NCERT Extracts - Glossary
NCERT Extracts - Glossary
Category : UPSC
Adam Smith: Adam Smith (1723-1790). Regarded as the father of modem Economics, Author of Wealth of Nations.
Administered price: A price set not by the forces of demand and supply but by some authority like the Government or a regulatory authority.
Average cost: Total cost per unit of output.
Average fixed cost: Total fixed cost per unit of output.
Average product: Output per unit of the variable input.
Average revenue: Total revenue per unit of output.
Average variable cost: Total variable cost per unit of output.
Autonomous change: A change in the values of variables in a macroeconomic model caused by a factor exogenous to the model.
Autonomous expenditure multiplier: The ratio of increase, (or decrease) in aggregate output or income to an increase (or decrease) in autonomous spending.
Aggregate monetary resources: Broad money without time deposits of post office savings organisation .
Automatic stabilisers: Under certain spending and tax rules, expenditures that automatically increase or taxes that automatically decrease when economic conditions worsen, therefore, stabilising the economy automatically.
Asian Development Bank (ADB): ADB was established in December, 1966. The aim of this Bank is to accelerate economic and social development in Asia and Pacific region.
The Bank started its functioning on 1 January, 1967. The head office of the Bank is located at Manila, Philippines.
Association of South-East Asian Nations (ASEAN): ASEAN is a union of 10 South- East Asian Nations. The object of ASEAN is to promote economic co-operation in South- East Asia and also to ensure economic stability in the region its headquarter is in Jakarta.
Asia Pacific Economic Co-operation (APEC): APEC was founded in November, 1989 to devise programmes of co-operation between member nations. It was institutionalized in June, 1992 after a meeting in Bangkok, at which it was agreed to set up a secretariat in Singapore.
Business Process Outsourcing (BPO): Outsourcing of business processes (activities constituting a service) by companies to other companies. This term is frequently associated with Outsourcing of such activities (e.g. receiving and making calls on behalf of other companies popularly known as call centres), by foreign companies to Indian companies in the field of IT-enabled services.
Barriers to Entry: This refers to the factors which make it disadvantageous for new entrants to enter an industry as compared with the firms already established within the industry.
Brundtland Commission: A Commission established by United Nations Organisation in 1983 to study the world's environmental problem and propose agenda for addressing them. It came out with a report. The definition provided by the Commission for the term, "sustainable development', is very popular and widely cited all over the world.
Balance of payments: A set of accounts that summarise a country's transactions with the rest of the world.
Balanced budget: A budget in which taxes are equal to government spending.
Bank rate: The rate of interest payable by commercial banks to RBI if they borrow money from the latter in case of a shortage of reserves.
Barter exchange: Exchange of commodities without the mediation of money.
Base year: The year whose prices are used to calculate the real GDP.
Bonds: A paper bearing the promise of a stream of future monetary returns over a specified period of time. Issued by firms or governments for borrowing money from the public.
Bear: In stock exchange a trader who expects the prices of share to fall. Bear market is where there are several bear operators and consequently prices fall persistently.
Buyer's market: A market which is favourable to the buyer who may set the price, as oppose'': to a seller's market.
Break-even point: Break-even point is the point on the supply curve at which a firm earns normal profit.
Budget line: Budget line consists of all bundles which cost exactly equal to the consumer's income.
Budget set: Budget set is the collection of all bundles that the consumer can buy with her income at the prevailing market prices.
Balanced budget multiplier: The change in equilibrium output that results from a unit increase or decrease in both taxes and government spending.
Black Money: It is unaccounted money which is concealed from tax authorities. All illegal economic activities are dealt with this Black Money. Hawala market had 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.
Broad money: Narrow money + time deposits held by commercial banks and post office savings organisation.
Bull: A trader who expects the price of stocks to rise, as opposed to a bear.
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.
Cascading Effect: When tax imposition leads to a disproportionate rise in prices, i.e. by an extent more than the rise in the tax, it is known as cascading effect.
Cash Reserve Ratio (CRR): A proportion of the total deposits and reserves of the commercial banks that is to be kept with the central bank (RBI) in liquid form. It is used as a measure of control of RBI over the commercial banks.
