Administered price: A price set not by the forces of demand and supply, but by some authority like the Government or a regulatory authority.
Agenda 21: Programme of action adopted at the Earth Summit in 1992. It has 21 chapters dealing with all aspects of sustainable development, conservation, and resource management.
Appropriation Bill: A bill introduced in the Parliament together with the budget, seeking the approval of the House to permit expenditure from the Consolidated Fund of India.
Arbitrage: The practice of taking advantage of price differences in two markets.
Asset-stripping: Selling surplus land or machinery of an industrial undertakings to convert the idle or under-utilized asset into cash.
Balance or Payment (BOP): It is the summary record of a country’s economic transactions with the outside world, during a period, usually one year. It has two segments – current account and capital account. Current account consists of exports and imports (visible trade), and receipts and payments in respect and payments in respect of tourism, travel, remittance by non-residents etc. (invisible). Capital account consists of foreign direct investment and sale and purchase of financial assets.
Balance of Trade: The difference between visible imports and visible exports. This is one of the components of balance of payment on current account.
Bank rate: The official rate of which the RBI will rediscount the bills of commercial banks. It is used as a signal by the RBI to commercial banks on the RBI’s thinking of what of interest rates should be:
Bear: In a stock exchange a trader who expects the prices of shares to fall. Bear market is where there are several bear operators and consequently prices fall persistently.
Beggar-my-neighbor policy: A policy where a country seeks to benefit at the expense of another country. Competitive devaluation of currency is an illustration.
Bull: A trader who expects the price of stocks to rise, as opposed to a bear.
Buyer’s market: A market which is favorable to the buyer who may set the price, as opposed to a seller’s market.
Capital flight: Sudden movement of capital from one country to due to apprehension of a fall in the value of the currency, international turmoil, political uncertainty, or any other disturbance.
Capital-output ratio: The ration of capital used for a given output. Incremental capital-output ratio is adopted as a measure in deciding investment priorities.
Carbon tax: A tax proposed to be imposed on users of fossil fuel to compensate for the pollution on the principle, “polluter pays”.
Ceteris paribus: “Other things remaining equal”, A statement used while formulating an economic proposition explaining the cause effect relationship.
Cheap money: Maintaining low rates of interest to stimulate investment during recession or depression.
Command Economy: An economy where decisions such as what to produce and how to distribute the produce are taken by a central authority.
Comparative advantage, Theory of: The theory that specializing in the production of goods will benefit all trading parties, including those who may have absolute advantage in producing all goods.
Consumer Durables: Items of consumption which have a fairly long life. Cars, refrigerators, washing machines, TVs etc. are included in this category.
Consumer Surplus: The excess satisfaction or benefit which a consumer derives from purchasing a commodity or service over the price paid by him.
Consumer Sovereignty: The concept that it is ultimately by consumer who decides what will be produced and at what price.
Current account convertibility: The holders of domestic currency have the right to convert the currency into foreign exchange for any current account purpose such as travel, tourism, trade. Capital account transaction like transactions in assets are not permissible unless there is capital account convertibility.
Cost, insurance, freight (cif): The price of a commodity when it enters the port of entry. It includes the purchase price, the insurance and freight charges but does not include customs duty (if any) and transport within the country of destination.
Cost-push inflation: Inflation caused by an increase in costs.
Counter-trade: A form of international trade similar to barter. It is useful for regional trade where an internationally strong intervention currency like the dollar or yen may upset the monetary system.
Countervailing duty: A duty imposed on imported goods where there is evidence of an export subsidy in the country of origin which may adversely affect the domestic producers in the importing country.
Debt Service ratio: The ratio of a country’s debt service (repayment of principal and interest) as a ration of its total export earnings.
Depression: A prolonged and deep recession.
Demand-pull inflation: Inflation caused by increase in aggregate demand. Diminishing marginal.
Utility: The principle that the more of a commodity that one consumes in a given period, the less satisfaction or utility one gets from each additional or marginal unit consumed.
Depreciation: The fall in the value of an asset over a period of time.
Discomfort index: An index of economic discomfort. It is a composite of the annual inflation rate and unemployment rate.
Disintermediation: Process whereby capital reaches directly from the investor to the borrower (as in a bond or debenture) without an intermediary like the bank who would normally accept deposit from the investor and lend the same to the borrower.
Dumping: Exporting goods with prices far below cost of production intended to cripple the manufactures in the importing countries.
Footsie: One of the several share indices published by the Financial Times of London. Footsie’s full name is Financial Times-Stock Exchange 100 share Index.
Free on board (fob): The price of an commodity when it is loaded on to the ship, truck, or aeroplane. It includes only the cost of production and transport charges up to the prot of embarkation but does not include insurance or freight.
Globalization: Worldwide expansion of international trade in goods, service, and foreign exchange. The decline in importance of tariff and non-tariff measures has led to the weakening of national boundaries in trade and foreign exchange.
Group of Seven: An informal group of leading industrialized countries – Canada, France, Germany, Italy, Japan, UK, and the USA – which meet and discuss economic policies. The group has now 8 members with the inclusion of Russia.
