Continuing with Economic Terminologies, today I am posting important terminologies in "G, H, I & J"
GDP
Gross domestic product, a measure of economic activity in a country. It is calculated by adding the total value of a country's annual output of goods and services. GDP = private consumption + investment + public spending + the change in inventories + (exports - imports). It is usually valued at market prices; by subtracting indirect tax and adding any government subsidy, however, GDP can be calculated at factor cost. This measure more accurately reveals the income paid to factors of production. Adding income earned by domestic residents from their investments abroad, and subtracting income paid from the country to investors abroad, gives the country's gross national product (GNP).
Gilts
Shorthand for gilt-edged securities, meaning a safe bet, at least as far as receiving interest and avoiding default goes. The price of gilts can vary considerably over time, however, creating a degree of risk for investors. Usually the term is applied only to government bonds.
Gini coefficient
An inequality indicator. The Gini coefficient measures the inequality of income distribution within a country. It varies from zero, which indicates perfect equality, with every household earning exactly the same, to one, which implies absolute inequality, with a single household earning a country's entire income. Latin America is the world's most unequal region, with a Gini coefficient of around 0.5; in rich countries the figure is closer to 0.3.
Gresham's law
Bad money drives out good. One of the oldest laws in economics, named after Sir Thomas Gresham, an adviser to Queen Elizabeth I of England. He observed that when a currency has been debased and a new one is introduced to replace it, the new one will be hoarded and effectively taken out of circulation, while the old one will continue to be used for transactions, to be got rid of as fast as possible.
Hawala
An ancient system of moving money based on trust. It predates western bank practices. Although it is now more associated with the Middle East, a version of hawala existed in China in the second half of the Tang dynasty (618-907), known as fei qian, or flying money. In hawala, no money moves physically between locations; nowadays it is transferred by means of a telephone call or fax between dealers in different countries. No legal contracts are involved, and recipients are given only a code number or simple token, such as a low-value banknote torn in half, to prove that money is due. Over time, transactions in opposite directions cancel each other out, so physical movement is minimised. Trust is the only capital that the dealers have. With it, the users of hawala have a worldwide money-transmission service that is cheap, fast and free of bureaucracy.
From a government's point of view, however, informal money networks are threatening, since they lie outside official channels that are regulated and taxed. They fear they are used by criminals, including terrorists. Although this is probably true, by far the main users of hawala networks are overseas workers, who do not trust official money transfer methods or cannot afford them, remitting earnings to their families.
Hot money
money that is held in one currency but is liable to switch to another currency at a moment’s notice in search of the highest available RETURNS, thereby causing the first currency’s EXCHANGE RATE to plummet. It is often used to describe the money invested in currency markets by speculators.
Hypothecation
Earmarking taxes for a specific purpose. It may be a clever way to get around public hostility to paying more in TAXATION. If people are told that a specific share of their INCOME TAX will go to some popular cause, say education or health, they may be more willing to cough up. At the very least they may be forced to make more informed decisions about the trade-offs between taxes and public SERVICES. There is a downside, however. Hypothecated taxes may tie the hands of a GOVERNMENT at times when the hypothecated revenue could be spent to better effect elsewhere in the public sector. Conversely, and perhaps more likely, hypothecated taxes may prove to be less hypothecated than the public is led to believe. Civil servants, doubtless under pressure from their political bosses, can usually find ways to fudge the definition of the specific purpose for which a tax is hypothecated, letting government regain control over how the MONEY is spent.
Income effect
A change in the DEMAND for a good or service caused by a change in the INCOME of consumers rather than, say, a change in consumer tastes. Contrast with SUBSTITUTION EFFECT.
Indifference curve
A curve that joins together different combinations of goods and SERVICES that would each give the consumer the same amount of satisfaction (UTILITY). In other words, consumers are indifferent to which of the combinations they get.
Invisible hand
Adam SMITH’s shorthand for the ability of the free market to allocate FACTORS OF PRODUCTION, goods and SERVICES to their most valuable use. If everybody acts from self-interest, spurred on by the PROFIT motive, then the economy will work more efficiently, and more productively, than it would do were economic activity directed instead by some sort of central planner. It is, wrote Smith, as if an “invisible hand” guides the actions of individuals to combine for the common good. Smith recognised that the invisible hand was not infallible, however, and that some GOVERNMENT action might be needed, such as to impose ANTITRUST laws, enforce PROPERTY RIGHTS, and to provide policing and national defence.
J-curve
The shape of the trend of a country’s trade balance following a DEVALUATION. A lower EXCHANGE RATE initially means cheaper EXPORTS and more expensive IMPORTS, making the current account worse (a bigger DEFICIT or smaller surplus). After a while, though, the volume of exports will start to rise because of their lower PRICE to foreign buyers, and domestic consumers will buy fewer of the costlier imports. Eventually, the trade balance will improve on what it was before the devaluation. If there is a currency APPRECIATION there may be an inverted J-curve.
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