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![the factors of production: labor, capital, land. Technology can be viewed either as a form of fixed
capital (e.g. plant) or circulating capital (e.g. intermediate goods).
Opportunity cost: The opportunity cost of any activity is the value of the next-best alternative thing you may
have done instead. Opportunity cost depends only on the value of the next-best alternative. It doesn‘t matter
whether you have 5 alternatives or 5,000.
Opportunity costs can tell you when not to do something as well as when to do something. For example, you
may like waffles, but you like chocolate even more. If someone offers you only waffles, you‘re going to take it.
But if you‘re offered waffles or chocolate, you‘re going to take the chocolate. The opportunity cost of eating
waffles is sacrificing the chance to eat chocolate.
Perfect competition is a situation in which numerous small firms producing identical products compete against
each other in a given industry. A good example would be that of digital marketplaces, such as eBay, on which
many different sellers sell similar products to many different buyers.
Imperfect competition: In economic theory, imperfect competition is a type of market structure showing
some but not all features of competitive markets.
Monopolistic competition is a situation in which many firms with slightly different products compete.
Production costs are above what may be achieved by perfectly competitive firms, but society benefits from the
product differentiation. Examples of industries with market structures similar to monopolistic competition
include restaurants, cereal, clothing, shoes, and service industries in large cities.
A monopoly is a market structure in which a market or industry is dominated by a single supplier of a particular
good or service. Because monopolies have no competition they tend to sell goods and services at a higher price
and produce below the socially optimal output level. Although not all monopolies are a bad thing, especially in
industries where multiple firms would result in more problems than benefits (i.e. natural monopolies).
Natural monopoly: A monopoly in an industry where one producer can produce output at a lower cost than
many small producers.
An oligopoly is a market structure in which a market or industry is dominated by a small number of firms
(oligopolists). Oligopolies can create the incentive for firms to engage in collusion and form cartels that reduce
competition leading to higher prices for consumers and less overall market output.[6]
Alternatively, oligopolies
can be fiercely competitive and engage in flamboyant advertising campaigns.
Duopoly: A special case of an oligopoly, with only two firms. Game theory can elucidate behavior in duopolies
and oligopolies.[7]
A monopsony is a market where there is only one buyer and many sellers.
An oligopsony is a market where there are a few buyers and many sellers.
Game theory is a major method used in mathematical economics and business for modeling competing
behaviors of interacting agents. The term "game" here implies the study of any strategic interaction between
people. Applications include a wide array of economic phenomena and approaches, such
as auctions, bargaining, acquisitions pricing, fair division, duopolies, oligopolies, social
network formation, agent-based computational economics, general equilibrium, mechanism design, and voting
systems, and across such broad areas as experimental economics, behavioral economics, information
economics, industrial organization, and political economy.](https://image.slidesharecdn.com/basiceconomics-230320164710-a62a74a3/85/Basic-Economics-pdf-3-320.jpg)
![Jain proposes (attributed to George Stigler): "A partial equilibrium is one which is based on only a restricted
range of data, a standard example is price of a single product, the prices of all other products being held fixed
during the analysis
Price elasticity of supply: The price elasticity of supply measures how the amount of a good that a supplier
wishes to supply changes in response to a change in price.
Elasticities of scale: Elasticity of scale or output elasticity measures the percentage change in output induced by
a collective percent change in the usages of all inputs.
Price elasticity of demand: Price elasticity of demand is a measure used to show the responsiveness, or
elasticity, of the quantity demanded of a good or service to a change in its price. More precisely, it gives the
percentage change in quantity demanded in response to a one percent change in price (ceteris paribus, i.e.
holding constant all the other determinants of demand, such as income).
Cross-price elasticity of demand is a measure of the responsiveness of the demand for one product to changes
in the price of a different product. It is the ratio of percentage change in the former to the percentage change in
the latter. If it is positive, the goods are called substitutes because a rise in the price of the other good causes
consumers to substitute away from buying as much of the other good as before and into buying more of this
good. If it is negative, the goods are called complements
Explicit costs are opportunity costs that involve direct monetary payment by producers. The explicit
opportunity cost of the factors of production not already owned by a producer is the price that the producer has
to pay for them. For instance, if a firm spends $100 on electrical power consumed, its explicit opportunity cost is
$100.[5]
This cash expenditure represents a lost opportunity to purchase something else with the $100.
