These terms will help readers understand fundamental concepts within the subject.
Glossary / {Terms and Definitions}
Glossary Page 8
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206. Rent-Seeking
Rent-seeking occurs when individuals or firms attempt to gain economic profit without contributing to productivity, typically through lobbying or manipulating government policies. This can lead to inefficiencies and a misallocation of resources, as it focuses on gaining wealth through redistribution rather than creation.
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207. Marginal Utility
The additional satisfaction or benefit a consumer receives from consuming one more unit of a good or service. In economics, marginal utility is used to explain consumer behavior and how they make choices between different goods.
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208. Supply-Side Economics
An economic theory that suggests lower taxes and less regulation will encourage businesses to produce more goods and services, stimulating economic growth. Advocates argue that the benefits of this growth will "trickle down" to all parts of the economy, but critics say it disproportionately benefits the wealthy.
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209. Sovereign Debt
Debt issued by a national government in the form of bonds. Countries often borrow through sovereign debt to finance spending when revenues are insufficient. However, excessive sovereign debt can lead to default and economic crises.
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210. Quantitative Easing (QE)
A monetary policy where a central bank purchases government securities or other financial assets to increase the money supply and encourage lending and investment. QE is often used to stimulate the economy during periods of low inflation or recession.
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211. Market Failure
A situation in which the allocation of goods and services by a free market is inefficient, often leading to negative outcomes for society. Causes of market failure include externalities, monopolies, and information asymmetries, which can require government intervention.
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212. Corporate Welfare
Government support or subsidies given to businesses, particularly large corporations. Critics argue that corporate welfare often benefits wealthy firms at the expense of taxpayers, whereas proponents claim it can stimulate economic growth and job creation.
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213. Progressive Taxation
A tax system in which the tax rate increases as income increases, meaning higher-income individuals pay a higher percentage of their income in taxes than lower-income individuals. Progressive taxation aims to reduce income inequality and fund public services.
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214. Regressive Taxation
A tax system in which lower-income individuals pay a higher percentage of their income in taxes than higher-income individuals. Sales taxes and flat taxes are examples of regressive taxes, which can disproportionately affect the poor.
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215. Debt-to-GDP Ratio
A measure of a country's government debt relative to its gross domestic product (GDP). The debt-to-GDP ratio is used to assess a nation's ability to repay its debt, with higher ratios indicating greater potential for financial instability.
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216. Shadow Banking
Financial activities conducted by non-bank financial institutions that are not regulated to the same extent as traditional banks. The shadow banking system includes hedge funds, money market funds, and other entities that engage in lending and investing but operate outside of normal banking regulations.
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217. Economies of Scale
The cost advantages that businesses experience as they increase their scale of production, which typically results in a lower cost per unit of output. Larger companies often benefit from economies of scale, enabling them to offer lower prices and outcompete smaller firms.
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218. Import Substitution Industrialization (ISI)
An economic policy aimed at reducing a country's reliance on foreign imports by promoting domestic production of goods. ISI is often pursued by developing nations seeking to industrialize and create jobs, but it can lead to inefficiency if domestic industries are not competitive.
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219. Balance of Payments
A comprehensive record of all economic transactions between residents of a country and the rest of the world over a specific period. It includes the trade balance, capital flows, and financial transfers, helping to gauge the country's economic relationships and sustainability.
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220. Creative Destruction
A concept introduced by economist Joseph Schumpeter, referring to the process by which innovation causes old industries or technologies to become obsolete, making way for new economic growth. While it fosters progress, creative destruction can lead to short-term job losses and social disruption.
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221. Capital Controls
Government-imposed restrictions on the flow of capital in and out of the country. These controls can take the form of taxes, tariffs, or outright bans and are used to stabilize the economy by preventing capital flight or controlling inflation.
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222. Inflation Targeting
A monetary policy strategy used by central banks to control inflation by setting a publicly announced inflation rate as the primary goal. By keeping inflation within a target range, central banks aim to provide price stability and foster economic growth.
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223. Structural Adjustment Programs (SAPs)
Economic policies promoted by the International Monetary Fund (IMF) and World Bank in developing countries, often as a condition for receiving financial assistance. SAPs typically include austerity measures, trade liberalization, and privatization, but have been criticized for worsening poverty and inequality.
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224. Public Goods
Goods or services that are non-excludable and non-rivalrous, meaning they can be consumed by anyone and one person's consumption does not reduce availability to others. Examples include clean air, national defense, and street lighting. Public goods are often provided by governments, as markets may underprovide them.
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225. Capital Flight
The large-scale exodus of financial assets or capital from a country due to economic instability, political risk, or unfavorable tax policies. Capital flight can exacerbate financial crises by reducing the domestic money supply and undermining investor confidence.
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226. Purchasing Power Parity (PPP)
An economic theory that compares the relative value of currencies based on the cost of a standard basket of goods in different countries. PPP is used to compare the economic productivity and living standards between nations by adjusting for differences in price levels.
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227. Fiscal Multiplier
The ratio of a change in national income to the change in government spending or taxation that causes it. A fiscal multiplier greater than 1 indicates that government spending generates more economic output than the initial amount spent, while a multiplier less than 1 suggests a weaker effect.
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228. Green Economy
An economy that aims to reduce environmental risks and ecological scarcities while promoting sustainable development and social equity. The green economy focuses on reducing carbon emissions, increasing energy efficiency, and fostering growth in renewable energy sectors.
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229. Crowding Out
An economic phenomenon where increased government spending leads to a reduction in private sector investment or consumption. Crowding out occurs when government borrowing raises interest rates, making it more expensive for businesses and individuals to borrow and invest.
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230. Sovereign Wealth Fund
A state-owned investment fund or entity that manages a country's reserves, often derived from surplus revenues such as oil profits. Sovereign wealth funds are used to invest in a variety of assets to preserve wealth for future generations or stabilize the economy during downturns.
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