in general prices is usually known as inflation. Inflation is a state in which the value of money is falling i.e., prices are rising. Joint Demand Joint demand appears in case of complementary goods. When two commodities are complementary to one another and cannot be used separately, they have joint demand. Bread and butter, sugar and tea, pen and ink are a few examples of joint demand. In joint demand a change in demand of one commodity bring about the proportionate change in demand for the other. Joint Sector When a sector is jointly owned, managed and run by both public and private sector, it is called joint sector. This sector indicates the partnership between the two i.e., public and private sector. Labour Union Labour union represents that organisation of workers which works for improving working condition of labours and also for raising their wage by adopting collective bargaining measures with the management of the industry in particular. Laffer Curve This curve is given by American economist Prof. Arthur Laffer. It represents relationship between total tax revenue and

corresponding tax rates. Laissez Faire It is a French word meaning non-interference. This doctrine was popularised by classical economists who gave the view that government should interfere as little as possible in the economic activities of the individuals. Life Expectancy at Birth The number of years a newborn infant would live if prevailing pattern of age specific mortality rates at the time of birth were to stay the same throughout the childs life. Liquidation It refers to the termination (or winding up) of a registered company. Liquidation takes place because of company's insolvency. In liquidation, assets are turned into cash for settling outstanding debts and for apportioning the balance, if any, amongst the owners. Liquidity Assets which can easily be converted into cash money are said to have liquidity. Land does not possess liquidity at it takes longer time to get converted into cash. Liquidity Ratio The commercial banks under banking regulations have to maintain a certain specified proportion of their total deposits of various categories in liquid assets. This maintainable proportion is called liquidity ratio. Lock-out Lock-out refers to such a situation when the management does not permit the workers to work unless they agree to accept the employer's term. Lock-out is the closing of work by the management for an uncertain period of time to put pressure on the labour union. It is an action by the employer equivalent to a strike by employees. Lorentz Curve This curve shows the degree of inequalities of a frequency distribution in a graphical manner. It is a curve on a graph which shows the cumulative proportion of a statistical population against this cumulative share of some characteristic. This curve is commonly used to depict income distribution showing the cumulative percentage of people from the poorest up and their cumulative share of national income. Lump Sum Tax Lump sum tax is a fixed amount which has imperative nature irrespective of the income level. This tax is not equitable in nature. Merit Goods Merit goods refer those goods that are very essential to the society as a whole and hence the government ensures their availability to all consumers, regardless of their ability to pay to reasonable price. Mixed Economy It refers to that economic system in which both private and public sector co-exists. Indian economy is an example of a mixed economy. Monetary Policy Monetary policy comprises all measures applied by the monetary authorities with a view to produce a deliberate impact on the nature and volume of money so as to achieve the objectives of general economic policy. It aims at regulating the flow of currency, credit and other money substitutes in an economy with a view to affect the total stock of such assets as well as to influence the demand of the community for such assets. Monetary Reforms When a new currency is introduced in a country due to hyperinflation or due to a deliberate policy measure (such as decimalization) it is termed as monetary reform. Monopoly Monopoly refers to that market structure where there is only one seller in the market who controls the entire market supply and no substitute of the product is available in the market. Monopsony Monopsony is that market situation in which there is only one sin gle buyer of the product in the market. In other word, buyer's monopoly is termed as monopsony. Multinational Company It is a large scale company which has its production base in several countries and the bulk of the production is produced in outside nations. This company produces more overseas than they do in its parent country. Increased trade and economies of scale have encouraged such type of companies in the recent

years. National Income In the simplest way it can be defined as factor income accruing to the national residents of a country. It is the sum of domestic factor income and net factor income earned from abroad. Net national product at factor cost is called national income. Net National Product (NNP) When depreciation is deducted from GNP i.e., Gross National Product, we get Net National Product (NNP). Oligopoly Oligopoly is that form of imperfect competition in which there are only a few firms in the industry (or group) producing either homogeneous products or may be having product differentiation in a given line of production. Open Economy Open economy is that economy which is left free and the government imposes no restrictions on trade with areas outside that economy. Okuns Law Arthur Okun presented an empirical relationship between cyclical movements in GNP and unemployment. Okun found that an annual 25% increase in the rate of real growth above the trend growth results in a 1% decrease in the rate of unemployment. This relationship is known as Okuns Law. Perfect Competition Perfect competition is the market in which there are many firms selling identical products with no firm large enough relative to the entire market to be able to influence market price. Poverty Line Poverty line is a virtual line demarcating persons living below and above it. In India all those persons are treated living below poverty line who are not able to earn that much of income which is not sufficient to acquire food equivalent to 2100 calories per person per day in urban areas and 2400 calories per person per day in rural areas. As per UNDP, one US dollar (1993 PPP US $) per person per day is treated as poverty line. PQLI PQLI is known as Physical Quality of Life Index which is used to assess the level of social development. This index was developed by Jim Grant for The Overseas Development Council PQLI is calculated by using indices of (i) Adult literacy rate, (ii) IMR, (iii) Life Expectancy. Price Mechanism Price mechanism signifies the working of those market forces which establishes equilibrium in the economy. Laissez faire policy is the basis for the working of price mechanism. Price Ring It is an unofficial syndicate by which the prices are controlled with the prior understanding among the traders. These dealers under a price ring decide not to over-bid one another at the public auction to keep the prices low. This price ring may discourage outsiders from coming to the auctions. Private Sector Private Sector is that part of the economy which is not owned by the government and is under the hands of private enterprise. In other words, private sector is not under direct government control. Private sector includes the personal as well as the corporate sector. Privatisation Privatisation is the antithesis of nationalisation. When the government owned public industries are denationalised and the disinvestment process is initiated, it is called privatisation. Public Debt Public debt represents borrowing by the state and public authorities. All loans taken by the public authorities constitute public debt. Public Goods Public goods are those goods which belong to the entire community. None of the individual of the society can be made deprived of using these public goods. National defence, Police, Street lighting etc. are examples of public goods. Public Sector Public sector signifies those undertakings which are owned, managed and run by public authorities. Public sector includes direct government enterprise, the nationalized industries and public corporations. In this sector of the economy the government acts itself as an entrepreneur.

Peril Point It indicates that point beyond which tariff reductions would threaten the existence of domestic industry. Quick Asset Those assets are quick assets which are liquid or nearly liquid in nature and easily be turned into cash. Quoted Company That company is called quoted company whose share prices are quoted on a stock exchange. Reflation It signifies general increase in the level of business activity in the economy. Reflation generally involves greater government expenditure and the easing of credit to encourage increased production. Regressive Tax It is a tax in which rate of taxation falls with an increase in income. In regressive taxation incidence falls more on people having lower incomes than that of those having higher incomes. Repressed Inflation It is a state in which aggregate demand is greater than the total supply of goods and services in an economy, but prices are prevented from rising to eliminate excess demand. The holding down of price is sometimes done by government as a means of suppressing inflation. Reserve Asset Ratio It is the ratio of a banks reserve assets to its eligible liabilities. Revolving Credit It is a bank credit that is renewed automatically until notice of cancellation is received. Revolving credits may be sanctioned for an unlimited amount in total but with a limit on the amount that may be drawn at any one time or within a specified period, e.g., one month. Seasonal Unemployment It is that unemployment which is caused by seasonal variation in demand for labour by various industries, such as agriculture, construction and tourism. Seasonal unemployment normally declines in spring as more outdoor work can be undertaken. Security Security refers to a share, bond or government stock that can be bought and sold, usually on the stock exchange or on a secondary market, and carries a right to some form of income, either in the form of a fixed rate of interest or dividends. Shadow Price It is an imputed value for a good based on the opportunity costs of the resources used to produce it such values are of particular significance in resolving problems of resource allocating with respect to the effect on welfare. Share Capital It is the amount of money raised by a company by issuing shares. The authorized share capital is the amount that a company is allowed to issue as laid down in its Articles of Association. The issued share capital is the amount actually issued i.e., the number of issued shares multiplied by their par value. Fully paid share capital is the amount raised by payment of the full par value of the issued shares. Single Tax System It is a system in which all tax revenues are raised from one form of taxation. Socialism The political doctrine that the means of production (machines, materials and output) should be owned by society and specifically either by the state, as in the case of nationalized industries or by the workers directly, as in the case of producer co-operatives. Social Security Provision by the state out of taxation of welfare assistance to those in need as a result of illness, unemployment, or old age compare national insurance refers to social security. Soft Currency A currency with limited convertibility into gold and other currencies, either because it is depreciating due to balance of payments difficulties or because controls have been placed on it to prevent the exchange rate falling. Special Drawing Rights (SDRs)