Implicit costs (also called implied, imputed or notional costs) are the opportunity costs that are not reflected in
cash outflow but implied by the failure of the firm to allocate its existing (owned) resources, or factors of
production to the best alternative use. For example: a manufacturer has previously purchased 1000 tons of steel
and the machinery to produce a widget. The implicit part of the opportunity cost of producing the widget is the
revenue lost by not selling the steel and not renting out the machinery instead of using it for production.
Quick Reference to Basic Market Structures
Market
Structure
Seller Entry
Barriers
Seller
Number
Buyer Entry
Barriers
Buyer
Number
Perfect
Competition
No Many No Many
Monopolistic
competition
No Many No Many
Monopoly Yes One No Many
Duopoly Yes Two No Many
Oligopoly Yes Few No Many
Monopsony No Many Yes One
Oligopsony No Many Yes Few](https://image.slidesharecdn.com/basiceconomics-230320164710-a62a74a3/85/Basic-Economics-pdf-5-320.jpg)
![The rational numbers are those numbers which can be expressed as a ratio between two integers. For example,
the fractions 1313 and −11118−11118 are both rational numbers. All the integers are included in the rational
numbers, since any integer zz can be written as the ratio z1z1.
All decimals which terminate are rational numbers (since 8.278.27 can be written as 827100827100.) Decimals
which have a repeating pattern after some point are also rationals: for example,
0.0833333....=1120.0833333....=112.
The set of rational numbers is closed under all four basic operations, that is, given any two rational numbers,
their sum, difference, product, and quotient is also a rational number (as long as we don't divide by 00).
An irrational number is a number that cannot be written as a ratio (or fraction). In decimal form, it never ends
or repeats. The ancient Greeks discovered that not all numbers are rational; there are equations that cannot be
solved using ratios of integers.
The first such equation to be studied was 2=x22=x2. What number times itself equals 22?
2√2 is about 1.4141.414, because 1.4142=1.9993961.4142=1.999396, which is close to 22. But you'll never hit
exactly by squaring a fraction (or terminating decimal). The square root of 22 is an irrational number, meaning
its decimal equivalent goes on forever, with no repeating pattern:
2√=1.41421356237309...2=1.41421356237309...
The real numbers is the set of numbers containing all of the rational numbers and all of the irrational
numbers. The real numbers are ―all the numbers‖ on the number line. There are infinitely many real numbers
just as there are infinitely many numbers in each of the other sets of numbers. But, it can be proved that the
infinity of the real numbers is a bigger infinity.
The "smaller", or countable infinity of the integers and rationals is sometimes called ℵ 0ℵ 0(alef-naught), and
the uncountable infinity of the reals is called ℵ 1ℵ 1(alef-one).
There are even "bigger" infinities, but you should take a set theory class for that!
(Decimal)—Represent any number using 10 digits [0–9]
Base 2 (Binary)—Represent any number using 2 digits [0–1]
Base 8 (Octal)—Represent any number using 8 digits [0–7]
Base 16(Hexadecimal)—Represent any number using 10 digits and 6 characters [0–9, A, B, C, D, E, F]
Set theory is a branch of mathematical logic that studies sets, which informally are collections of objects.
Although any type of object can be collected into a set, set theory is applied most often to objects that are
relevant to mathematics. The language of set theory can be used in the definitions of nearly all mathematical
objects.
A set that has no element should be called as Empty set. Another name for Empty set could be Null set and Void
set. Number of element in set X is represented as n(X). The empty set is denoted as Φ. Thus, n(Φ) = 0. The
cardinality of an empty set is zero since it has no element.
Singleton Set: A set that has one and only one element should be called as Singleton set. Sometimes, it is
known as unit set. The cardinality of singleton is one. If A is a singleton, then we can express it as
A = {x : x = A}
Example: Set A = {5} is a singleton set.
Finite and Infinite Set: A set that has predetermined number of elements or finite number of elements are said
to be Finite set. Like {1 ,2, 3, 4, 5, 6} is a finite set whose cardinality is 6, since it has 6 elements.
