These terms will help readers understand fundamental concepts within the subject.
Glossary / {Terms and Definitions}
Glossary Page 4
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91. Fiscal Drag
A situation where inflation and income growth push taxpayers into higher tax brackets, resulting in higher tax payments without an actual increase in real income. Fiscal drag can reduce consumer spending and slow economic growth.
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92. Regressive Tax
A tax system in which lower-income individuals pay a higher percentage of their income in taxes compared to higher-income individuals. Regressive taxes can increase inequality by placing a larger burden on those with less ability to pay.
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93. Dependency Ratio
The ratio of non-working individuals (usually children and the elderly) to the working-age population. A high dependency ratio can strain public finances and social services, as fewer workers are available to support dependents through taxes.
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94. Labor Arbitrage
The practice of taking advantage of differences in labor costs between countries by relocating production or outsourcing jobs to regions with cheaper labor. While labor arbitrage reduces costs for businesses, it can lead to job losses in higher-wage economies.
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95. Comparative Advantage
An economic theory that suggests countries should specialize in the production of goods or services in which they have a lower opportunity cost compared to other countries. This specialization allows for more efficient global trade and increased wealth for all nations involved.
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96. Consumption Function
A concept in Keynesian economics that relates total consumption in an economy to total income. The consumption function shows how much households will consume at different levels of income, helping to predict changes in demand and economic growth.
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97. Supply-Side Economics
An economic theory that advocates reducing taxes and decreasing regulation to encourage production, investment, and economic growth. Proponents argue that these policies can lead to job creation and innovation, while critics argue that it primarily benefits the wealthy and increases inequality.
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98. Opportunity Cost
The cost of foregoing the next best alternative when making a decision. Opportunity cost is a key concept in economics that helps individuals and businesses weigh the potential benefits and drawbacks of different choices.
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99. Global Value Chain (GVC)
A worldwide network of production and supply chains that produce goods and services across multiple countries. GVCs allow firms to optimize production by sourcing components from different regions, but they also expose economies to risks like supply chain disruptions.
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100. Protectionist Tariff
A tax imposed on imported goods to protect domestic industries from foreign competition. Protectionist tariffs can raise the price of imports, encouraging consumers to buy domestic products, but they can also lead to retaliatory tariffs and trade wars.
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101. Import Substitution Industrialization (ISI)
An economic policy strategy aimed at reducing dependency on imported goods by encouraging domestic production. ISI is often used in developing countries to stimulate local industries, but it can lead to inefficiency and reduced competitiveness over time.
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102. Wage-Price Spiral
A situation in which rising wages lead to higher production costs, which in turn cause businesses to increase prices. The resulting inflation leads workers to demand even higher wages, creating a cycle that can fuel sustained inflation.
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103. Social Capital
The networks of relationships, trust, and social norms that facilitate cooperation and collective action within a community or society. Social capital is often seen as a critical factor in promoting economic development, social cohesion, and political stability.
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104. Public Choice Theory
An economic theory that applies the principles of economics to the study of political behavior. Public choice theory analyzes how politicians, bureaucrats, and voters make decisions, often highlighting the role of self-interest and incentives in shaping public policy.
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105. Shadow Economy
Economic activity that takes place outside of formal legal frameworks, such as unregistered businesses or undeclared income. The shadow economy can undermine tax revenues and create unfair competition, but it often provides employment and income in regions where formal jobs are scarce.
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106. Resource Nationalism
A policy in which governments assert control over natural resources, often through nationalization or heavy regulation, to maximize the benefits for their citizens. Resource nationalism can lead to conflicts with foreign investors and multinational corporations.
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107. Bretton Woods System
A post-World War II international monetary system that established fixed exchange rates between currencies and created institutions like the International Monetary Fund (IMF) and the World Bank. The Bretton Woods system was designed to promote global financial stability, but it collapsed in the 1970s when the U.S. abandoned the gold standard.
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108. Terms of Trade
The ratio between a country's export prices and its import prices. A favorable terms of trade means that a country can buy more imports for a given quantity of exports, while an unfavorable terms of trade can lead to economic difficulties, particularly for developing nations reliant on commodity exports.
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109. Rent-Seeking
The practice of individuals or businesses seeking to increase their own wealth without creating new wealth, often through lobbying for favorable government policies, subsidies, or regulations. Rent-seeking can lead to inefficiency and corruption by diverting resources away from productive activities.
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110. Structural Unemployment
Unemployment caused by fundamental shifts in an economy, such as changes in technology, consumer preferences, or globalization, that make certain skills or industries obsolete. Structural unemployment can be long-term and requires retraining or education to address.
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111. Liquidity Trap
A situation in which low interest rates fail to stimulate economic growth because people and businesses prefer to hold cash rather than invest or spend. Liquidity traps can occur during deep recessions when confidence in the economy is low, and traditional monetary policy becomes ineffective.
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112. Purchasing Power Parity (PPP)
A method of comparing the relative value of currencies by determining what the same basket of goods and services would cost in different countries. PPP is often used to measure the standard of living and economic well-being across nations.
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113. Factor Endowments
The quantity and quality of resources, such as labor, land, and capital, that a country has at its disposal. Factor endowments influence a country's comparative advantage in producing certain goods or services and shape its participation in global trade.
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114. Deflation
A decrease in the general price level of goods and services over time, which increases the purchasing power of money. While deflation can benefit consumers in the short term, it can lead to reduced economic growth, increased debt burdens, and unemployment.
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115. Involuntary Unemployment
A situation where individuals are willing and able to work at the prevailing wage rate but cannot find employment due to factors like insufficient demand for goods and services or rigid labor markets.
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116. Sovereign Wealth Fund (SWF)
A state-owned investment fund that manages a country’s surplus revenues, often derived from natural resources or trade surpluses. SWFs invest in a variety of assets, both domestically and internationally, to generate returns and provide financial stability for future generations.
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117. Transfer Pricing
The pricing of goods, services, or intellectual property between different divisions or subsidiaries of the same company, often located in different countries. Transfer pricing can be used to shift profits to lower-tax jurisdictions, leading to reduced tax revenues for governments.
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118. Automatic Stabilizers
Government policies, such as unemployment benefits and progressive taxes, that automatically increase spending or reduce taxes during economic downturns, helping to stabilize the economy without the need for direct intervention.
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119. Dumping
The practice of selling goods in a foreign market at a price lower than their cost of production or below the price charged in the domestic market. Dumping is often used to gain market share but can lead to anti-dumping measures like tariffs or sanctions from other countries.
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120. Horizontal Integration
A business strategy in which a company acquires or merges with competitors in the same industry to increase market share, reduce competition, and achieve economies of scale. Horizontal integration can raise concerns about monopolistic practices and market concentration.
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121. Vertical Integration
A business strategy in which a company expands its operations by acquiring or merging with companies at different stages of the production process, such as suppliers or distributors. Vertical integration can increase efficiency and control over the supply chain.
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