It is a reserve asset (known as Paper Gold) created within the framework of the Internation al Monetary Fund in an attempt to increase international liquidity, and now forming a part of countries official reserves along with gold, reserve positions in the IMF and convertible foreign currencies. Special Tax (Unit Tax) It is a tax imposed per unit of a commodity rather than on the value of the commodity compare ad-valorem. Stabilization Policy It is Government economic policy announced at reducing the cyclical and other fluctuations that take place in a market economy. Stagflation It is a state of the economy in which economic activity is slowing down, but wages and prices continue to rise. The term is a blend of the words stagnation and inflation. Surplus Value It is the difference between the amount paid to a factor and the revenue earned by selling the output it produced. Tariff It is a tax or a duty on imports, which can be levied either on physical units, e.g., per tonne (specific), or on value (ad-valorem). Tariffs may be imposed for a variety of reasons including; to raise government revenue, to protect domestic industry from subsidized or low-wage imports, to boost domestic employment, or to ease a deficit on the balance of payments. Trade Gap It signifies the size of the deficit (or surplus) in the balance of trade i.e., the difference in value between visible imports and exports. Trade Union It is an organisation of employees who join together to further their interests. Trade Unions negotiate on behalf of their members in collective bargaining with employers, and in the event of a dispute may put pressure on employers by withdrawing labour (i.e. strike) or by some less drastic form of action (i.e. go-slow, working to rule). Transfer Payment It is a payment made by public authority other than one made in exchange for goods or services produced. Transfer payments are not the part of National Income. Examples includes unemployment benefit and child benefits. Vital Statistics Vital statistics refers to those data which are associated with vital events of masses like birth, death, marriage divorce etc. VAT (Value Added Tax) VAT seeks to tax the value added at every stage of manufacturing and sale, with a provision of refunding the amount of VAT already paid at the earlier stages to avoid double taxation. In other words, the tax already paid can be claimed at the next stage of value addition. Wealth Tax Wealth tax is that tax which is imposed on the value of total assets but the wealth upto a certain limit is exempted from such tax. Welfare State It refers to a nation that provides to all at least the minimum standards in respect of education, health, housing, pensions and other social benefits. Wholesale Price Index Wholesale Price Index is that index which is calculated on the basis of wholesale prices. It is calculated in a similar way to the Retail Price Index. Absolute advantage: A country has an absolute advantage if its output per unit of input of all goods and services produced is higher than that of another country. Accelerator Principle - the growth in output that would induce a continuation in net investment. Ad valorem tax:(in Latin: to the value added) - a tax based on the value (or assessed value) of property. Ad valorem tax can also be levied on imported items. Aggregate demand is the sum of all demand in an economy. This can be computed by adding the expenditure on consumer goods and services, investment, and not exports (total exports minus total imports). Aggregate supply is the total value of the goods and services produced in a country, plus the value of imported goods less the value of exports. See further details on Aggregate demand and supply. Alternative minimum tax: An IRS mechanism created to ensure that high-income individuals, corporations, trusts, and estates pay at least some minimum amount of tax, regardless of deductions, credits or exemptions. Alternative minimum tax operates by adding certain tax-preference items back into adjusted gross income. While it was once only important for a small number of high-income

individuals who made extensive use of tax shelters and deductions, more and more people are being affected by it. The AMT is triggered when there are large numbers of personal exemptions on state and local taxes paid, large numbers of miscellaneous itemized deductions or medical expenses, or by Incentive Stock Option (ISO) plans. Asset: Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on). Average propensity to consume is the proportion of income the average family spends on goods and services. Average propensity to save is the proportion of income the average family saves (does not spend on consumption). More on Average Propensity to Consume and Save. Average total cost is the sum of all the production costs divided by the number of units produced. See also average cost. Asymmetric Information is where one party in a transaction has less information than the other. Balance of Payment is the summation of imports and exports made between one countries and the other countries that it trades with. Balance of trade: The difference in value over a period of time between a country's imports and exports. Barter system: System where there is an exchange of goods without involving money. Base year: In the construction of an index, the year from which the weights assigned to the different components of the index is drawn. It is conventional to set the value of an index in its base year equal to 100. Bear: An investor with a pessimistic market outlook; an investor who expects prices to fall and so sells now in order to buy later at a lower price. A Bear Market is one which is trending downwards or losing value. Bid price: The highest price an investor is willing to pay for a stock. Bill of exchange: A written, dated, and signed three-party instrument containing an unconditional order by a drawer that directs a drawee to pay a definite sum of money to a payee on demand or at a specified future date. Also known as a draft. It is the most commonly used financial instrument in international trade. Birth rate: The number of births in a year per 1,000 population. Bond: A certificate of debt (usually interest-bearing or discounted) that is issued by a government or corporation in order to raise money; the bond issuer is required to pay a fixed sum annually until maturity and then a fixed sum to repay the principal. Bonds

guide.
Boom: A state of economic prosperity, as in boom times. Break even: This is a term used to describe a point at which revenues equal costs (fixed and variable). Bretton Woods: An international monetary system operating from 1946-1973. The value of the dollar was fixed in terms of gold, and every other country held its currency at a fixed exchangerate against the dollar; when trade deficits occurred, the central bank of the deficit country financed the deficit with its reserves of international currencies. The Bretton Woods system collapsed in 1971 when the US abandoned the gold standard. Budget: A summary of intended expenditures along with proposals for how to meet them. Abudget can provide guidelines for managing future investments and expenses. The budget deficit is the amount by which government spending exceeds government revenues during a specified period of time usually a year. Bull: An investor with an optimistic market outlook; an investor who expects prices to rise and so buys now for resale later. A Bull Market is one in which prices are rising. c.i.f., abbrev: Cost, Insurance and Freight: Export term in which the price quoted by the exporter includes the costs of ocean transportation to the port of destination and insurance coverage. Call money: Price paid by an investor for a call option. There is no fixed rate for call money. It depends on the type of stock, its performance prior to the purchase of the call option, and the period of the contract. It is an interest bearing band deposits that can be withdrawn on 24 hours notice. Capital: Wealth in the form of money or property owned by a person or business and human resources of economic value. Capital is the contribution to productive activity made by investment is physical capital (machinery, factories, tools and equipments) and human capital (eg general education, health). Capital is one of the three main factors of production other two are labour and natural resources. Capital account; Part of a nation's balance of payments that includes purchases and sales of assets, such as stocks, bonds, and land. A nation has a capital account surplus when receipts from asset sales exceed payments for the country's purchases of foreign assets. The sum of the capital and current accounts is the overall balance of payments. Capital budget: A plan of proposed capital outlays and the means of financing them for the current fiscal period. It is usually a part of the current budget. If a Capital Program is in operation, it will be the first year thereof. A Capital Program is sometimes referred to as a Capital Budget. Capital Asset Pricing Model: A way to show the prices of securities and other risk-free assets. Capital gains tax: Tax paid on the gain realized upon the sale of an asset. See capital gains taxfor examples of tax regimes in various countries. It is a tax on profits from the sale of capital assets, such as shares. A capital loss can be used to offset a capital gain, reducing any tax you would otherwise have to pay. Cartel: An organization of producers seeking to limit or eliminate competition among its members, most often by agreeing to restrict output to keep prices higher than would occur under competitive conditions. Cartels are inherently unstable because of the potential for producers to defect from the agreement and capture larger markets by selling at lower prices. Census: Official gathering of information about the population in a particular area. Government departments use the data collected in planning for the future in such areas as health, education, transport, and housing..