Otherwise, it is called as infinite set. It may be uncountable or countable. The union of some infinite sets is](https://image.slidesharecdn.com/basiceconomics-230320164710-a62a74a3/85/Basic-Economics-pdf-33-320.jpg)
![interquartile range is that it can be used as a measure of variability if the extreme values are not being recorded
exactly (as in case of open-ended class intervals in the frequency distribution).[2] Other advantageous feature is
that it is not affected by extreme values. The main disadvantage in using interquartile range as a measure of
dispersion is that it is not amenable to mathematical manipulation.
Standard deviation
Standard deviation (SD) is the most commonly used measure of dispersion. It is a measure of spread of data
about the mean. SD is the square root of sum of squared deviation from the mean divided by the number of
observations.
This formula is a definitional one and for calculations, an easier formula is used. The computational formula
also avoids the rounding errors during calculation.
In both these formulas n - 1 is used instead of n in the denominator, as this produces a more accurate estimate of
population SD.
The reason why SD is a very useful measure of dispersion is that, if the observations are from a normal
distribution, then 68% of observations lie between mean ± 1 SD 95% of observations lie between mean ± 2 SD
and 99.7% of observations lie between mean ± 3 SD
The other advantage of SD is that along with mean it can be used to detect skewness. The disadvantage of SD is
that it is an inappropriate measure of dispersion for skewed data.
The semi-interquartile range is a measure of spread or dispersion. It is computed as one half the difference
between the 75th percentile [often called (Q3)] and the 25th percentile (Q1). The formula for semi-interquartile
range is therefore: (Q3-Q1)/2.
What is 'Standard Deviation'
The standard deviation is a statistic that measures the dispersion of a dataset relative to its mean and is
calculated as the square root of the variance. It is calculated as the square root of variance by determining the
variation between each data point relative to the mean. If the data points are further from the mean, there is
higher deviation within the data set; thus, the more spread out the data, the higher the standard deviation.
In finance, standard deviation is a statistical measurement; when applied to the annual rate of return of an
investment, it sheds light on the historical volatility of that investment. The greater the standard deviation of a
security, the greater the variance between each price and the mean, which shows a larger price range. For
example, a volatile stock has a high standard deviation, while the deviation of a stable blue-chip stock is usually
rather low.
What is 'Variance'
Variance is a measurement of the spread between numbers in a data set. The variance measures how far each
number in the set is from the mean. Variance is calculated by taking the differences between each number in the
set and the mean, squaring the differences (to make them positive) and dividing the sum of the squares by the
number of values in the set.
What is 'Coefficient of Variation (CV)'
A coefficient of variation (CV) is a statistical measure of the dispersion of data points in a data series around the
mean. It is calculated as follows: (standard deviation) / (expected value). The coefficient of variation represents](https://image.slidesharecdn.com/basiceconomics-230320164710-a62a74a3/85/Basic-Economics-pdf-44-320.jpg)
![6. Economic growth is a short-term process which takes into account yearly growth of the economy. But if we talk
about economic development it is a long term process.
7. Economic Growth applies to developed economies to gauge the quality of life, but as it is an essential condition
for the development, it applies to developing countries also. In contrast to, economic development applies to
developing countries to measure progress.
8. Economic Growth results in quantitative changes, but economic development brings both quantitative and
qualitative changes.
9. Economic growth can be measured in a particular period. As opposed to economic development is a continuous
process so that it can be seen in the long run.
A developed country, industrialized country, more developed country, or more economically developed
country (MEDC), is a sovereign state that has a developed economy and advanced technological infrastructure
relative to other less industrialized nations. Most commonly, the criteria for evaluating the degree of economic
development are gross domestic product (GDP), gross national product (GNP), the per capita income, level of
industrialization, amount of widespread infrastructure and general standard of living. Which criteria are to be
used and which countries can be classified as being developed are subjects of debate.
A developing country (or a low and middle income country (LMIC), less developed country, less economically
developed country (LEDC), underdeveloped country) is a country with a less developed industrial base and a
low Human Development Index (HDI) relative to other countries. However, this definition is not universally
agreed upon. There is also no clear agreement on which countries fit this category.[2]
A nation's GDP per
capitacompared with other nations can also be a reference point.
The Least Developed Countries (LDCs) is a list of developing countries that, according to the United Nations,
exhibit the lowest indicators of socioeconomic development, with the lowest Human Development Index ratings
of all countries in the world. The concept of LDCs originated in the late 1960s and the first group of LDCs was
listed by the UN in its resolution 2768 (XXVI) of 18 November 1971.