Colonialism: The practice of acquiring colonies by conquest or other means and making them dependent. It also means extending power, control or rule by a country over the political and economic life of areas outside its borders. The main feature of colonialism is exploitation.
Capital: Factor of production which has itself been produced and which is not generally entirely consumed in the production process.
Capital goods: Goods which are bought not for meeting immediate need of the consumer but for producing other goods.
Capitalist country or economy: A country in which most of the production is carried out by capitalist firms.
Capitalist firms: These are firms with the following features (a) private ownership of means of production (b) production for the market (c) sale and purchase of labour at a price which is called the wage rate (d) continuous accumulation of capital.
Consumer Price Index (CPI): Percentage change in the weighted average price level. We take the prices of a given basket of consumption goods.
Corporate tax: Tax imposed on the income made by the corporations (or private sector firms).
Carbon tax: A tax proposed to be imposed on users of fossil fuel to compensate for the pollution on the principle, 'polluter pays'.
Constant returns to scale: Constant returns to scale is a property of production function that holds when a proportional increase in all inputs results in an increase in output by the same proportion.
Cost function: Cost function for every level of output, it shows the minimum cost for the firm.
Capital gain/loss: Increase or decrease in the value of wealth of a bondholder due to an appreciation or reduction in the price of her bonds in the bond market.
Circular flow of income: The concept that the aggregate value of goods and services produced in an economy is going around in a circular way. Either as factor payments, or as expenditures on goods and services, or as the value of aggregate production.
Consumer durables: Consumption goods which do not get exhausted immediately but last over a period of time are consumer durables.
Consumption goods: Goods which are consumed by the ultimate consumers or meet the immediate need of the consumer are called consumption goods. It may include services as well.
Currency deposit ratio: The ratio of money held by the public in currency to that held as deposits in commercial banks.
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.
Deficit financing: A situation where the expenditure of the government exceeds its revenue.
Disinvestment: A deliberate sale of a part of the capital stock of a company to raise resources and change the equity and/or management structure of a company.
Demand curve: Demand curve is a graphical representation of the demand function. It gives the quantity demanded by the consumer at each price.
Duopoly: Duopoly is a market with just two firms.
Deficit financing through central bank borrowing: Financing of budget deficit by the government through borrowing money from the central bank. Leads to increase in money supply in an economy and may result in inflation.
Depreciation: Wear and tear or depletion which capital stock undergoes over a period of time.
Devaluation: The decrease in the price of domestic currency under pegged exchange rates through official action.
Dumping: Exporting goods with prices far below cost of production intended to cripple the manufactures in the importing countries.
Decreasing returns to scale: Decreasing returns to scale is a property of production function that holds when a proportional increase in all inputs results in an increase in output by less than the proportion.
Demand function: A consumer's demand function for a good gives the amount of the good that the consumer chooses at different levels of its price when the other things remain unchanged.
Double coincidence of wants: A situation where two economic agents have complementary demand for each others' surplus production.
Enterprise: An undertaking owned and operated by an individual or by group of individuals to produce and/or distribute goods and/or services mainly for the purpose of sale, whether fully or partly.
Equities: Shares in the paid up capital or stock of a company whose holders are considered as owners of the company with voting right and dividends in the profit.
Establishment: An enterprise which has got at least one hired worker for major part of the period of operation in a year.
Export duties: Taxes imposed on goods exported from a country.
Entrepreneurship: The task of organising, coordinating and risk-taking during production.
Exports: Sale of goods and services by the domestic country to the rest of the world.
Equilibrium: Equilibrium is a situation where the plans of all consumers and firms in the market match.
Excess demand: If at a price market, demand exceeds market supply, it is said that excess demand exists in the market at that price.
Excess supply: If at a price market, supply is greater than market demand, it is said that there is excess supply in the market at that price.
Economic agents or units: Economic units or economic agents are those individuals or institutions which take economic decisions.
Effective demand principle: If the supply of final goods is assumed to be infinitely elastic at constant price over a short period of time, aggregate output is determined solely by the value of aggregate demand. This is called effective demand principle.