Central bank: Major financial institution responsible for issuing currency, managing foreign reserves, implementing monetary
policy, and providing banking services to the government and commercial banks. Centrally planned economy: A planned economic system in which the production, pricing, and distribution of goods and services are determined by the government rather than market forces. Also referred to as a "non market economy." Former Soviet Union, China, and most other communist nations are examples of centrally planed economy Classical economics: The economics of Adam Smith, David Ricardo, Thomas Malthus, and later followers such as John Stuart Mill. The theory concentrated on the functioning of a market economy, spelling out a rudimentary explanation of consumer and producer behaviour in particular markets and postulating that in the long term the economy would tend to operate at full employment because increases in supply would create corresponding increases in demand. Closed economy: A closed economy is one in which there are no foreign trade transactions or any other form of economic contacts with the rest of the world. Collateral security: Additional security a borrower supplies to obtain a loan. Commercial Policy: encompassing instruments of trade protection employed by countries to foster industrial promotion, export diversification, employment creation, and other desired development-oriented strategies. They include tariffs, quotas, and subsidies. Comparative advantage: The ability to produce a good at a lower cost, relative to other goods, compared to another country. With perfect competition and undistorted markets, countries tend to export goods in which they have a Comparative Advantage and hence make gains from trading Compound interest: Interest paid on the original principal and on interest accrued from time it became due. Consumer Surplus is the difference between the price a consumer pays and what they were prepared to pay. Conditionality: The requirement imposed by the International Monetary Fund that a borrowing country undertake fiscal, monetary, and international commercial reforms as a condition to receiving a loan for balance of payments difficulties. Copyright: A legal right (usually of the author or composer or publisher of a work) to exclusive publication production, sale, distribution of some work. What is protected by the copyright is the "expression," not the idea. Notice that taking another's idea is plagiarism, so copyrights are not the equivalent of legal prohibition of plagiarism. Correlation coefficient: Denoted as "r", a measure of the linear relationship between two variables. The absolute value of "r" provides an indication of the strength of the relationship. The value of "r" varies between positive 1 and negative 1, with -1 or 1 indicating a perfect linear relationship, and r = 0 indicating no relationship. The sign of the correlation coefficient indicates whether the slope of the line is positive or negative when the two variables are plotted in a scatter plot. Cost benefit analysis: A technique that assesses projects through a comparison between their costs and benefits, including social costs and benefits for an entire region or country. Depending on the project objectives and its the expected outputs, three types of CBA are generally recognised: financial; economic; and social. Generally cost-benefit analyses are comparative, i.e. they are used to compare alternative proposals. Cost-benefit analysis compares the costs and benefits of the situation with and without the project; the costs and benefits are considered over the life of the project. Countervailing duties: duties (tariffs) that are imposed by a country to counteract subsidies provided to a foreign producer Current account: Part of a nation's balance of payments which includes the value of all goods and services imported and exported, as well as the payment and receipt of dividends and interest. A nation has a current account surplus if exports exceed imports plus net transfers to foreigners. The sum of the current and capital accounts is the overall balance of payments. Cross elasticity of demand: The change in the quantity demanded of one product or service impacting the change in demand for another product or service. E.g. percentage change in the quantity demanded of a good divided by the percentage change in the price of another good (a substitute or complement) Crowding out: The possible tendency for government spending on goods and services to put upward pressure on interest rates, thereby discouraging private investment spending. Currency appreciation: An increase in the value of one currency relative to another currency. Appreciation occurs when, because of a change in exchange rates; a unit of one currency buys more units of another currency. Opposite is the case with currency depreciation. Currency board: Form of central bank that issues domestic currency for foreign exchange at fixed rates. Currency substitution: The use of foreign currency (e.g., U.S. dollars) as a medium of exchange in place of or along with the local currency (e.g., Rupees). Customs duty: Duty levied on the imports of certain goods. Includes excise equivalents Unlike tariffs customs duties are used mainly as a means to raise revenue for the government rather than protecting domestic producers from foreign competition. Death rate: numbers of people dying per thousand population. Deflation: Deflation is a reduction in the level of national income and output, usually accompanied by a fall in the general price level. What is depreciation/ Developed country is an economically advanced country whose economy is characterized by a large industrial and service sector and high levels of income per head. Developing country, less developed country, underdeveloped country or third world country: a country characterized by low levels of GDP and per capita income; typically dominated by agriculture and mineral products and majority of the population lives near subsistence levels. Dumping occurs when goods are exported at a price less than their normal value, generally meaning they are exported for less than they are sold in the domestic market or third country markets, or at less than production cost. Direct investment: Foreign capital inflow in the form of investment by foreign-based companies into domestic based companies. Portfolio investment is foreign capital inflow by foreign investors into shares and financial securities. It is the ownership and management of production and/or marketing facilities in a foreign country.

Direct tax: A tax that you pay directly, as opposed to indirect taxes, such as tariffs and business taxes. The income tax is a direct tax, as are property taxes. See also Indirect Tax. Double taxation: Corporate earnings taxed at both the corporate level and again as a stockholder dividend Economic growth: Quantitative measure of the change in size/volume of economic activity, usually calculated in terms of gross national product (GNP) or gross domestic product(GDP). Duopoly: A market structure in which two producers of a commodity compete with each other. Econometrics: The application of statistical and mathematical methods in the field of economics to test and quantify economic theories and the solutions to economic problems. Economic development: The process of improving the quality of human life through increasing per capita income, reducing poverty, and enhancing individual economic opportunities. It is also sometimes defined to include better education, improved health and nutrition, conservation of natural resources, a cleaner environment, and a richer cultural life. Economic growth: An increase in the nation's capacity to produce goods and services. Economic infrastructure: The underlying amount of physical and financial capital embodied in roads, railways, waterways, airways, and other forms of transportation and communication plus water supplies, financial institutions, electricity, and public services such as health and education. The level of infrastructural development in a country is a crucial factor determining the pace and diversity of economic development. Economic integration: The merging to various degrees of the economies and economic policies of two or more countries in a given region. See also common market, customs union, free-trade area, trade creation, and trade diversion. Economic policy: A statement of objectives and the methods of achieving these objectives (policyinstruments) by government, political party, business concern, etc. Some examples of government economic objectives are maintaining full employment, achieving a high rate of economic growth, reducing income inequalities and regional development inequalities, and maintaining price stability. Policy instruments include fiscal policy, monetary and financial policy, and legislative controls (e.g., price and wage control, rent control). Economies of Scale. Elasticity of demand: The degree to which consumer demand for a product or service responds to a change in price, wage or other independent variable. When there is no perceptible response, demand is said to be inelastic. Excess capacity: Volume or capacity over and above that which is needed to meet peak planned or expected demand. Excess demand: the situation in which the quantity demanded at a given price exceeds the quantity supplied. Opposite: excess supply Exchange control: A governmental policy designed to restrict the outflow of domestic currency and prevent a worsened balance of payments position by controlling the amount of foreignexchange that can be obtained or held by domestic citizens. Often results from overvaluedexchange rates Exchange rate: The price of one currency stated in terms of another currency, when exchanged. Export incentives: Public subsidies, tax rebates, and other kinds of financial and nonfinancial measures designed to promote a greater level of economic activity in export industries. Exports: The value of all goods and nonfactor services sold to the rest of the world; they include merchandise, freight, insurance, travel, and other nonfactor services. The value of factor services (such as investment receipts and workers' remittances from abroad) is excluded from this measure. See also merchandise exports and imports. Externalities: A cost or benefit not accounted for in the price of goods or services. Often "externality" refers to the cost of pollution and other environmental impacts. Fiscal deficit is the gap between the government's total spending and the sum of its revenue receipts and non-debt capital receipts. The fiscal deficit represents the total amount of borrowed funds required by the government to completely meet its expenditure Fiscal policy is the use of government expenditure and taxation to try to influence the level of economic activity. An expansionary (or reflationary) fiscal policy could mean: cutting levels of direct or indirect tax increasing government expenditure The effect of these policies would be to encourage more spending and boost the economy. A contractionary (or deflationary) fiscal policy could be: increasing taxation - either direct or indirect cutting government expenditure These policies would reduce the level of demand in the economy and help to reduce inflation Fixed costs: A cost incurred in the general operations of the business that is not directly attributable to the costs of producing goods and services. These "Fixed" or "Indirect" costs of doing business will be incurred whether or not any sales are made during the period, thus the designation "Fixed", as opposed to "Variable". Fixed exchange rate: The exchange value of a national currency fixed in relation to another (usually the U.S. dollar), not free to fluctuate on the international money market. Foreign aid The international transfer of public funds in the form of loans or grants either directly from one government to another (bilateral assistance) or indirectly through the vehicle of a multilateral assistance agency like the World Bank. See also tied aid, private foreign investment, and nongovernmental organizations. Foreign direct investment (FDI): Overseas investments by private multinational corporations. Foreign exchange reserves: The stock of liquid assets denominated in foreign currencies held by a government's monetary authorities (typically, the finance ministry or central bank). Reserves enable the monetary authorities to intervene in foreign exchange markets to affect the exchange value of their domestic currency in the market. Reserves are invested in low-risk and liquid assets, often in foreign government securities. Free trade: Free trade in which goods can be imported and exported without any barriers in the forms of tariffs, quotas, or other restrictions. Free trade has often been described as an engine of growth because it encourages countries to specialize in activities in