A country is classified among the Least Developed Countries if it meets three criteria:
Poverty – adjustable criterion based on GNI per capita averaged over three years. As of 2018 a country must
have GNI per capita less than US $1,025 to be included on the list, and over $1,230 to graduate from it.
Human resource weakness (based on indicators of nutrition, health, education and adult literacy).
Economic vulnerability (based on instability of agricultural production, instability of exports of goods and
services, economic importance of non-traditional activities, merchandise export concentration, handicap of
economic smallness, and the percentage of population displaced by natural disasters).
Below is an outline of Rostow's Five Stages of Growth:
Traditional Society
characterized by subsistence agriculture or hunting and gathering; almost wholly a "primary" sector economy
limited technology
Some advancements and improvements to processes, but limited ability for economic growth because of the
absence of modern technologies, lack of class or individual economic mobility, with stability prioritized and
change seen negatively
This is where society generally begins before progressing towards the next stages of growth
No centralized nations or political systems.
Pre-conditions to "take-off"
External demand for raw materials initiates economic change.](https://image.slidesharecdn.com/basiceconomics-230320164710-a62a74a3/85/Basic-Economics-pdf-65-320.jpg)
![A public good is often (though not always) under-provided in a free market because its characteristics of non-
rivalry and non-excludability mean there is an incentive not to pay. In a free market, firms may not provide the
good as they have difficulty charging people for their use.
Quasi-Public Goods
These are goods which have an element of non-excludability and non-rivalry. Roads are a good example. Once
provided most people can use them, for example, those who have a driving licence. However, when you use a
road, the amount others can benefit is reduced to some extent, because there will be increased congestion.
Club Goods
Club goods are products that are excludable but non-rival. Thus, individuals can be prevented from consuming
them, but their consumption does not reduce their availability to other individuals (at least until a point of
overuse or congestion is reached). Club goods are sometimes also referred to as artificially scarce resources.
They are often provided by natural monopolies. Examples of club goods include: cable television, cinemas,
wireless internet, tollroads etc.
Government debt (also known as public interest, public debt, national debt and sovereign debt)[1][2]
is
the debt owed by a government. By contrast, the annual "government deficit" refers to the difference between
government receipts and spending in a single year.
Government debt can be categorized as internal debt (owed to lenders within the country) and external
debt (owed to foreign lenders). Another common division of government debt is by duration until repayment is
due. Short term debt is generally considered to be for one year or less, long term is for more than ten years.
Medium term debt falls between these two boundaries. A broader definition of government debt may consider
all government liabilities, including future pension payments and payments for goods and services which the
government has contracted but not yet paid.
Internal and External Debt:
Public loans floated within the country are called internal debt. Public borrowings from other countries are
referred as external debt. External debt represents a claim of foreigners against the real income (GNP) of the
country, when it borrows from other countries and has to repay at the time of maturity.
External public debt permits import of real resources. It enables the country to consume more than it produces.
Productive and Unproductive Debt:
Public debt is said to be productive or reproductive, when government loans are invested in productive assets or
enterprises such as railways, irrigation, multipurpose projects etc., which yield a sufficient income to the public
authority to pay out annual interest on the debt as well as help in repaying the principal in the long run.
As such, a productive public debt is self-liquidating in nature; so the community experiences no net burden of
such debt.
An unproductive debt, on the other hand, is one which does not add to the productive assets of a country. When
the government borrows for unproductive purposes like financing a war, or for lavish expenditure on public
administration, etc., such public loans are regarded as unproductive.
Compulsory and Voluntary Debt:
When government borrows from people by using coercive methods, loans so raised are referred to as
compulsory public debt. Under the Compulsory Deposit Scheme in India, tax-payers have to compulsorily
deposit a prescribed amount and defaulters are punished. This is a case of compulsory debt.
Usually, public borrowings are voluntary in nature. When the government floats a loan by issuing securities,
members of the public and institutions like commercial banks may subscribe to them.](https://image.slidesharecdn.com/basiceconomics-230320164710-a62a74a3/85/Basic-Economics-pdf-73-320.jpg)
![Redeemable and Irredeemable Debts:
On the criterion of maturity, public debts may be classified as redeemable or irredeemable. Loans which the
government promises to pay off at some future date are called redeemable debts. For redeemable debts, the
government has to make some arrangement for their repayment. They are, therefore, terminable loans.
