These terms will help readers understand fundamental concepts within the subject.
Glossary / {Terms and Definitions}
Glossary Page 9
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231. Deflation
A decrease in the general price level of goods and services, often associated with a contraction in the supply of money and credit in the economy. Deflation can increase the real value of debt and discourage investment and consumption, leading to economic stagnation.
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232. Protectionism
An economic policy of restricting imports from other countries through methods such as tariffs, quotas, and subsidies to protect domestic industries from foreign competition. While it can support local jobs and businesses, protectionism can also lead to trade wars and higher consumer prices.
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233. Stagflation
A situation in which an economy experiences stagnant growth, high unemployment, and high inflation simultaneously. Stagflation presents a dilemma for policymakers, as measures to control inflation can worsen unemployment and vice versa.
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234. Factor of Production
The resources used in the production of goods and services, typically categorized into four groups: land, labor, capital, and entrepreneurship. Efficient use of these factors is key to economic growth.
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235. Neoliberalism
A political and economic philosophy that emphasizes free markets, deregulation, privatization, and limited government intervention in the economy. Neoliberalism gained prominence in the late 20th century but has been criticized for increasing inequality and undermining public services.
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236. Economic Nationalism
An ideology that prioritizes domestic economic interests and often involves protectionist measures to shield local industries from global competition. Economic nationalism can promote self-sufficiency but may also reduce international cooperation and trade.
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237. Keynesian Economics
A theory developed by economist John Maynard Keynes, advocating for government intervention to manage economic cycles. Keynesians argue that increased government spending during downturns can boost demand and prevent prolonged recessions.
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238. Universal Basic Income (UBI)
A policy proposal where all citizens receive a regular, unconditional sum of money from the government, regardless of income or employment status. UBI is seen as a potential solution to poverty and economic insecurity, especially in the face of automation, but its feasibility and long-term effects are widely debated.
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239. Fiscal Cliff
A situation in which a series of previously enacted laws would result in significant tax increases, spending cuts, or both, likely leading to an economic downturn if not addressed by new legislation. The term gained prominence in the United States during debates over budget deficits and debt ceilings.
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240. Dependency Theory
A theory that suggests that developing countries are dependent on developed nations for economic growth, leading to a cycle of underdevelopment and exploitation. It critiques global capitalism and argues that the international economic system benefits wealthy countries at the expense of poorer ones.
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241. Trickle-Down Economics
An economic theory that suggests policies that benefit the wealthy—such as tax cuts for high-income individuals and corporations—will eventually lead to benefits for all, as the wealth "trickles down" through job creation and investment. Critics argue that it exacerbates income inequality and fails to deliver broad economic benefits.
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242. Liberalization
The process of removing or loosening restrictions on economic activities, including trade barriers, regulatory controls, and government monopolies. Economic liberalization is often seen as a way to boost efficiency and growth, but it can also lead to inequality and social dislocation.
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243. Capital Adequacy Ratio (CAR)
A measure used by regulators to ensure that banks have enough capital to cover their risks. The ratio is calculated by dividing a bank's capital by its risk-weighted assets, and it serves as a safeguard against insolvency in times of financial stress.
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244. External Debt
Debt that a country owes to foreign creditors, which can include loans from foreign governments, international financial institutions, or private lenders. High levels of external debt can make a country vulnerable to currency fluctuations and economic crises.
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245. Multilateral Development Banks (MDBs)
International financial institutions that provide financial and technical assistance for development projects in low- and middle-income countries. Examples include the World Bank, the African Development Bank, and the Asian Development Bank.
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246. Hyperinflation
An extremely rapid and out-of-control increase in prices, often exceeding 50% per month. Hyperinflation erodes the value of a currency and can lead to a collapse in economic activity, as people lose confidence in the currency's ability to act as a store of value.
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247. Informal Economy
The part of an economy that is not regulated or taxed by the government. It includes activities like street vending, unregistered businesses, and informal labor. While the informal economy provides employment and income for many, it can also lack legal protections and benefits for workers.
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248. Terms of Trade
The ratio between the prices of a country's exports and the prices of its imports. A favorable change in the terms of trade means that a country can buy more imports for a given level of exports, while an unfavorable change makes imports more expensive relative to exports.
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249. Comparative Advantage
An economic theory proposed by David Ricardo that suggests countries should specialize in producing goods where they have a lower opportunity cost compared to other nations. By doing so, global efficiency is maximized through trade, as each country produces what it is best at.
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250. Commodification
The process of turning goods, services, or ideas that were previously not considered economic goods into commodities that can be bought, sold, and traded in markets. This can apply to things like water, education, or even cultural artifacts.
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251. Redistribution of Wealth
The transfer of income and wealth from certain individuals or groups to others, usually through taxation, welfare programs, or other government policies. Redistribution is often aimed at reducing economic inequality, though its effectiveness and methods are frequently debated.
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252. Informational Asymmetry
A situation in which one party in an economic transaction has more or better information than the other, often leading to market inefficiencies. For example, sellers of used cars may know more about the quality of the car than buyers, which can result in adverse selection.
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253. Public-Private Partnership (PPP)
A cooperative arrangement between the government and private sector companies to finance, build, and operate infrastructure projects such as roads, bridges, and hospitals. PPPs are often used to leverage private sector efficiency, but they can also raise concerns about public accountability and profit motives.
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254. Dual Economy
An economic model where two sectors coexist: a modern, capitalist sector that is globally integrated and technologically advanced, and a traditional, subsistence sector that operates largely outside the formal economy. This often applies to developing countries with large rural populations.
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255. Sovereign Default
When a country fails to meet its debt obligations, either by missing payments or restructuring its debt under less favorable terms. Sovereign defaults can trigger financial crises, lead to a loss of access to international credit, and cause severe economic disruption.
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