which they have comparative advantages, thereby increasing their respective production efficiencies and hence their total output of goods and services. Free-trade area A form of economic integration in which there exists free internal trade among member countries but each member is free to levy different external tariffs against non-member nations. Free-market exchange rate Rate determined solely by international supply and demand for domestic currency expressed in terms of, say, U.S. dollars. Fringe benefit: A benefit in addition to salary offered to employees such as use of company's car, house, lunch coupons, health care subscriptions etc. Gains from trade The addition to output and consumption resulting from specialization in production and free trade with other economic units including persons, regions, or countries. General Agreement on Tariffs and Trade (GATT) An international body set up in 1947 to probe into the ways and means of reducing tariffs on internationally traded goods and services. Between 1947 and 1962, GATT held seven conferences but met with only moderate success. Its major success was achieved in 1967 during the so-called Kennedy Round of talks when tariffs on primary commodities were drastically slashed and then in 1994 with the signing of the Uruguay Round agreement. Replaced in 1995 by World Trade Organization (WTO). What are Giffen goods Global warming Theory that world climate is slowly warming as a result of both MDC and LDC industrial and agricultural activities. Gross domestic product (GDP): Gross Domestic Product: The total of goods and services produced by a nation over a given period, usually 1 year. Gross Domestic Product measures the total output from all the resources located in a country, wherever the owners of the resources live. Gross national product (GNP) is the value of all final goods and services produced within a nation in a given year, plus income earned by its citizens abroad, minus income earned by foreigners from domestic production. The Fact book, following current practice, uses GDP rather than GNP to measure national production. However, the user must realize that in certain countries net remittances from citizens working abroad may be important to national well being. GNP equals GDP plus net property income from abroad. Globalisation or Globalization: The process whereby trade is now being conducted on ever widening geographical boundaries. Countries now trade across continents and companies also trade all over the world. Human capital Productive investments embodied in human persons. These include skills, abilities, ideals, and health resulting from expenditures on education, on-the-job training programs, and medical care. Imperfect competition: A market situation or structure in which producers have some degree of control over the price of their product. Examples include monopoly and oligopoly. See also perfect competition. Imperfect market A market where the theoretical assumptions of perfect competition are violated by the existence of, for example, a small number of buyers and sellers, barriers to entry, nonhomogeneity of products, and incomplete information. The three imperfect markets commonly analyzed in economic theory are monopoly, oligopoly, and monopolistic competition. Import substitution A deliberate effort to replace major consumer imports by promoting the emergence and expansion of domestic industries such as textiles, shoes, and household appliances. Import substitution requires the imposition of protective tariffs and quotas to get the new industry started. Income inequality The existence of disproportionate distribution of total national income among households whereby the share going to rich persons in a country is far greater than that going to poorer persons (a situation common to most LDCs). This is largely due to differences in the amount of income derived from ownership of property and to a lesser extent the result of differences in earned income. Inequality of personal incomes can be reduced by progressive income taxes and wealth taxes. This is measured by the Gini coefficient. Index of industrial production: A quantity index that is designed to measure changes in the physical volume or production levels of industrial goods over time. Inflation is the percentage increase in the prices of goods and services. Indirect tax: A tax you do not pay directly, but which is passed on to you by an increase in your expenses. For instance, a company might have to pay a fuel tax. The company pays the tax but can increase the cost of its products so consumers are actually paying the tax indirectly by paying more for the merchandise. Interdependence Interrelationship between economic and noneconomic variables. Also, in international affairs, the situation in which one nation's welfare depends to varying degrees on the decisions and policies of another nation, and vice versa. See also dependence. International commodity agreement Formal agreement by sellers of a common internationally traded commodity (coffee, sugar) to coordinate supply to maintain price stability. International Labor Organization (ILO) One of the functional organizations of the United Nations, based in Geneva, Switzerland, whose central task is to look into problems of world labor supply, its training, utilization, domestic and international distribution, etc. Its aim in this endeavor is to increase world output through maximum utilization of available human resources and thus improve levels of living. International Monetary Fund (IMF) An autonomous international financial institution that originated in the Bretton Woods Conference of 1944. Its main purpose is to regulate the international monetary exchange system, which also stems from that conference but has since been modified. In particular, one of the central tasks of the IMF is to control fluctuations in exchange rates of world currencies in a bid to alleviate severe balance of payments problems. International poverty line An arbitrary international real income measure, usually expressed in constant dollars (e.g., $270), used as a basis for estimating the proportion of the world's population that exists at bare levels of subsistence.