Whereas loans for which no promise is made by the government regarding the exact date of maturity, and all
that the government does is to agree to pay interest regularly for the bonds issued, are called irredeemable debts.
Short-term, Medium-term and Long-term loans:
According to their duration, redeemable loans may further be classified as short-term, medium-term or long-
term debts. Short-term debts mature within a short period say, of 3 to 9 months. For instance, Treasury Bills are
an instrument of credit extensively used as a means of short-term (usually 90 days) borrowing by the
government, generally, for covering temporary deficits in the budgets. Interest rates on such loans are generally
low.
Long-term debts, on the other hand, are those repayable after a long period of time, generally, ten years or more.
For development finance, such loans are usually raised by the government. Long-term loans usually bear a high
rate of interest.
Funded and Unfunded Debt:
Funded debt is, in fact, a long-term debt, exceeding the duration of at least a year. It comprises securities which
are marketable on the stock exchange. Funded debt in its proper sense is, however, an obligation to pay a fixed
sum of interest, subject to the option of the government to repay the principal. In such debts, the creditor bond-
holder has no right to anything but the interest.
Unfunded debts, on the other hand, are for a comparatively short duration. They are generally redeemable within
a year. Unfunded debts are, thus, incurred always in anticipation of public revenue, a temporary measure to meet
current needs.
A debt management plan (DMP) is a formal agreement between a debtor and a creditor that addresses the
terms of an outstanding debt.[1]
This commonly refers to a personal finance process of individuals addressing
high consumer debt. Debt management plans help reduce outstanding, unsecured debts over time to help the
debtor regain control of finances. The process can secure a lower overall interest rate, longer repayment terms,
or an overall reduction in the debt itself
Deficit financing is the budgetary situation where expenditure is higher than the revenue. It is a practice adopted
for financing the excess expenditure with outside resources. The expenditure revenue gap is financed by either
printing of currency or through borrowing.
Various indicators of deficit in the budget are:
1. Budget deficit = total expenditure – total receipts
2. Revenue deficit = revenue expenditure – revenue receipts
3. Fiscal Deficit = total expenditure – total receipts except borrowings
4. Primary Deficit = Fiscal deficit- interest payments
5. Effective revenue Deficit-= Revenue Deficit – grants for the creation of capital assets
6. Monetized Fiscal Deficit = that part of the fiscal deficit covered by borrowing from the RBI.
Public expenditure is spending made by the government of a country on collective needs and wants such
as pension, provision,infrastructure, etc.[1]
Until the 19th century, public expenditure was limited as laissez faire
philosophies believed that money left in private hands could bring better returns. In the 20th century, John](https://image.slidesharecdn.com/basiceconomics-230320164710-a62a74a3/85/Basic-Economics-pdf-74-320.jpg)
![Maynard Keynes argued the role of public expenditure in determining levels of income and distribution in
the economy. Since then government expenditures has shown an increasing trend.
A "budget" is a plan for the accomplishment of programs related to objectives and goals within a
definite time period, including an estimate of resources required, together with an estimate of resources
available, usually compared with one or more past periods and showing future requirements.[4]
A local government is a form of public administration which, in a majority of contexts, exists as the lowest tier
of administration within a given state. The term is used to contrast with offices at state level, which are referred
to as the central government, national government, or (where appropriate) federal government and also
to supranational government which deals with governing institutions between states. Local governments
generally act within powers delegated to them by legislation or directives of the higher level of government.
In federal states, local government generally comprises the third (or sometimes fourth) tier of government,
whereas inunitary states, local government usually occupies the second or third tier of government, often with
greater powers than higher-level administrative divisions.
Agricultural economics is an applied field of economics concerned with the application of economic theory in
optimizing the production and distribution of food and fibre—a discipline known as agricultural economics.
Agricultural economics was a branch of economics that specifically dealt with land usage. It focused on
maximizing the crop yield while maintaining a good soil ecosystem.
What Is Returns to Scale?
The terms 'economies of scale' and 'returns to scale' are related, but they mean very different things in
economics. While economies of scale refers to the cost savings that are realized from an increase in the volume
of production, returns to scale is the variation or change in productivity that is the outcome from a
proportionate increase of all the input.