Ex ante consumption: The value of planned consumption.
Ex ante investment: The value of planned investment.
Ex ante: The planned value of a variable as opposed to its actual value.
Ex post: The actual or realised value of a variable as opposed to its planned value.
Expenditure method of calculating national income: Method of calculating the national income by measuring the aggregate value of final expenditure for the goods and services produced in an economy over a period of time.
External sector: It refers to the economic transaction of the domestic country with the rest of the world.
Externalities: Those benefits or harms accruing to another person, firm or any other entity which occur because some person, firm or any other entity may be involved in an economic activity. If someone is causing benefits or good externality to another, the latter does not pay the former. If someone is inflicting harm or bad externality to another, the former does not compensate the latter.
Financial institutions: Institutions that engage in mobilisation and allocation of savings. They include commercial banks, cooperative banks, developmental banks and investment institutions.
Fiat money: Money with no intrinsic value.
Foreign direct investment: Investment of foreign assets into domestic structures, equipment and organisations. It does not include foreign investment into the stock markets. Foreign direct investment is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially 'hot money' which can leave at the first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly.
Foreign exchange: Currency or bonds of another country.
Foreign exchange market: A market in which currencies are bought and sold at rates of exchange fixed now, for delivery at specified dates in the future.
Foreign institutional investment: Foreign investments which come in the form of stocks, bonds, or other financial assests. This form of investment does not entail active management or control over the firms or investors.
Foreign institutional investors (FIIs): Banking and non-banking financial institutions of foreign origin e.g. commercial bank, investment banks, mutual funds, pension funds or other such institutional investors (as distinct from the domestic financial institutions investing) whose investment in stock and bonds in the country through stock markets have significant influence.
Final goods: Those goods which do not undergo any further transformation in the production process.
Firms: Economic units which carry out production of goods and services and employ factors of production.
Fiscal policy: The policy of the government regarding the level of government spending and transfers and the tax structure.
Foreign exchange: Foreign currency, all currencies other than the domestic currency of a given country.
Foreign exchange reserves: Foreign assets held by the central bank of the country.
Four factors of production: Land, Labour, Capital and Entrepreneurship. Together these help in the production of goods and services.
Firm's supply curve: Firm's supply curve shows the level of output that a profit- maximising firm will choose to produce at different values of the market price.
Fixed input: A input which cannot be varied in the short run is called a fixed input.
Fixed exchange rate: An exchange rate between the currencies of two or more countries that is fixed at some level and adjusted only infrequently.
Flexible/floating exchange rate: An exchange rate determined by the forces of demand and supply in the foreign exchange market without central bank intervention.
Flows: Variables which are defined over a period of time.
Gratuity: An amount of money given by the employer to the employee at the time of retirement for services rendered by the employee.
Government: The state, which maintains law and order in the country, imposes taxes and fines, makes laws and promotes the economic wellbeing of the citizens.
Government expenditure multiplier: The numerical coefficient showing the size of the increase in output resulting from each unit increase in government spending.
Great depression: The time period of 1930s (started with the stock market crash in New York in 1929) which saw the output in the developed countries fall and unemployment rise by huge amounts.
Gross domestic product (GDP): Aggregate value of goods and services produced within the domestic territory of a country. It includes the replacement investment of the depreciation of capital stock.
Gross fiscal deficit: The excess of total government expenditure over revenue receipts and capital receipts that do not create debt.
Gross national product (GNP): GDP + Net Factor Income from Abroad. In other words GNP includes the aggregate income made by all citizens of the country, whereas GDP includes incomes by foreigners within the domestic economy and excludes incomes earned by the citizens in a foreign economy.
Gross primary deficit: The fiscal deficit - interest payments.
GDP deflator: Ratio of nominal to real GDP.
Gross investment: Addition to capital stock which also includes replacement for the wear and tear which the capital stock undergoes.
G-8 (Formerly (G-7): G-7 was an organisation of seven non-socialist countries which were highly industrialised in the world. G-7 included USA, Canada, Germany, Britain, France, Italy and Japan, After adopting free market policies in the economy, Russia was also made member of the organisation on 21 June, 1997.