Land reform A deliberate attempt to reorganize and transform existing agrarian systems with the intention of improving the distribution of agricultural incomes and thus fostering rural development. Among its many forms, land reform may entail provision of secured tenure rights to the individual farmer, transfer of land ownership away from small classes of powerful landowners to tenants who actually till the land, appropriation of land estates for establishing small new settlement farms, or instituting land improvements and irrigation schemes. Macroeconomic stabilization Policies designed to eliminate macroeconomic instability. Macroeconomics: The branch of economics that considers the relationships among broad economic aggregates such as national income, total volumes of saving, investment, consumption expenditure, employment, and money supply. It is also concerned with determinants of the magnitudes of these aggregates and their rates of change over time. What is a Market. Market economy: A free private-enterprise economy governed by consumer sovereignty, a price system, and the forces of supply and demand. Market failure: A phenomenon that results from the existence of market imperfections (e.g., monopoly power, lack of factor mobility, significant externalities, lack of knowledge) that weaken the functioning of a free-market economy--it fails to realize its theoretical beneficial results. Market failure often provides the justification for government interference with the working of the free market. Market-friendly approach: World Bank notion that successful development policy requires governments to create an environment in which markets can operate efficiently and to intervene selectively in the economy in areas where the market is inefficient (e.g., social and economic infrastructure, investment coordination, economic "safety net"). Market mechanism: The system whereby prices of stocks & shares, commodities or services freely rise or fall when the buyer's demand for them rises or falls or the seller's supply of them decreases or increases. Market prices: Prices established by demand and supply in a free-market economy. Merchandise exports and imports: All international changes in ownership of merchandise passing across the customs borders of the trading countries. Exports are valued f.o.b. (free on board). Imports are valued c.i.f. (cost, insurance, and freight). Merchandise trade balance: Balance on commodity exports and imports. Microeconomics: The branch of economics concerned with individual decision units--firms and households--and the way in which their decisions interact to determine relative prices of goods and factors of production and how much of these will be bought and sold. The market is the central concept in microeconomics. Middle-income countries (MICs): LDCs with per capita income above $785 and below $9,655 in 1997 according to World Bank measures. Mixed economic systems: Economic systems that are a mixture of both capitalist and socialist economies. Most developing countries have mixed systems. Their essential feature is the coexistence of substantial private and public activity within a single economy. Monetary policy: The regulation of the money supply and interest rates by a central bank in order to control inflation and stabilize currency. If the economy is heating up, the central bank (such as RBI in India) can withdraw money from the banking system, raise the reserve requirement or raise the discount rate to make it cool down. If growth is slowing, it can reverse the process - increase the money supply, lower the reserve requirement and decrease the discount rate. The monetary policy influences interest rates and money supply. Money supply: the total stock of money in the economy; currency held by the public plus money in accounts in banks. It consists primarily currency in circulation and deposits in savings and checking accounts. Too much money in relation to the output of goods tends to push interest rates down and push inflation up; too little money tends to push rates up and prices down, causing unemployment and idle plant capacity. The central bank manages the money supply by raising and lowering the reserves banks are required to hold and the discount rate at which they can borrow money from the central bank. The central bank also trades government securities (called repurchase agreements) to take money out of the system or put it in. There are various measures of money supply, including M1, M2, M3 and L; these are referred to as monetary aggregates. Monopoly: A market situation in which a product that does not have close substitutes is being produced and sold by a single seller. See also monopsony. Multi-Fiber Arrangement (MFA) A set of nontariff bilateral quotas established by developed countries on imports of cotton, wool, and synthetic textiles and clothing from individual LDCs Multinational corporation (MNC) An international or transnational corporation with headquarters in one country but branch offices in a wide range of both developed and developing countries. Examples include General Motors, Coca-Cola, Firestone, Philips, Volkswagen, British Petroleum, Exxon, and ITT. Firms become multinational corporations when they perceive advantages to establishing production and other activities in foreign locations. Firms globalize their activities both to supply their home-country market more cheaply and to serve foreign markets more directly. Keeping foreign activities within the corporate structure lets firms avoid the costs inherent in arm's-length dealings with separate entities while utilizing their own firm-specific knowledge such as advanced production techniques. National debt: Treasury bills, notes, bonds, and other debt obligations that constitute the debt owed by the federal government. It represents the accumulation of each year's budget deficit Public debt: Borrowing by the Government of India internally as well as externally. The total of the nation's debts: debts of local and state and national governments is an indicator of how much public spending is financed by borrowing instead of taxation Newly industrializing countries (NICs) A small group of countries at a relatively advanced level of economic development with a substantial and dynamic industrial sector and with close links to the international trade, finance, and investment system (Argentina, Brazil, Greece, Mexico, Portugal, Singapore, South Korea, Spain, and Taiwan).

Nongovernmental organizations (NGOs) Privately owned and operated organizations involved in providing financial and technical assistance to LDCs. See foreign aid. Nontariff trade barrier: A barrier to free trade that takes a form other than a tariff, such as quotas or sanitary requirements for imported meats and dairy products. What is an Oligopoly Official development assistance (ODA) Net disbursements of loans or grants made on concessional terms by official agencies of member countries of the Organization for Economic Cooperation and Development (OECD). Official exchange rate: Rate at which the central bank will buy and sell the domestic currency in terms of a foreign currency such as the U.S. dollar. An Open economy is an economy that encourages foreign trade and has extensive financial and nonfinancial contacts with the rest of the world in areas such as education, culture, and technology. See also closed economy. The opportunity cost is the implied cost of not doing something that could have led to higher returns. Organization for Economic Cooperation and Development (OECD):An organization of 20 countries from the Western world including all of those in Europe and North America. Its major objective is to assist the economic growth of its member nations by promoting cooperation and technical analysis of national and international economic trends. Overvalued exchange rate An official exchange rate set at a level higher than its real or shadow value--for example, 7 Kenyan shillings per dollar instead of, say, 10 shillings per dollar. Overvalued rates cheapen the real cost of imports while raising the real cost of exports. They often lead to a need for exchange control. Perfect competition: A market situation characterized by the existence of very many buyers and sellers of homogeneous goods or services with perfect knowledge and free entry so that no single buyer or seller can influence the price of the good or service. Performance budget is a budget format that relates the input of resources and the output of services for each organizational unit individually. Sometimes used synonymously with program budget. It is a budget wherein expenditures are based primarily upon measurable performance of activities. Political economy The attempt to merge economic analysis with practical politics--to view economic activity in its political context. Much of classical economics was political economy, and today political economy is increasingly being recognized as necessary for any realistic examination of development problems. Portfolio investment Financial investments by private individuals, corporations, pension funds, and mutual funds in stocks, bonds, certificates of deposit, and notes issued by private companies and the public agencies of LDCs. See also private foreign investment. Poverty gap: The sum of the difference between the poverty line and actual income levels of all people living below that line. Poverty line: A level of income below, which people are deemed poor. A global poverty line of $1 per person per day was suggested in 1990 (World Bank 1990). This line facilitates comparison of how many poor people there are in different countries. But, it is only a crude estimate because the line does not recognize differences in the buying power of money in different countries, and, more significantly, because it does not recognize other aspects of poverty than the material, or income poverty. Price: The monetary or real value of a resource, commodity, or service. The role of prices in amarket economy is to ration or allocate resources in accordance with supply and demand; relative prices should reflect the relative scarcity of different resources, goods, or services. Price elasticity of demand: The responsiveness of the quantity of a commodity demanded to a change in its price, expressed as the percentage change in quantity demanded divided by the percentage change in price. Price elasticity of supply: The responsiveness of the quantity of a commodity supplied to a change in its price, expressed as the percentage change in quantity supplied divided by the percentage change in price. Quota: A quota is a physical limitation on the quantity of any item that can be imported into a country, such as so many automobiles per year. Also a method for allocating limited school places by noncompetitive means--for example, by income or ethnicity. Repo rate: This is one of the credit management tools used by the Reserve Bank to regulate liquidity in South Africa (customer spending). The bank borrows money from the Reserve Bank to cover its shortfall. The Reserve Bank only makes a certain amount of money available and this determines the repo rate. If the bank requires more money than what is available, this will increase the repo rate - and vice versa. Revenue expenditure: This is expenditure on recurring items, including the running of services and financing capital spending that is paid for by borrowing. This is meant for normal running of governments' maintenance expenditures, interest payments, subsidies and transfers etc. It is current expenditure which does not result in the creation of assets. Grants given to State governments or other parties are also treated as revenue expenditure even if some of the grants may be meant for creating assets. Subsidy : Financial assistance (often from the government) to a specific group of producers or consumers. Revenue receipts: Additions to assets that do not incur an obligation that must be met at some future date and do not represent exchanges of property for money. Assets must be available for expenditures. These include proceeds of taxes and duties levied by the government, interest and dividend on investments made by the government, fees and other receipts for services rendered by the government. Stabilization policies: A coordinated set of mostly restrictive fiscal and monetary policies aimed at reducing inflation, cutting budget deficits, and improving the balance of payments. See conditionality and International Monetary Fund (IMF). Subsidy: A payment by the government to producers or distributors in an industry to prevent the decline of that industry (e.g., as a result of continuous unprofitable operations) or an increase in the prices of its products or simply to encourage it to hire more labor (as in the case of a wage subsidy). Examples are export subsidies to encourage the sale of exports; subsidies on some foodstuffs to keep down the cost of living, especially in urban areas; and farm subsidies to encourage expansion of farm production and achieve self-reliance in food production. Tax avoidance: A legal action designed to reduce or eliminate the taxes that one owes.