An increasing returns to scale occurs when the output increases by a larger proportion than the increase in
inputs during the production process. For example, if input is increased by 3 times, but output increases by 3.75
times, then the firm or economy has experienced an increasing returns to scale.
A decreasing returns to scale occurs when the proportion of output is less than the desired increased input
during the production process. For example, if input is increased by 3 times, but output is reduced 2 times, the
firm or economy has experienced decreasing returns to scale.
A constant returns to scale means that the proportionate increase in input is exactly equal to the increase in
output. In Barry's case the 25% increase in input would result in a 25% increase output. So, with the additional 2
barbers, production would increase from 250 to 313 clients. The level of efficiency is maintained.
In common law systems, land tenure is the legal regime in which land is owned by an individual, who is said to
"hold" the land. The French verb "tenir" means "to hold" and "tenant" is the present participle of "tenir". The
sovereign monarch, known as The Crown, held land in its own right. All private owners are either its tenants or
sub-tenants. Tenuresignifies the relationship between tenant and lord, not the relationship between tenant and
land.
Subsistence agriculture is a self-sufficiency farming system in which the farmers focus on growing enough
food to feed themselves and their entire families. The output is mostly for local requirements with little or no
surplus trade. The typical subsistence farm has a range of crops and animals needed by the family to feed and
clothe themselves during the year. Planting decisions are made principally with an eye toward what the family
will need during the coming year, and secondarily toward market prices](https://image.slidesharecdn.com/basiceconomics-230320164710-a62a74a3/85/Basic-Economics-pdf-75-320.jpg)
![What are 'Excess Reserves'
Excess reserves are capital reserves held by a bank or financial institution in excess of what is required by
regulators, creditors or internal controls. For commercial banks, excess reserves are measured against standard
reserve requirement amounts set by central banking authorities. These required reserve ratios set the minimum
liquid deposits (such as cash) that must be in reserve at a bank; more is considered excess.
In monetary economics, a money multiplier is one of various closely related ratios of commercial bank
money to central bank money under a fractional-reserve bankingsystem.[1]
Most often, it measures an estimate of
the maximum amount of commercial bank money that can be created, given a certain amount of central bank
money. That is, in afractional-reserve banking system, the total amount of loans that commercial banks are
allowed to extend (the commercial bank money that they can legally create) is equal to an amount which is a
multiple of the amount of reserves. This multiple is the reciprocal of the reserve ratio, and it is an economic
multiplier.
What is 'Human Capital'
Human capital is a quantification of the economic value of a worker's skill set. This measure builds on the basic
production input of labor measure where all labor is thought to be equal. The concept of human capital
recognizes that not all labor is equal and that the quality of employees can be improved by investing in them; the
education, experience and abilities of employees have economic value for employers and for the economy as a
whole.
Definition of balanced growth: Balanced growth refers to a specific type of economic growth that is sustainable
in the long term. It is sustainable in terms of low inflation, the environment and balanced between different
sectors of the economy such as exports and retail spending. Balanced growth is the opposite of volatile boom
and bust economic cycles.
―Unbalanced growth is a better development strategy to concentrate available resources on types of investment,
which help to make the economic system more elastic, more capable of expansion under the stimulus of
expanded market and expanding demand‖-H.W.Singer.
Urban economics is broadly the economic study of urban areas; as such, it involves using the tools of
economics to analyze urban issues such as crime, education, public transit, housing, and local government
finance. More narrowly, it is a branch ofmicroeconomics that studies urban spatial structure and the location of
households and firms (Quigley 2008).
International economics is concerned with the effects upon economic activity from international differences in
productive resources and consumer preferences and the international institutions that affect them. It seeks to
explain the patterns and consequences of transactions and interactions between the inhabitants of different
countries, including trade, investment and migration.
International trade studies goods-and-services flows across international boundaries from supply-and-
demand factors,economic integration, international factor movements, and policy variables such as tariff rates
and trade quotas.
International finance studies the flow of capital across international financial markets, and the effects of these
movements onexchange rates.
International monetary economics and international macroeconomics study flows of money across countries
and the resulting effects on their economies as a whole.](https://image.slidesharecdn.com/basiceconomics-230320164710-a62a74a3/85/Basic-Economics-pdf-79-320.jpg)
![new and in its early stages of development, and not yet capable of competing against established industry
competitors.