G-20: The Group of Twenty (G-20) was established in 1999 to bring together Finance Ministers and Central Bank Governors of systemically important industrialized and developing economies to discuss key issues relating to the global economy and financial stability.
G-15: G-15 is an organisation of 18 non-alligned developing countries. It was established in September, 1989 in Non-alligned Summit (NAM) at Belgrade. The Secretariat of G-15 is in Geneva.
G-77: This group was constituted under the banner of UNO in 1964. G-77 includes 130 members belonging to Third World-Asia, Africa and Latin America. It is an international economic community of developing countries aiming at protecting economic interest of the member countries.
Gini index: One of the most popular index used to measure inequality in distribution of family income is the Gini Index. It rates countries on a scale of 0 to 100, where 0 implies perfect equality (each family earns the same) and 100 implies an extreme of inequality.
High powered money: Money injected by the monetary authority in the economy. Consists mainly of currency.
Households: The families or individuals who supply factors of production to the firms and which buy the goods and services from the firms.
Inflation: A sustained rise in the general price level.
Informal sector enterprises: Those private sector enterprises, which employ less than 10 workers on a regular basis.
Invisibles: Various items enter in the current account of the balance of payments, some of which are not visible goods. Invisibles are mainly services, such as insurance and banking. They also include gifts sent abroad or received from abroad and private transfer of funds, government grants and interests, profits and dividends.
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.
Intermediate goods: Goods which are used up during the process of production of other goods.
Inferior goods: A goods for which the demand decreases with increase in the income of the consumer is called an inferior goods.
Insider trading: Share market dealing by person who have 'inside5 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.
Income effect: The change in the optimal quantity of a good when the purchasing power changes consequent upon a change in the price of the good is called the income effect.
Increasing returns to scale: Increasing returns to scale is a property of production function that holds when a proportional increase in all input results in an increase in output by more than the proportion.
Indifference curve: Indifference curve is the locus of all points among which the consumer is indifferent.
Isoquant: Isoquant is the set of all possible combinations of the two inputs that yield the same maximum possible level of output.
Imports: Purchase of goods and services by the domestic country to the rest of the world.
Income method of calculating national income: Method of calculating national income by measuring the aggregate value of final factor payments made (= income) in an economy over a period of time.
Interest: Payment for services which are provided by capital.
Inventories: The unsold goods, unused raw materials or semi-finished goods which a Yirm carries from a year to the next.
John maynard keynes (1883-1946): Arguably the founder of Macroeconomics as a separate discipline.
Law of demand: If a consumer's demand for a goods move in the same direction as the consumer's income, the consumer's demand for that goods must be inversely related to the price of the goods.
Liquidity: The quality of assets by which these can be quickly turned into cash. Cash is the most liquid asset.
Legal tender: Money issued by the monetary authority or the government which cannot be refused by anyone.
Lender of last resort: The function of the monetary authority of a country in which it provides guarantee of solvency to commercial banks in a situation of liquidity crisis or bank runs.
Liquidity trap: A situation of very low rate of interest in the economy where every economic agent expects the interest rate to rise in future and consequently bond prices to fall, causing capital loss. Everybody holds her wealth in money and speculative demand for money is infinite.
Law of diminishing marginal product: If we keep increasing the employment of an input with other inputs fixed then eventually a point will be reached after which the marginal product of that input will start falling.
Law of variable proportions: The marginal product of a factor input initially rises with its employment level when the level of employment of the input is low. But after reaching a certain level of employment, it starts falling.
Long run: Long run refers to a time period in which all factors of production can be varied.
Labour: Human physical effort used in production.
Laffer curve: This curve is given by American economist Prof. Arthur Laffer. It represents relationship between total tax revenue and corresponding tax rates. A general hypothesis that when the tax rate is raised the revenue realised tends to fall.
Laissez faire: It is a French word meaning 'non-interference9. 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.
Land: Natural resources used in production - either fixed or consumed.
