Definitions - Misc From NCERTs

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Adam Smith (1723 – 1790)

• Regarded as the father of modern Economics. Author of Wealth of Nations.

Aggregate monetary resources

• Broad money without time deposits of post office savings organisation (M3).

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.
• Automatic stabilizers are features of the tax systems that tend by their design to offset fluctuations in economic activity without direct intervention by policymakers.

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.

Balanced budget

• A budget in which taxes are equal to government spending. [revenue = expenditure]

Balanced budget multiplier

• The change in equilibrium output that results from a unit increase or decrease in both taxes and government spending.

Barter exchange

• Exchange of commodities without the mediation of money.

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
• private ownership of means of production
• production for the market (production based on demand)
• sale and purchase of labour at a price which is called the wage rate
• continuous accumulation of capital.

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.

Core sector Industries

• Coal, Crude oil, Natural gas, Refinery Products, Fertilizers, Steel, Cement, Electricity

Depreciation

• A decrease in the price of the domestic currency in terms of the foreign currency under floating exchange rates. It corresponds to an increase in the exchange rate.

Depreciation

• Wear and tear or depletion which capital stock undergoes over a period of time.

Double coincidence of wants

• A situation where two economic agents have complementary demand for each others’ surplus production.

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.

Entrepreneurship

• The task of organising, coordinating and risk-taking during production.

Ex ante

• The planned value of a variable as opposed to its actual value.

Ex ante consumption

• The value of planned consumption.

Ex ante investment

• The value of planned investment.

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.

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.

Factors of production

• Four factors of production Land, Labour, Capital and Entrepreneurship. Together these help in the production of goods and services.

Fiat money

• Money with no intrinsic value.

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.

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.

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.

Households

• The families or individuals who supply factors of production to the firms and which buy the goods and services from the firms.

Imports

• Purchase of goods and services by the domestic country to the rest of the world.

Intermediate goods

• Goods which are used up during the process of production of other goods.

Inventories

• The unsold goods, unused raw materials or semi-finished goods which a firm carries from a year to the next.

John Maynard Keynes (1883 – 1946)

• Arguably the founder of Macroeconomics as a separate discipline.

Labour

• Human physical effort used in production.

Land

• Natural resources used in production – either fixed or consumed.

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.

Macroeconomic model

• Presenting the simplified version of the functioning of a macroeconomy through either analytical reasoning or mathematical, graphical representation.

Marginal propensity to consume

• The ratio of additional consumption to additional income.

Non-tax payments

• Payments made by households to the firms or the government as non-tax obligations such as fines.

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 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.

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.

Profit

• Payment for the services which are provided by entrepreneurship.

Public good

• 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.

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 [This is because the public will save its excess money in order to pay for future tax increases that will be initiated to pay off the debt].

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.

Transaction demand

• Demand for money for carrying out transactions.

Undistributed profits

• That part of profits earned by the private and government owned firms which are not distributed among the factors of production.
• The amount of a publicly-traded company's post-tax earnings that are not paid in dividends. Most earnings retained are re-invested into the company's operations. Year-on-year tracking of the ratio of undistributed profits to dividends is important to fundamental analysis to investigate whether a company is increasing or decreasing its rate of re-investment. Undistributed profits form part of a company's equity, and are owned by shareholders. They are also called retained earnings, accumulated profits,undivided profits, and earned surplus.

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.
• Money as a yardstick to find the relative value of goods

Unplanned change in inventories

• Change in the stock of inventories which has occurred in an unexpected way.

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.

Wage

• Payment for the services which are rendered by labour. 

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