I have decided to post only important wordings rather than posting every word in that dictionary so that I can finish this series as early possible.
Economic sanctions
A way of punishing errant countries, which is currently more acceptable than bombing or invading them. One or more restrictions are imposed on international trade with the targeted country in order to persuade the target’s GOVERNMENT to change a policy. Possible sanctions include limiting export or import trade with the target; constraining INVESTMENT in the target; and preventing TRANSFERS of MONEY involving citizens or the government of the target. Sanctions can be multi¬lateral, with many countries acting together, perhaps under the auspices of the United Nations, or unilateral, when one country takes action on its own.
Efficient market hypothesis
You can’t beat the market. The efficient market hypothesis says that the PRICE of a financial ASSET reflects all the INFORMATION available and responds only to unexpected news. Thus prices can be regarded as optimal estimates of true investment value at all times. It is impossible for investors to predict whether the price will move up or down (future price movements are likely to follow a RANDOM WALK), so on AVERAGE an investor is unlikely to beat the market.
Elasticity
A measure of the responsiveness of one variable to changes in another. Economists have identified four main types.
• PRICE ELASTICITY measures how much the quantity of SUPPLY of a good, or DEMAND for it, changes if its PRICE changes. If the percentage change in quantity is more than the percentage change in price, the good is price elastic; if it is less, the good is INELASTIC.
• INCOME elasticity of demand measures how the quantity demanded changes when income increases.
• Cross-elasticity shows how the demand for one good (say, coffee) changes when the price of another good (say, tea) changes. If they are SUBSTITUTE GOODS (tea and coffee) the cross-elasticity will be positive: an increase in the price of tea will increase demand for coffee. If they are COMPLEMENTARY GOODS (tea and teapots) the cross-elasticity will be negative. If they are unrelated (tea and oil) the cross-elasticity will be zero.
• Elasticity of substitution describes how easily one input in the production process, such as LABOUR, can be substituted for another, such as machinery.
Engel's law
People generally spend a smaller share of their BUDGET on food as their INCOME rises. Ernst Engel, a Russian statistician, first made this observation in 1857. The reason is that food is a necessity, which poor people have to buy. As people get richer they can afford better-quality food, so their food spending may increase, but they can also afford LUXURIES beyond the budgets of poor people. Hence the share of food in total spending falls as incomes grow.
Enron
In a word, all that was wrong with American capitalism at the start of the 21st century. Until late 2001, Enron, an energy company turned financial powerhouse based in Houston, Texas, had been one of the most admired firms in the United States and the world. It was praised for everything from pioneering energy trading via the internet to its innovative corporatate culture and its system of employment evaluation by peer review, which resulted in those that were not rated by their peers being fired. However, revelations of accounting fraud by the firm led to its bankruptcy, prompting what was widely described as a crisis of confidence in American capitalism. This, as well as further scandals involving accounting fraud (WorldCom) and other dubious practices (many by Wall Street firms), resulted in efforts to reform corporate governance, the legal liability of company bosses, accounting, Wall Street research and regulation.
Eurodollar
A deposit in dollars held in a BANK outside the United States. Such deposits are often set up to avoid taxes and currency exchange costs. They are frequently lent out and have become an important method of CREDIT CREATION.
Expenditure tax
A tax on what people spend, rather than what they earn or their wealth. Economists often regard it as more efficient than other taxes because it may discourage productive economic activity less; it is not the creating of INCOME and wealth that is taxed, but the spending of it. It can be a form of INDIRECT TAXATION, added to the PRICE of a good or service when it is sold, or DIRECT TAXATION, levied on people’s income minus their SAVINGS over a year.
Fiscal drag
Fiscal drag is the tendency of revenue from taxation to rise as a share of GDP in a growing economy. Tax allowances, progressive tax rates and the threshold above which a particular rate of tax applies usually remain constant or are changed only gradually. By contrast, when the economy grows, income, spending and corporate profit rise. So the tax-take increases too, without any need for government action. This helps slow the rate of increase in demand, reducing the pace of growth, making it less likely to result in higher inflation. Thus fiscal drag is an automatic stabilizer, as it acts naturally to keep demand stable.
Fiscal policy
One of the two instruments of macroeconomic policy; monetary policy's side-kick. It comprises public spending and taxation, and any other government income or assistance to the private sector. It can be used to influence the level of demand in the economy, usually with the twin goals of getting unemployment as low as possible without triggering excessive inflation. At times it has been deployed to manage short-term demand through fine tuning, although since the end of the Keynesian era it has more often been targeted on long-term goals, with monetary policy more often used for shorter-term adjustments.
For a government, there are two main issues in setting fiscal policy: what should be the overall stance of policy, and what form should its individual parts take?
Some economists and policymakers argue for a balanced budget. Others say that a persistent deficit (public spending exceeding revenue) is acceptable provided, in accordance with the golden rule, the deficit is used for investment (in infrastructure, say) rather than consumption. However, there may be a danger that public-sector investment will result in the crowding out of more productive private investment. Whatever the overall stance on average over an economic cycle, most economists agree that fiscal policy should be counter-cyclical, aiming to automatically stabilize demand by increasing public spending relative to revenue when the economy is struggling and increasing taxes relative to spending towards the top of the cycle. For instance, social (welfare) handouts from the state usually increase during tough times, and fiscal drag boosts government revenue when the economy is growing.
Free trade
The ability of people to undertake economic transactions with people in other countries free from any restraints imposed by governments or other regulators. Measured by the volume of imports and exports, world trade has become increasingly free in the years since the Second World War. A fall in barriers to trade, as a result of the general agreement on tariffs and trade and its successor, the world trade organization, has helped stimulate this growth. The volume of world merchandise trade at the start of the 21st century was about 17 times what it was in 1950, and the world's total output was not even six times as big. The ratio of world exports to gdp had more than doubled since 1950. Of this, trade in manufactured goods was worth three times the value of trade in services, although the share of services trade was growing fast.
Frictional unemployment
That part of the jobless total caused by people simply changing jobs and taking their time about it, because they are spending time on job search or are taking a break before starting with a new employer. There is likely to be some frictional unemployment even when there is technically full employment, because most people change jobs from time to time.
Friedman, Milton
Loved and loathed; perhaps the most influential economist of his generation. He won the Nobel Prize for economics in 1976, one of many Chicago school economists to receive that honor. He has been recognized for his achievements in the study of consumption, monetary history and theory, and for demonstrating how complex policies aimed at economic stabilization can be.
A fierce advocate of free markets, Mr. Friedman argued for monetarism at a time when Keynesian policies were dominant. Unusually, his work is readily accessible to the layman. He argues that the problems of inflation and short-run unemployment would be solved if the Federal Reserve had to increase the money supply at a constant rate.
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