Gross Domestic Product (GDP): The total value of goods and services produced by an economy in a given period of time, usually a year.
Hard Currency: A currency the exchange value of which is expected to remain stable, unlike “soft currency”
Hot money: Money which flees quickly from country to country either in response to better earnings or in apprehension of adverse circumstances. Much of the capital flight in recent times is due to hot money.
Human capital: The stock of knowledge, skills, and talents that people possess. It can be inborn, as acquired through education.
Inferior goods: Goods for which the demand falls as income rises, e.g: coarse grains.
Insider trading: Share market dealing by persons who have ‘insider’ knowledge of the companies whose shares are transacted. Insiders could be directors or top-level employees or even auditors of the company. Insider trading is a punishable offence in India.
Invisible hand: An expression used by Adam Smith to show how markets themselves coordinate economic activity without interference by any outside agency like the government.
Junk bonds: Bonds which offer no guarantee that the money put in these will be repaid. Because of the higher risk, the promised returns are also very high.
Laissez-faire economy: An economy where people are free to their own self-interest without any intervention by a central agency such as the government.
Laffer curve: A general hypothesis that when the tax rate is raised the revenue realized tends to fall.
Law of Demand: The inverse relationship between price and quantity demanded. As price increases, the quantity demanded decreases.
Liquidity: The quality of assets by which these can be quickly turned into cash. Cash is the most liquid asset.
LIBOR: London Inter Bank Offered Rate. It is the rate of interest on short-term loans in the London money market. LIBOR is the basis on which the interest rate of most of international borrowings by corporates and countries is fixed.
Market: A mechanism where buyers and sellers get to meet and exchange. In economics, it need to be a physical place.
Market failure: a situation when resource are misallocated or allocated inefficiently resulting in waste. This provides justification for government’s intervention in the economy.
Maastricht Convergence Criteria: Five conditions that prospective members of the European Union had to meet before they were allowed into the European Currency Union.
Merit goods: Goods whose consumption is believed to benefit not only the consumer but also the society at large. Education and public health are instances. Better educated and healthier citizens contribute for government subsidizing of merit goods.
Monopsony: A market where there is only a single buyer for a goods or service. Opposite of monopoly, where there is a single seller.
Most favored nation: MFN status only assures that the country will be treated no less (MFN) favorably that any other country. It only offers protection against discrimination.
NAFTA: North American Free-Trade Agreement; an agreement among the USA, Canada and Mexico establishing a Free trade zone covering all of North America.
Near money: Close substitutes of money, e.g., current account
Non-Tariff Barrier (NTB) : Obstructions to import/export other than duties. NTB may include quotas, stringent and unrealistic specifications, licenses and other obstructions to free entry and exit of commodities.
Oligopoly: Where there is a small number of large firms who effectively block the entry of new firms e.g., the car industry.
Open market operations: The purchase and sale by the RBI of govt. securities in the open market to regulate the money supply.
Participation rate: The ratio of the labour force to the active population (aged 15-64).
Pareto optimally: A conditions in which no change is possible to make a member of a society better off without making some other member of the society worse off.
Paris Club: Otherwise known as Group of 10 (G.10). An informal group of industrialized countries which meet and discuss economic problems and policies.
Patent: A legal right that grants exclusive use of the patented product or process to he inventor.
Progressive tax: A tax, the burden of which increase as income increase.
Proportional tax: A tax whose burden is in proportion to income.
Public goods: Goods that give collective benefits to members of a society. Usually no one can be excluded from the use of such goods nor can a user charge be collected, e.g., national defence.
Pump priming: The argument that in times of depression increasing government expenditure will lead to stimulation of economic activity and recovery from depression.
Real interest rate: The difference between the interest rate paid or received (the nominal interest rate) and the rate of inflation.
Recession: A period when aggregate output declines.
Regressive tax: A tax whose burden falls as income rises.
Run on a bank: When depositors lose confidence and approach the bank for withdrawal at the same time.
Stagflation: A situation of high inflation combined with high unemployment.
Sticky prices: Prices that do not adjust rapidly to changes in demand and supply.
Supply side policies: Government’s policies to increase supply through increasing aggregate production rather than stimulating aggregate demand.
Sweat labour: Worker employed for long hours on low wages. It is often alleged that many items of export form developing countries are the product of sweat labour.
Transfer payments: Payments made with no expectation of a return as goods or services. e.g., charity, pension.
Transfer pricing: The pricing of goods and services when these are transferred within the organization from one unit to another. This gives ample scope for transferring wealth from one country to another and for tax evasion.
Trickle down theory: The theory that holds that economic development tends to spread downwards in the shape of greater demand for labour etc. and reach the poorest strata of society.
Twin deficit: Co-existence of budgetary and trade deficits.
Zero-based budgeting: Normally a budget is prepared on an incremental basis – i.e., current year’s outlay is decided by last year’s outlay and expenditure. ZBB stipulates that each item of expenditure should be explained from first principles and not be included merely because the expenditure is a ‘committed’ one.