Merchant bankers: Banks or financial institutions, also known as investment bankers, that specialise in advising the companies and managing their equity and debt requirement (often referred to as portfolio management) through floatation and sale/purchase of stocks and bonds.
MRTP act: An Act (Monopolies Restrictive Trade Practices Act) framed to prevent monopolistic practices and regulate the conduct or business practices of firms that are not in public interest.
Multilateral trade agreements: Trade agreements made by a country with more than two nations to exchange goods and services.
Monopolistic competition: Monopolistic competition is a market structure where there exit a very large number of sellers selling differentiated but substitutable products.
Monopoly: A market structure in which there is a single seller and there are sufficient restrictions to prevent any other seller from entering the market.
Most favoured nation: MFN status only assures that the country will be treated no less (MFN) favourably than any other country. It Jiily offers protection against discrimination.
Marginal revenue product (MRP) of a factor: Marginal Revenue times Marginal Product of the factor.
Market supply curve: shows the output levels that firms in the market produce in aggregate corresponding to different values of the market price.
Monotonic preferences: A consumer's preferences are monotonic if and only if between any two bundles, the consumer prefers the bundle which has more of at least one of the goods and no less of the other good as compared to the other bundle.
Marginal cost: Change in total cost per unit of change in output.
Marginal revenue: Change in total revenue per unit change in sale of output.
Marginal product: Change in output per unit of change in the input when all other inputs are held constant.
Macroeconomic model: Presenting the simplified version of the functioning of a macroeconomy through either analytical reasoning or mathematical, graphical representation.
Managed floating: A system in which the central bank allows the exchange rate to be determined by market forces but intervene at times to influence the rate.
Marginal propensity to consume: The ratio of additional consumption to additional income.
Medium of exchange: The principal function of money for facilitating commodity exchanges.
Money multiplier: The ratio of total money supply to the stock of high powered money in an economy.
National product/income: Total value of goods and services produced in a country + income from abroad.
Nationalisation: Transfer of ownership from private sector to public sector. This involves take over of companies owned by individuals or group of individuals by either state or central government. In some contexts, it also involves transfer of ownership from state government to central government.
New economic policy: A term used to describe the policies adopted in India since 1991.
Non-traffic barriers: All the restrictions on imports by a government in the form other than taxes. They mainly include restrictions on quantity and quality of goods imported.
Narrow money: Currency notes, coins and demand deposits held by the public in commercial banks.
Normal good: A good for which the demand increases with increase in the income of the consumer is called a normal good.
National disposable income: Net national product at market prices + Other current transfers from the rest of the World.
Net domestic product (NDP): Aggregate value of goods and services produced within the domestic territory of a country which does not include the depreciation of capital stock.
Net investment: Addirion to capital stock; unlike gross investment, it does not include the replacement for the depletion of capital stock.
Net national product (NNP) (at market price): GNP - depreciation.
NNP (at factor cost) or national income (N1): NNP at market price - (Indirect taxes Subsidies).
Nominal exchange rate: The number of units of domestic currency one must give up to get an unit of foreign currency; the price of foreign currency in terms of domestic currency.
Nominal (GDP): GDP evaluated at current market prices.
Non-tax payments: Payments made by households to the firms or the government as non-tax obligations such as fines.
Non-performing assets (NPA): NPAs signify those distributed loans by banks and financial institutions against which repayment of principle and the due interest payment is not timely made. Such unpaid amounts comprising principle as well as interest amount make non-performing assets.
Opportunity cost: It is defined with respect to a particular value or action and is equal to the value of the foregone alternative choice or action.
Oligopoly: A market consisting of more than one (but few) sellers is called a oligopoly.
Open market operation: Purchase or sales of government securities by the central bank from the general public in the bond market in a bid to increase or decrease the money supply in the economy.
Organisation of the petroleum exporting countries (OPEC): The Organization of Petroleum Exporting Countries (OPEC) was founded in Baghdad, Iraq, with the signing of an agreement in September, 1960 by five countries namely Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. It's headquarter is in Vienna (Austria). OPEC nations produce about 75 per cent of the total production of the world.