Tax base: the total property and resources subject to taxation. See also tariffs. Tax evasion: An illegal strategy to decrease tax burden by underreporting income, overstating deductions, or using illegal tax shelters. Terms of trade The ratio of a country's average export price to its average import price; also known as the commodity terms of trade. A country's terms of trade are said to improve when this ratio increases and to worsen when it decreases, that is, when import prices rise at a relatively faster rate than export prices (the experience of most LDCs in recent decades). Treasury bill: A short-term debt issued by a national government with a maximum maturity of one year. Treasury bills are sold at discount, such that the difference between purchase price and the value at maturity is the amount of interest. VAT: A form of indirect sales tax paid on products and services at each stage of production or distribution, based on the value added at that stage and included in the cost to the ultimate customer. World Bank: An international financial institution owned by its 181 member countries and based in Washington, D.C. Its main objective is to provide development funds to the Third World nations in the form of interest-bearing loans and technical assistance. The World Bank operates with borrowed funds. WTO: The World Trade Organization is a global international organization dealing with the rules of trade between nations. It was set up in 1995 at the conclusion of GATT negotiations for administering multilateral trade negotiations. Accession Tax: tax levied on gifts and inherited property. It is levied on recipients and is related to his economic circumstances Active Stock: the companies, shares of which are more frequently dealt in the stock exchange market are called active stock. Ad Valorem Tax: a tax proportional to the price of the object being taxed in contrast with a specific tax at a rate per unit of quantity. Authorised Capital: also called nominal capital, it is the maximum amount that promoters of a joint stock company can raise through public subscription. Balance Of Payments: a description showing all the payments made by a country to the world and the receipts of that country from the world. Balanced Budget: equality between total government receipts and expenditure. There is thus no need to borrow and thereby increase the government debt. Blue Box: recognised by the WTO, it is a credit accredited to a country towards providing R & D activities in agriculture and related fields. Blue Chip: a first class equity share, the purchase of which entails little risk. Call Money: money lent in the money market, repayable at a very short notice. This is a liquid asset. Couple Protection Ratio: it is the percentage of eligible couple effectively protected against pregnancy by various methods of contraception. CRISIL: it stands for Credit Rating Information Services of India Limited. It provides credit rating services by assessing the comparative risk of investment in the listed securities of different companies. Dear Money: high interest rates which make it expensive to borrow. This policy is used to reduce aggregate demand in the economy. Debt Service: the payments due under debt contracts. This includes payments of interest as it becomes due and redemption payments. Dependency Ratio: it is the ratio of adults and children vis-s-vis the working group in a population. Eg.India- 46% Effective Exchange Rate: a countrys exchange rate, taking a weighted average of its bilateral nominal exchange rates against other currencies. ELSS: Equity Linked Saving Scheme offered by mutual funds. Investment in these schemes are eligible for tax benefits under section 80-c of IT act. Enterpot: a place where goods are imported and re-exported without processing. Financial Inclusion Fund: budget 2007-08 announced to establish the fund with NABARD for meeting the cost of development and promotional interventions aimed at ensuring that vulnerable groups get access to adequate credit and financial services at an affordable cost. Fiscal Policy: the use of taxation and government spending to influence the economy to encourage or discourage particular forms of activity. Fiscal Stance: the tendency of the tax and spending policies embodied in a governments budget to expend or contract the econ omy. FMC (Forward Markets Commission): Regulator of forward markets, it deals with the registration and regulation of commodity futures brokers, warehouses and commodity agents. It was set up in 1953 to regulate the commodity futures market. FMC is one of the oldest regulators in the country. FMC monitors market activities on real time basis and takes preventive and pro-active measures to prevent any manipulation. Frictional Unemployment: the unemployment that would exist because as people change jobs because some sectors of the economy grow and others contract. Fringe Benefit Tax: introduced in the budget 2005-06, a tax targeted at those benefits enjoyed collectively by the employees and not attributable to individual employees, which are to be taxed in hands of employer. Futures Market: a market organization through which futures contracts are traded. These contracts commit both parties to buy and sell commodities, shares or currencies on future date at a price fixed when the contract is made. Gender Budgeting: Union Budget 2005-06 has institutionalized Gender Budgeting, perceived as a powerful tool, not only for tracking allocation of resources for women but also covers implementation Issues and outcomes. Guilt Edged Security: securities which have lowest risk , e.g. Government securities Merit Goods: those public goods where a social benefit is more than individual benefit. E.g. primary health, education etc. Minimum Alternative Tax: A minimum amount of tax, which a company has to pay despite its accounts book profits. It was brought

to tax those companies, which avoid paying tax by showing zero profit. Minimum Support Prices: these prices are generally announced before the start of the sowing season and are fixed for major agriculture commodities. This is form of commitment made by the government to the farmers. Monetized Deficit: It refers to the net addition of RBI credit to the government by way of printing fresh currency by the RBI. MoU: it stands for Memorandum of Understanding. It is written expression of intension of the signatories of the MoU to carry out their shares of tasks in furtherance of their joint intent. Mutual Fund: Funds set up on the principle of pooled risk and pooled resources of large number of small industries with the purpose of giving them the benefit of the share market. NASDAQ: National Association of Securities Dealers Automated Quotation, located in USA and mainly the It related companies are listed in it. One Time Settlement: Introduced by the RBI to identify the defaulter of Banks, sit across the table, negotiate and settle the debt once and for all. Open General License: Items can be imported without quotas or restrictions. It is only subject to industrial licensing. Opportunity Cost: it is a measure of the economic cost of using a resource to produce one particular good or service in terms of the alternatives thereby foregone. Parallel Economy: it implies the functioning of illegal and subterranean economic activities that run parallel, but in contradiction, with the avowed social objectives. Planning By Direction: In this type of planning, the government gives directions/commands to producers and they have to comply with in it. Government directly regulates economic activities. Planning By Inducement: Type of democratic planning by manipulation of market by indirect states actions like subsidies and tax benefits. Prime Lending Rate: The rate at which the banks lend to their prime customers or high ranging companies/ blue chip companies. Procurement Prices: The prices at which government buys surpluses from the farmers coming in the market. The minimum support price and procurement price may be the same. Since 1971 onwards, they have been made equal in India. Producer Price Index: Measures price changes (inflation) from producers perspective. In PPI, only basic prices are used for compilation, while taxes, trade margins and transport costs are excluded. Pump Pricing: Process of increasing the government expenditure particularly at a time when the economy is under recession so that private sector investment does not take place. Purchasing Power Parity: It implies that with a unit of currency one can buy the same basket of goods and services at home and abroad. Rationing of Credit: the process under which the central bank directs the commercial banks to give credit to various sectors according to the priorities of the economy. Repo Rate: It is the rate at which RBI repurchases the government securities from commercial banks. S &P: one of the mains US credit rating agency, which produces the S&P 500 stock price index. Stock Security Transaction Tax: A tax imposed on sale and purchase of securities of the stock market, effective from October 2004. Social Overhead Capital: Capital invested in making social infrastructure like schools for the benefit of community at large. Special Drawing Rights (SDR): An International reserve currency system under IMF, which provides for new type of currency to serve the agreement of the nations as the first legal tender money. Special Economic Zones: An SEZ is a designated duty free area to be treated as foreign territory for trade operations and tariff. It can be used for manufacturing, trading and services. Stagnation: A situation in which there is no change in techniques or income levels. Sterilization: The method by which central bank prevents balance of payment surpluses or deficits from affecting the domestic money supply. Stock Option: A right to buy share in a company on some future date at a pre-arranged price. Structural Inflation: Inflation that arises as a result of supply in elasticity and structural rigidities in the industrial sectors of economy. Structural Unemployment: Unemployment due to lack of capital equipment, which unemployed workers could use, or lack among unemployed workers could use, or lack among unemployed workers of the skills necessary to produce anything for which there is market. Subsidy: Transfer payment to household or business by government to enable them to produce or consume a commodity at a cheaper price is called subsidy. Sukur Bonds: The Islamic Bonds used in Islamic Banking. Sunrise Industries: Industries in the forefront of development, which have immense future potential E.g. IT industry, biotechnology, pharmaceuticals etc. Syndicate Loan: A loan provided by a syndicate of banks or others lending institutions. Tangible Assets: Assets that can be touched. This should literally include only physical objects like plant and equipment but also used to include leases and company shares, as these are mainly titles to tangible assets. Tax Gap: The difference between potential revenue and the actual collection is called tax gap. Technological Unemployment: unemployment due to technical progress. This applies to particular types of workers whose skill is made redundant because of change of methods of production. Trade Barriers: Laws, institutions or practices which make trade between countries more difficult or expensive than trade within countries. Trading Currency: A currency used to invoice international trade transaction. The currency of either the buyer or the seller or of a third country may be used. Trading Off: Something sacrificing in order to get more of something else, e.g. sacrificing consumption now for later by devoting the present resources to investment.

