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Government spending:
It is classified by economists into three main types.
Government purchases of goods and services for current use are classed as government
consumption.
Government purchases of goods and services intended to create future benefits, such as
infrastructure investment or research spending, are classed as government investment.
Government expenditures that are not purchases of goods and services, and instead just
represent transfers of money, such as social security payments, are called transfer
payments.
Government spending can be financed by seigniorage, taxes, or government borrowing.
Exports
It refers to the sales outside the country.
Imports
It is the purchase of foreign goods and services.
In the name "Gross Domestic Product,"
"Gross" means that GDP measures production regardless of the various uses to which
that production can be put. Production can be used for immediate consumption, for
investment in new fixed assets or inventories, or for replacing depreciated fixed assets.
"Domestic" means that GDP measures production that takes place within the country's
borders.
Indian GDP:
The Indian economy is the 12th largest in USD exchange rate terms. India is the second
fastest growing economy in the world. Indias GDP has touched US$1.25 trillion. India has
made remarkable progress in information technology, high end services and knowledge
process services.
However, the cause for concern is that the rapid growth has not been accompanied by a
just and equitable distribution of wealth among all sections of the population. This
economic growth has been location specific and sector specific. For e.g. it has not
percolated to sectors where labour is intensive (agriculture) and in states where poverty is
acute (Bihar, Orissa, Madhya Pradesh and Uttar Pradesh).
Today, the service sector is contributing more than half of the Indian GDP. It takes India
one step closer to the developed economies of the world. Earlier it was agriculture which
mainly contributed to the Indian GDP.
GROSS NATIONAL PRODUCT (GNP)
GNP measures the value of goods and services that the country's citizens produced
regardless of their location. GNP is one measure of the economic condition of a country,
under the assumption that a higher GNP leads to a higher quality of living, all other things
being equal.
MACROECONOMICS
It (from prefix "macro-" meaning "large" + "economics") is a branch of economics that deals
with the performance, structure, and behavior of the economy of the entire community
(either a nation, a region, or the entire world). Macroeconomists study aggregated
indicators such as GDP, unemployment rates, and price indices to understand how the
whole economy functions. Macroeconomists develop models that explain the relationship
between such factors as national income, output, consumption, unemployment, inflation,
savings, investment, international trade and international finance.
Macroeconomic models and their forecasts are used by both governments and large
corporations to assist in the development and evaluation of economic policy and business
strategy.
TRADE DEFICIT/SURPLUS
If the imports are more than the exports, trade deficit is observed. If the exports are more
than imports, then trade surplus is observed.
INVESTMENT
It means putting money to work in hope of generating even more money. It is related to
saving or deferring consumption.
Investment is defined as any use of resources intended to increase future production
output or income.
The two basic forms of investment are direct investment on buildings and machinery and
indirect investment on financial securities like bonds and shares.
INFLATION
Inflation is an upward movement in the average level of prices. Its opposite is deflation,
a downward movement in the average level of prices. The boundary between inflation
and deflation is price stability.
Technically, inflation erodes the purchasing power of a unit of currency; so one gets less
for the same amount of money. Inflation usually refers to consumer prices, but it can also
be applied to other prices (wholesale goods, wages, assets, and so on). It is usually
expressed as an annual percentage rate of change on an Index Number.
"Inflation is too many dollars chasing too few goods". To understand how this works,
imagine a world that only has two commodities: Oranges picked from orange trees, and
paper money printed by the government. In a year where there is a drought and oranges are
scarce, we'd expect to see the price of oranges rise, as there will be quite a few dollars
chasing very few oranges. Conversely, if there's a record crop or oranges, we'd expect to see
the price of oranges fall, as orange sellers will need to reduce their prices in order to clear
their inventory. These scenarios are inflation and deflation, respectively, though in the real
world inflation and deflation are changes in the average price of all goods and services, not
just one.
Before the Great Depression of 1930, prices were as likely to fall as rise during any given
year, and in the long run these ups and downs usually cancelled each other out. By
contrast, by the end of the 20th century, 60-year-old Americans had seen prices rise by
over 1,000% during their lifetime. The most spectacular period of inflation in
industrialized countries took place during the 1970s, partly as a result of sharp increases
in oil prices implemented by the OPEC cartel.