Per capita income: Total national income of a country divided by its population in a specific period,
Permit license raj: A term used to denote the rules and regulations framed by the government to start, run and operate an enterprise for production of goods and services in India.
Poverty line: The per capita expenditure on certain minimum needs of a person including food intake of a daily average of 2,400 calories in rural areas and 2,100 calories in urban areas.
Provident fund: A savings fund in which both employer and employee contribute regularly in the interest of the employee. It is maintained by the government and given to the employee when he or she resigns or retires from work.
Public sector establishments: All those establishments which are owned and operated by the government. They may be run either by local government, state government or by central government independently or jointly.
Perfect competition: A market environment wherein all firms in the market produce the same goods and buyers and sellers are price-takers.
Price ceiling: The government-imposed upper limit on the price of a good or service is called price ceiling.
Price elasticity of demand: Price elasticity of demand for a good is defined as the percentage change in demand for the good divided by the percentage change in its price.
Price elasticity of supply: Price elasticity of supply is the percentage change in quantity supplied due to a one per cent change in the market price of the good.
Patent: A legal right that grants exclusive use of the patented product or process to the inventor.
Pension: A monthly payment to a worker who has retired from work.
Progressive tax: A tax the burden of which increases as income increases.
Public goods: Goods or services that are collectively consumed; it is not possible to exclude anyone from enjoying their benefits and one person's consumption does not reduce that available to others.
Purchasing power parity: A theory of international exchange which holds that the price of similar goods in different countries is the same.
Price floor: The government-imposed lower limit on the price that may be charged for a particular good or service is called price floor.
Price line: Price line is a horizontal straight line that shows the relationship between market price and a firm's output level.
Production function: Production function shows the maximum quantity of output that can be produced by using different combinations of the inputs.
Profit: Profit is the difference between a firm's total revenue and its total cost of production.
Paradox of thrift: As people become more thrifty they end up saving less or same as before in aggregate.
Parametric shift: Shift of a graph due to a change in the value of a parameter.
Personal disposable income (PDI): PI - Personal tax payments - Non-tax payments.
Personal income (PI): N1 - Undistributed profits - Net interest payments made by households - Corporate tax + Transfer payments to the households from the government and firms.
Personal tax payments: Taxes which are imposed on individuals, such as income tax.
Planned change in inventories: Change in the stock of inventories which has occurred in a planned way.
CT Present value (of a bond): That amount of money which, if kept today in an interest earning project, would generate the same income as the sum promised by a bond over its lifetime.
Private income: Factor income from net domestic product accruing to the private sector + National debt interest + Net factor income from abroad + Current transfers from government + Other net transfers from the rest of the world.
Product method of calculating national income: Method of calculating the national income by measuring the aggregate value of production taking place in an economy over a period of time.
Plastic money: Plastic money is a term given to credit cards issued by banks and financial institutions. Credit cards are used by the cardholders for shopping, buying travelling tickets etc.
Quantitative restrictions: Restrictions in the form of total quantities or quotas imposed on imports to reduce balance of payments (BOP) deficit and protect domestic industry.
Recession: A period when aggregate output declines.
Repo: The rate at which Reserve Bank of India lends to commercial banks.
Regressive tax: A tax whose burden falls as income rises. The burden of such a tax may fall disproportionately on the poor. A tax on salt is an example.
Reverse repo: The rate at which RBI borrows from commercial banks.
Real exchange rate: The relative price of foreign goods in terms of domestic goods.
Real GDP: GDP evaluated at a set of constant prices.
Rent: Payment for services which are provided by land (natural resources).
Reserve deposit ratio: The fraction of their total deposits which commercial banks keep as reserves.
Revaluation: A decrease in the exchange rate in a pegged exchange rate system which makes the foreign currency cheaper in terms of the domestic currency.
Revenue deficit: The excess of revenue expenditure over revenue receipts.
Ricardian equivalence: The theory that consumers are forward looking and anticipate that government borrowing today will mean a tax increase in the future to repay the debt, and will adjust consumption accordingly so that it will have the same effect on the economy as a tax increase today.