Transfer Payment: Payment made by one sector of the economy to another without any returns, E.g. unemployment and social security payments. Transfer Pricing: An accounting policy to lower down the total taxes paid by the MNCs by showing intra corporate sale and purchase of goods thereby showing low profits to lower the payable tax. Venture Capital: Private equity to help new companies grow. A valuable alternative source of finance for entrepreneurs who might otherwise have to rely on a loan from a probably risk averse bank manager. Voluntary Unemployment: Unemployment through opting not to work, even though there are jobs available. This is the joblessness that remains when there is otherwise full employment. It includes frictional unemployment as a result of people changing jobs, people not working while they undertake job search and people who just do not want to work. Wage Drift: The difference between basic pay and total earnings. Wage drift consists of things such as overtime payments, bonuses, profit share and performance- related pay. It usually increases during periods of strong growth and declines during an economic downturn. Zero-Based Budget: zero based budgets means every expenditure, whether on a new scheme or an ongoing activity, in the budget has been freshly justified. Gross Domestic Product: Meaning and Calculation The gross domestic product or GDP of any country is a yardstick to measure the size of its economy. It is defined as the total market value of all final goods and services of a country in a given period of time (normally a year). It is also considered the sum of value added at every stage of production of all final goods and services produced within a country in a given period of time. GDP = consumption + gross investment + government spending + (exports - imports), or, GDP = C + I + G + (X-M) Indirect tax Charge levied by the State on consumption, expenditure, privilege, or right but not on income or property. Customs duties levied on imports, excise duties on production, sales tax or value added tax (VAT) at some stage in production-distribution process, are examples of indirect taxes because they are not levied directly on the income of the consumer or earner. Since they are less obvious than income tax (because they don't show up on the wage slip) politicians are tempted to increase them to generate more state revenue. Also called consumption taxes, they are regressive measures because they are not based on the ability to pay principle. Inflation The inflation rate is the increase in prices for a basket of goods and services expressed on a yearly basis. Inflation is a rise in the general level of prices of goods and services in an economy over a period of time Insurance A promise of compensation for specific potential future losses in exchange for a periodic payment. Insurance is designed to protect the financial well-being of an individual, company or other entity in the case of unexpected loss. Some forms of insurance are required by law, while others are optional. Agreeing to the terms of an insurance policy creates a contract between the insured and the insurer. In exchange for payments from the insured (called premiums), the insurer agrees to pay the policy holder a sum of money upon the occurrence of a specific event. In most cases, the policy holder pays part of the loss (called the deductible), and the insurer pays the rest. Examples include car insurance, health insurance, disability insurance, life insurance, and business insurance. National Income According to the famous economist J.M. Keynes national income is the money value of all the goods and services produced in a country during a year. The National income of any country shows the economic position of the country. It is the national income which helps to compare the progress of the country over a period of time. Service Sector Service Sector is the part of industry or business which deals with the marketing and selling of intangible products rather than physical goods. Tourism Tourism is the activities of persons traveling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes not related to the exercise of an activity remunerated from within the place visited. Glossary of Economic Terms and Concepts Absolute advantage - The ability to produce something with fewer resources than other producers would use to produce the same thing Alternatives - Options among which to make choices. Balance of trade - The part of a nation's balance of payments that deals with merchandise (or visible) imports or exports. Bank, commercial - A financial institution accepts checking deposits, holds savings, sells traveler's checks and performs other financial services. Barter - The direct trading of goods and services without the use of money.

Benefit - The gain received from voluntary exchange. Bond - A certificate reflecting a firm's promise to pay the holder a periodic interest payment until the date of maturity and a fixed sum of money on the designated maturity date. Business (firm) - Private profit-seeking organizations that use resources to produce goods and services. Capital - All buildings, equipment and human skills used to produce goods and services. Capital resources - Goods made by people and used to produce other goods and services. Examples include buildings, equipment, and machinery. Change in demand - see Demand decrease and Demand increase. Change in supply - see Supply decrease and Supply increase. Choice - What someone must make when faced with two or more alternative uses of a resource (also called economic choice). Circular flow of goods and services (or Circular flow of economic activity) - A model of an economy showing the interactions between households and business firms as they exchange goods and services and resources in markets. Collateral - Anything of value that is acceptable to a lender to guarantee repayment of a loan. Command economy - A mode of economic organization in which the key economic functions--what, how, and for whom--are principally determined by government directive. Sometimes called a "centrally planned economy." Comparative advantage - The principle of comparative advantage states that a country will specialize in the production of goods in which it has a lower opportunity cost than other countries. Competition - The effort of two or more parties acting independently to secure the business of a third party by offering the most favorable terms. Complements - Products that are used with one another such as hamburger and hamburger buns Consumers - People whose wants are satisfied by consuming a good or a service. Consumption - In macroeconomics, the total spending, by individuals or a nation, on consumer goods during a given period. Strictly speaking, consumption should apply only to those goods totally used, enjoyed, or "eaten up" within that period. In practice, consumption expenditures include all consumer goods bought, many of which last well beyond the period in question --e.g., furniture, clothing, and automobiles. Consumer spending - The purchase of consumer goods and services. Corporation - A legal entity owned by stockholders whose liability is limited to the value of their stock. Costs - See Opportunity Cost Costs of production - All resources used in producing goods and services, for which owners receive payments. Craftsperson - A worker who completes all steps in the production of a good or service. Credit - (1) In monetary theory, the use of someone else's funds in exchange for a promise to pay (usually with interest) at a later date. The major examples are short-term loans from a bank, credit extended by suppliers, and commercial paper. (2) In balance-ofpayments accounting, an item such as exports that earns a country foreign currency. Criteria - Standards or measures of value that people use to evaluate what is most important. Decision making - Choosing from alternatives the one with the greatest benefit net of costs. Deflation - A sustained and continuous decrease in the general price level. Demand - A schedule of how much consumers are willing and able to buy at all possible prices during some time period. Demand decrease - A decrease in the quantity demanded at every price; a shift to the left of the demand curve. Demand increase - An increase in the quantity demanded at every price; a shift to the right of the demand curve. Determinants of demand - Factors that influence consumer purchases of goods, services, or resources. Determinants of supply - Factors that influence producer decisions about goods, services, or resources. Distribution - The manner in which total output and income is distributed among individuals or factors (e.g., the distribution of income between labor and capital). Division of labor - The process whereby workers perform only a single or a very few steps of a major production task (as when working on an assembly line.) Durables - Consumer goods expected to last longer than three years. Earn - Receive payment (income) for productive efforts. Economic growth - An increase in the total output of a nation over time. Economic growth is usually measured as the annual rate of increase in a nation's real GDP. Economic system - The collection of institutions, laws, activities, controlling values, and human motivations that collectively provide a framework for economic decision making. Economic wants - Desires that can be satisfied by consuming a good or a service. Some economic wants range from things needed for survival to things that are nice to have. Employment - See Full employment Entrepreneur - One who organizes, manages, and assumes the risks of a business or enterprise. Entrepreneurship - The human resource that assumes the risk of organizing other productive resources to produce goods and services. Equilibrium price - The market clearing price at which the quantity demanded by buyers equals the quantity supplied by sellers. Exchange - Trading goods and services with others for other goods and services or for money (also called trade). When people exchange voluntarily, they expect to be better off as a result. Exchange rates - The rate, or price, at which one country's currency is exchanged for the currency of another country. Excise Tax - Taxes imposed on specific goods and services, such as cigarettes and gasoline. Exports - Goods or services produced in one nation but sold to buyers in another nation.