(cartel: An agreement between two or more firms of the same industry to co-operate in
fixing prices and/or carving up the market by restricting the output. Although the desire to
form cartels is strong as it reduces competition, it is not easy to actually form cartels
because of the strict laws.)
Ideally, macroeconomic policy should aim for stable prices.
INDEX NUMBER
Inflation is measured by an index of consumer (retail) prices. An index number is an
economic data figure reflecting price or quantity compared with a standard or base
value. The base usually equals 100 and the index number is usually expressed as 100
times the ratio to the base value. For example, if a commodity costs twice as much in
1970 as it did in 1960, its index number would be 200 relative to 1960. Index numbers
are used especially to compare business activity, the cost of living, and employment.
HYPER-INFLATION
A scenario where the inflation rises at a very high rate, how much is high is really high is
still debated. Typically, hyper-inflation leads to complete loss of confidence in the
countrys currency and people start looking for other forms of money like gold, physical
assets and foreign currency. This is a big problem because it is unstable and
unpredictable, for if it was predictable, people could plan on the basis of expected price
rise.
MACROECONOMIC POLICY
A policy by government and central banks, usually intended to maximize growth while
keeping down inflation and unemployment. The main instruments of macroeconomic
policy are changes in the rate of interest and money supply, known as monetary policy,
and changes in taxation and public spending, known as fiscal policy. The fact that
unemployment and inflation often rise sharply, and that growth often slows or GDP falls,
may be evident of poorly executed macroeconomic policy.
MONETARY POLICY
This is under the control of central banks and is used to control the money supply and
interest rates, and hence manage demand.
FISCAL POLICY
The control of economy by controlling the government spending and revenue collection
by taxes.
Globalisation has brought in new opportunities for developing countries. Greater access
to developed country markets and technology transfer leads to improved productivity
and higher living standard.
But globalisation has also thrown up new challenges like growing inequality across and
within nations, volatility in financial market and environmental deteriorations. Another
negative aspect of globalisation is that a great majority of developing countries remain
removed from the process.
Consequences:
The implications of globalisation for a national economy are many. Globalisation has
intensified interdependence and competition between economies in the world market.
This is reflected in Interdependence in regard to trading in goods and services and in
movement of capital. As a result, domestic economic developments are not determined
entirely by domestic policies and market conditions. Rather, they are influenced by both
domestic and international policies and economic conditions. It is thus clear that a
globalising economy, while formulating and evaluating its domestic policy cannot afford
to ignore the possible actions and reactions of policies and developments in the rest of
the world. This constrained the policy option available to the government which implies
loss of policy autonomy to some extent, in decision-making at the national level.
ABSOLUTE ADVANTAGE
If a person, firm or country produces more goods and services than the other producers,
with the same amount of resources, then the former is said to be in an absolute
advantage over the latter.
BANKRUPCY
When the court judges that a debtor will be unable to make the payments owed to a
creditor.
BEAR
An investor who thinks that the price of a particular security is going to fall.
BULL
An investor who thinks that the price of a particular security is going to rise.
CLOSED ECONOMY
An economy that does not take part in international trade.
DIRECT TAX
Tax levied on the wealth of a person or firm
MERGERS & ACQUISITIONS
When two companies join, either by merging into one another or by one company taking
over the other. There are 3 kinds of mergers between firms : horizontal integration, in
which two similar companies are involved, vertical intergration, in which two companies
at different stages merge and diversification in which the companies have nothing in
common.
PRICE/EARNINGS RATIO
A method to judge whether the shares are cheap or expensive; the ratio of market price
of the share to the earnings per share of the company.
OLIGOPOLY
An oligopoly is a market form in which a market or industry is dominated by a small
number of sellers (oligopolists). The word is derived, by analogy with "monopoly", from
the Greek oligoi 'few' and poleein 'to sell'. Because there are few sellers, each oligopolist
is likely to be aware of the actions of the others. The decisions of one firm influence, and
are influenced by, the decisions of other firms.
STAGFLATION
When prolonged recession and inflation co-exist
WINDFALL GAINS
Income which is not expected, like winning a lottery.
Some links
http://glossary.econguru.com/ : An exhaustive dictionary
http://www.economicswisconsin.org/guide/glossary.htm : Overview of the most essential terms.