Regressive tax: It is a tax in which rate of taxation falls with and increase in income. In regressive taxation incidence falls more on people having lower incomes than that of those having higher income.
Special economic zone (SEZ): It is a geographical region that has economic laws different from a country's typical economic laws. Usually the goal is to increase foreign investment.
Statutory liquidity ratio (SLR): A minimum proportion of the total deposits and reserves to be maintained by the bank in liquid form as per the regulations of the central bank (RBI). Maintenance of SLR, in addition to the Cash Reserve Ratio (CRR), is an obligation of the banks.
Stock market: An Institution where stocks and shares are traded.
Substitution effect: The change in the optimal quantity of a good when its price changes and the consumer's income is adjusted so that she can just buy the bundle that she was buying before the price change is called the substitution effect
Super-normal profit: Profit that a firm earns over and above the normal profit is called the super-normal profit.
Sterilisation: Intervention by the monetary authority of a country in the money.
Stagflation: A situation of high inflation combined with high unemployment.
Short run: Short run refers to a time period in which some factors of production cannot be varried.
Shut down point: In the short run, it is the minimum point of AVC curve and in the long run, it is the minimum point of LRAC curve.
Speculative demand: Demand for money as a store of wealth.
Stocks: Those variables which are defined at a point of time.
Store of value: Wealth can be stored in the form of money for future use. This function of money is referred to as store of value.
South Asian Free Trade Area (SAFTA): SAFTA has come into force since 1 January 2006 replacing South Asian Preferential Trade Agreement (SAPTA) which was operative among SAARC countries, since 7 December, 1995. SAFTA presupposes abolition of all kinds of trade and tariff restrictions. Ultimately it will pave the way for the creation of common market with common currency.
South Asian Association For Regional Co-Operation (SAARC): India, Maldives, Pakistan, Bangladesh, Sri Lanka, Bhutan, Nepal and Afghanistan constituted an organisation known as SAARC, on the recommendations of Dhaka Conference on 7-8 December, 1985. Its headquarter has been established at Kathmandu.
Special drawing rights (SDRs): It is a reserve asset (known as 'Paper Gold') created within the framework of the International 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.
Tariff: A tax on imports, which can be levied either on physical units, e.g. per tonne (specific) or on value. Tariffs may be imposed for a variety of reasons including; to raise government revenue, to protect domestic industry from subsidised or low-wage imports, to boost domestic employment, or to ease a deficit on the balance of payments.
Tariff barriers: All the restrictions on imports by a government in the form to taxes.
Trickledown 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.
Total cost: Total cost is the sum of total fixed cost and total varibale cost.
Total fixed cost: The cost that a firm incurs to emply fixed inputs is called the total fixed cost.
Total product: If we vary a single input keeping all other inputs constant, then for different levels of employment of that input we get different levels of output from the production function. This relationship between the variable input and output is referred to as total product.
Total revenue: Total revenue is equal to the market price of the good multiplied by the quantity of the good sold by a firm.
Total revenue curve: shows the relationship between firm's total revenue and firm's output level.
Total variable cost: The cost that a firm incurs to employ variable inputs is called the total vaiable cost.
Transaction demand: Demand for money for carrying out transactions.
Transfer payments to households from the government and firms: Transfer payments are payments which are made without any counterpart of services received by the payer. For examples, gifts, scholarships, pensions.
Undistributed profits: That part of profits earned by the private and government owned firms which are not distributed among the factors of production.
Unemployment rate: This may be defined as the number of people who were unable to find a job (though they were looking for jobs), as a ratio of total number of people who were looking for jobs.
Unit of account: The role of money as a yardstick for measuring and comparing values of different commodities.
Unplanned change in inventories: Change in the stock of inventories which has occurred in an unexpected way.
Value of marginal product (VMP) of a factor: Price times Marginal Product of the factor.
Variable input: An input the amount of which can be varied.
Value added: Net contribution made by a firm in the process of production. It is defined as, Value of production - Value of intermediate goods used.
Wholesale price index (WPI): Percentage change in the weighted average price level. We take the prices of a given basket of goods which is traded in bulk.
Wage: Payment for the services which are rendered by labour.
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.