Factors of production - Resources used by businesses to produce goods and services. Federal Reserve System - The central bank and monetary authority of the United States. Final goods - Products that end up in the hands of consumers. Fiscal policy - A government's program with respect to (1) the purchase of goods and services and spending on transfer payments, and (2) the amount and type of taxes. Functions of money - The roles played by money in an economy. These roles include medium of exchange, standard of value, and store of value. Full employment - A term that is used in many senses. Historically, it was taken to be that level of employment at which no (or minimal) involuntary unemployment exists. Today economists rely upon the concept of the natural rate of unemployment to indicate the highest sustainable level of employment over the long run. Goods - Objects that can satisfy people's wants. Government - National, state and local agencies that use tax revenues to provide goods and services for their citizens. Gross domestic product (GDP) - The value, expressed in dollars, of all final goods and services produced in a year. Gross domestic product (GDP), real - GDP corrected for inflation. Households - Individuals and family units which, as consumers, buy goods and services from firms and, as resource owners, sell or rent productive resources to business firms. Human capital - The health, strength, education, training, and skills which people bring to their jobs. Human resources - The quantity and quality of human effort directed toward producing goods and services (also called labor). Incentives - Factors that motivate and influence the behavior of households and businesses. Prices, profits, and losses act as incentives for participants to take action in a market economy. Imports - Goods or services bought from sellers in another nation. Income - The payments made for the use of borrowed or loaned money. Increase in productivity - When the same amount of an output can be produced with fewer inputs; more output can be produced with the same amount of inputs; or a combination of the two. Inflation - A sustained and continuous increase in the general price level. Interdependence - Dependence on others for goods and services; occurs as a result of specialization. Interest rates - The price paid for borrowing money for a period of time, usually expressed as a percentage of the principal per year. Investment in capital goods - Occurs when savings are used to increase the economy's productive capacity by financing the construction of new factories, machines, means of communication, and the like. Investment - The purchase of a security, such as a stock or bond. Investment in capital resources - Business purchases of new plant and equipment. Investment in human capital - An action taken to increase the productivity of workers. These actions can include improving skills and abilities, education, health, or mobility of workers. Labor force - That group of people 16 years of age and older who are either employed or unemployed. Labor market - A setting in which workers sell their human resources and employers buy human resources. Labor union - A group of employees who join together to improve their terms of employment. Land - Natural resources or gifts of nature that are used to produce goods and services. Law of demand - The principle that price and quantity demanded are inversely related. Law of supply - The principle that price and quantity supplied are directly related. Loss - Business situation in which total cost of production exceeds total revenue; negative profit. Market - A setting where buyers and sellers establish prices for identical or very similar products, and exchange goods and/or services. Market economy - An economic system where most goods and services are exchanged through transactions by private households and businesses. Prices are determined by buyers and sellers making exchanges in private markets. Medium of exchange - One of the functions of money whereby people exchange goods and services for money and in turn use money to obtain other goods and services. Mixed economy - The dominant form of economic organization in noncommunist countries. Mixed economies rely primarily on the price system for their economic organization but use a variety of government interventions (such as taxes, spending, and regulation) to handle macroeconomic instability and market failures. Monetary policy - The objectives of the central bank in exercising its control over money, interest rates, and credit conditions. The instruments of monetary policy are primarily open-market operations, reserve requirements, and the discount rate. Money - Anything that is generally accepted as a medium of exchange with which to buy goods and services, a good that can be used to buy all other goods and services, that serves as a standard of value, and has a store of value. Money market - A term denoting the set of institutions that handle the purchase or sale of short-term credit instruments like Treasury bills and commercial paper. National debt - The net accumulation of federal budget deficits. National income - The amount of aggregate income earned by suppliers of resources employed to produce GNP; net national product plus government subsidies minus indirect business taxes.

Natural resources - "Gifts of nature" that are used to produce goods and services. They include land, trees, fish, petroleum and mineral deposits, the fertility of soil, climatic conditions for growing crops, and so on. Non-durables - Consumer goods expected to last less than three years. Non-price determinants of supply - The factors that influence the amount a producer will supply of a product at each possible price. The non-price determinants of supply are the factors that can change the entire supply schedule and curve. Normal profit - The minimum payment an entrepreneur expects to receive to induce the entrepreneur to perform entrepreneurial functions. Normative economics - Normative economics considers "what ought to be"--value judgments, or goals, of public policy. Positive economics, by contrast, is the analysis of facts and behavior in an economy, or "the way things are." Opportunity cost - The next best alternative that must be given up when a choice is made. Physical capital - Manufactured items used to produce goods and services. Price - The money value of a unit of a good, service, or resource Prices - The amounts that people pay for units of particular goods or services. Private goods - A commodity that benefits the individual. An example is bread, which, if consumed by one person, cannot be consumed by another person. (See public goods.) Producers - People who use resources to make goods and services (also called workers). Production - The making of goods available for use; total output especially of a commodity or industry. Productive resources - All natural resources (land), human resources (labor), and human-made resources (capital) used in the production of goods and services. Productivity - The ratio of output (goods and services) produced per unit of input (productive resources) over some period of time. Profit - The difference between total revenues and the full costs involved in producing or selling a good or service; it is a return for risk taking. Property tax - Taxes paid by households and businesses on land and buildings. Public goods - A commodity whose benefits are indivisibly spread among the entire community, whether or not particular individuals desire to consume the public good. For example, a public-health measure that eradicates smallpox protects all, not just those paying for the vaccinations. These goods are often provided by the government. To be contrasted with private goods. Quantity demanded - The amount of a product consumers will purchase at a specific price. Quota - A legal limit on the quantity of a particular product that can be imported or exported. Quantity supplied - The amount of a product producers will produce and sell at a specific price. Resources - All natural, human, and human-made aids to production of goods and services (also called productive resources). Revenue - Payments received by businesses from selling goods and services. Sales tax - Taxes paid on the goods and services people buy. Save - Set aside earnings (income) for a future use. Saving - Occurs when individuals, businesses, and the economy as a whole do not consume all of current income (or output). Scarcity - The condition that results from the imbalance between relatively unlimited wants and the relatively limited resources available for satisfying those wants. Services - Activities that can satisfy people's wants. Shortage - The situation resulting when the quantity demanded exceeds the quantity supplied of a good or service, usually because the price is for some reason below the equilibrium price in the market. Specialists - People who produce a narrower range of goods and services than they consume (also called specialized workers). Specialization - The situation in which people produce a narrower range of goods and services than they consume. Spend - Use earnings (income) to buy goods and services. Standard of living - A minimum of necessities, comforts, or luxuries held essential to maintaining a person or group in customary or proper status or circumstances. Standard of value - One of the functions of money whereby the value of goods and services is expressed in money terms (prices). Stock - A certificate reflecting ownership of a corporation. Store of value - One of the functions of money allowing people to save current purchasing power to buy goods and services in a future time period. Substitutes - Products that can replace one another such as butter and margarine. Supply - A schedule of how much producers are willing and able to sell at all possible prices during some time period. Supply decrease - A decrease in the quantity supplied at every price; a shift to the left of the supply curve. Supply increase - An increase in the quantity supplied at every price; a shift to the right of the supply curve. Surplus - The situation resulting when the quantity supplied exceeds the quantity demanded of a good or service, usually because the price is for some reason below the equilibrium price in the market. Tariff - A tax on an imported good. Taxes - Required payments of money made to governments by households and business firms. Total cost - Cost of resources used in producing a product multiplied by the quantity produced. Total revenue - Selling price of a product multiplied by the quantity demanded. Trade - See Exchange.

Trade agreement - An international agreement on conditions of trade in goods and services. Trade-off - Giving up some of one thing to get some of another thing. Traditional economy - A mode of economic organization which borrows economic decisions made at an earlier time or by an earlier generation Unemployment - The situation in which people are willing and able to work at current wage rates, but do not have jobs. Wages - The payment resource earners receive for their labor. Work - Employment of people in jobs to make goods or services. Workers - See Producers.