Economics is the social science that studies how individuals, businesses, and governments allocate scarce resources to satisfy unlimited wants and needs. Read more
What is 'Disposable Income'?
MediumDisposable Income is the amount of money that an individual or household has available for spending and saving after income taxes have been accounted for. It is a key economic indicator used to gauge the overall health of the consumer economy.
When economists subtract "necessities" like rent and food from disposable income, the remaining amount is called "Discretionary Income"-the money you use for fun stuff!
What is 'Bond'?
MediumA Bond is a fixed-income instrument that represents a loan made by an investor to a borrower, typically a corporation or government. In exchange for the loan, the borrower agrees to pay back the principal at a later date plus regular interest payments. Bonds are generally considered safer than stocks but usually offer lower potential returns.
The largest borrower in the world is the US Government, which has issued over 34 trillion in bonds (known as Treasuries) to fund its operations!
What is 'Brain Drain'?
MediumBrain Drain is a slang term for the emigration of highly trained or intelligent people from a particular country. This usually happens when professionals like doctors or engineers leave developing nations for higher pay and better conditions in wealthy nations.
While bad for the "sending" country, it can sometimes be balanced out by "remittances"-money that the workers send back home to their families!
Which bank is known as the 'Lender of Last Resort'?
MediumA Central Bank (like the Federal Reserve or the Bank of England) is known as the "Lender of Last Resort." This means they provide emergency loans to banks and other financial institutions that are facing a liquidity crisis to prevent a total collapse of the banking system.
The concept was famously developed by Walter Bagehot in his 1873 book 'Lombard Street', which still guides central bankers today!
What is 'Consumer Price Index (CPI)'?
MediumThe Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a "basket" of consumer goods and services, such as transportation, food, and medical care. It is the most common way to calculate inflation.
In the US, the "basket" is updated every few years to include new things people buy, like Netflix subscriptions or smartphones!
What is 'Unemployment Rate'?
MediumThe Unemployment Rate is the percentage of the total labor force that is jobless and actively seeking employment. It is calculated by dividing the number of unemployed individuals by all individuals currently in the labor force.
It does not include "discouraged workers" who have given up looking for a job or people who are stay-at-home parents or full-time students!
What is 'Trade Surplus'?
MediumA Trade Surplus occurs when the value of a country's exports (what it sells to other countries) is greater than the value of its imports (what it buys from other countries).
Germany and China are famous for having massive trade surpluses because they sell so many manufactured goods to the rest of the world!
What is 'Yield'?
MediumYield is the earnings generated and realized on an investment over a particular period of time. It is expressed as a percentage based on the investment's cost or current market value.
As the price of a bond goes up, its yield goes down; this inverse relationship is one of the most important rules in finance!
What is subsidy?
MediumA subsidy is a form of financial aid or support extended to an economic sector (or institution, business, or individual) by the government. The goal is usually to keep the price of a product low for consumers or to help a domestic industry stay competitive against foreign rivals. Common examples include agricultural and green energy subsidies.
While we often talk about subsidies for renewable energy, the world's governments actually spend far more subsidizing fossil fuels-roughly 7 trillion annually-to keep the price of gasoline and electricity low for their citizens.
What is 'Capital Gains'?
MediumCapital Gains are the profits realized from the sale of a non-inventory asset that was purchased at a lower price. The most common capital gains are realized from the sale of stocks, bonds, precious metals, and property. It is only "realized" when the asset is actually sold; until then, it is an "unrealized" gain.
In many countries, long-term capital gains are taxed at a lower rate than regular income to encourage long-term investing!
What is 'Command Economy'?
MediumA Command Economy is a system where the government, rather than the free market, determines what goods should be produced, how much should be produced, and the price at which the goods are offered for sale.
The former Soviet Union and modern-day North Korea are the most famous examples of command economies!
What is 'ROI'?
MediumROI stands for Return on Investment. It is a performance measure used to evaluate the efficiency or profitability of an investment or compare the efficiency of several different investments. It is calculated by dividing the profit of an investment by its cost.
ROI is used for everything from calculating the profit on a stock to deciding if a college degree is worth the tuition cost!
Which type of good has demand increase as income increases?
MediumA normal good is a type of good for which demand increases as a consumer's income increases (and decreases when income falls). Most items, from organic food to new cars, are normal goods.
The opposite is an "inferior good" (like instant noodles or used clothing), where people actually buy less of it as they get richer and can afford better alternatives!
What is 'Quota'?
MediumA quota is a government-imposed trade restriction that limits the number or monetary value of goods that a country can import or export during a particular period.
Quotas are often considered more restrictive than tariffs because while a tariff just makes a product more expensive, a quota can literally make it impossible to get any more of that product once the limit is reached!
What is 'Normal Good'?
MediumA Normal Good is a product whose demand increases as consumer income rises. Most things we buy, such as new clothes, restaurant meals, and electronic gadgets, fall into this category. When people have more money, they tend to "trade up" to better or more frequent versions of these goods.
Air travel is a classic normal good; as a country gets richer, its citizens start flying significantly more often for vacation!
Which market has many sellers?
MediumA market with "many sellers" typically refers to either "Perfect Competition" or "Monopolistic Competition." In these markets, no single business has enough power to control the price, which usually results in better quality and lower prices for consumers. This is the opposite of a monopoly.
While true "Perfect Competition" is rare, the market for agricultural products like wheat is the closest example, as there are thousands of farmers selling a product that is virtually identical, meaning no single farmer can raise their price without losing all their customers.
What is deficit?
MediumIn economics, a deficit occurs when a government's spending exceeds its revenue (usually from taxes) during a single year. To cover this gap, the government must borrow money by issuing bonds, which adds to the national debt. The opposite of a deficit is a "surplus."
While the United States has run a deficit almost every year since the 1970s, it actually achieved a budget surplus for four consecutive years between 1998 and 2001, allowing it to briefly pay down a small portion of the national debt.
What is 'Progressive Tax'?
MediumA progressive tax is a tax in which the tax rate increases as the taxable amount (income) increases. This means high-income earners pay a larger percentage of their income in taxes than low-income earners.
The opposite is a "flat tax," where everyone pays the same percentage (e.g., 10%) regardless of how much they make!
Who is the author of 'The General Theory of Employment Interest and Money'?
MediumJohn Maynard Keynes wrote 'The General Theory of Employment, Interest and Money' in 1936. It is considered the foundation of modern macroeconomics and introduced the idea that government spending is necessary to fix recessions.
Keynes wrote this book during the Great Depression to explain why the economy wasn't fixing itself, as older theories predicted it would!
Who proposed Keynesian economics?
MediumJohn Maynard Keynes was a British economist whose ideas fundamentally changed the way governments manage their economies. He proposed "Keynesian Economics," arguing that during a recession, the government should borrow money and spend it to create demand and jobs, even if it results in a budget deficit.
Keynes was also a brilliant investor; while he lost much of his wealth in the 1929 stock market crash, he changed his strategy and eventually grew the endowment of King's College, Cambridge, from ?30,000 to over ?380,000 before his death.
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