In economics, an infant industry is a new industry,[1]
which in its early stages experiences relative difficulty or
is absolutely incapable in competing with established competitorsabroad.
Infant Industries - Start-up industries in a country may not be able to effectively compete against foreign
producers because of their small size. An argument can be made that these industries should be protected until
suitable economies of scale can be achieved. If the economies of scale are such that the domestic industry
achieves a comparative advantage over foreign companies, the temporary protection will help to achieve better
economic efficiency
Trade creation is an economic term related to international economics in which trade flows are redirected due
to the formation of afree trade area or a customs union. The issue was firstly brought into discussion by Jacob
Viner (1950), together with the trade diversion effect.
Trade diversion is an economic term related to international economics in which trade is diverted from a more
efficient exporter towards a less efficient one by the formation of a free trade agreement or a customs union.
Total cost of good becomes cheaper when trading within the agreement because of the low tariff. This is as
compared to trading with countries outside the agreement with lower cost goods but higher tariff. The related
term Trade creation is when the formation of a trade agreement between countries decreases of price of the
goods for more consumers, and therefore increases overall trade. In this case the more efficient producer with
the agreement increases trade
A customs union was defined by the General Agreement on Tariffs and Trade as a type of trade bloc which is
composed of a free trade area with a common external tariff.[1]
The participant countries set up common external trade policy, but in some cases they use different import
quotas. Commoncompetition policy is also helpful to avoid competition deficiency.[2]
Purposes for establishing a customs union normally include increasing economic efficiency and establishing
closer political and cultural ties between the member countries.
A common market is a free trade area with relatively free movement of capital and services.
An economic union is a type of trade bloc which is composed of a common market with a customs union. The
participant countries have both common policies on product regulation, freedom of
movement of goods, services and the factors of production (capital and labour) and a common external
trade policy. When an economic union involves unifying currency it becomes an economic and monetary union.
Purposes for establishing an economic union normally include increasing economic efficiency and establishing
closer political and cultural ties between the member countries.
Industrial Economics is the study of firms, industries, and markets. It looks at firms of all sizes – from local
corner shops to multinational giants such as WalMart or Tesco. And it considers a whole range of industries,
such as electricity generation, car production, and restaurants.
What is an 'Industry'
An industry is a group of companies that are related based on their primary business activities. In modern
economies, there are dozens of industry classifications, which are typically grouped into larger categories called
sectors. Individual companies are generally classified into an industry based on their largest sources of revenue.
For example, while an automobile manufacturer might have a financing division that contributes 10% to the](https://image.slidesharecdn.com/basiceconomics-230320164710-a62a74a3/85/Basic-Economics-pdf-85-320.jpg)
![What is a 'Portfolio'
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash
equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio
can also consist of non publicly tradable securities, like real estate, art, and private investments. Portfolios are
held directly by investors and/or managed by financial professionals and money managers. Investors should
construct an investment portfolio in accordance with their risk tolerance and their investing objectives. Investors
can also have multiple portfolios for various purposes. It all depends on one's objectives as an investor.
Definition of 'Risk Management'
In the financial world, risk management is the process of identification, analysis and acceptance or mitigation of
uncertainty in investment decisions. Essentially, risk management occurs when an investor or fund manager
analyzes and attempts to quantify the potential for losses in an investment and then takes the appropriate action
(or inaction) given his investment objectives and risk tolerance.
In international economics, international factor movements are movements of labor, capital, and other factors
of production between countries. International factor movements occur in three ways: immigration/emigration,
capital transfers through international borrowing and lending, and foreign direct investment.[1]
International
factor movements also raise political and social issues not present in trade in goods and services. Nations
frequently restrict immigration, capital flows, and foreign direct investment.
Public policy is the principled guide to action taken by the administrative executive branches of the state with
regard to a class of issues, in a manner consistent with law and institutional customs.
What is 'Input-Output Analysis'
Input-output analysis ("I-O") is a form of macroeconomic analysis based on the interdependencies between
economic sectors or industries. This method is commonly used for estimating the impacts of positive or negative
economic shocks and analyzing the ripple effects throughout an economy. This type of economic analysis was
originally developed by Wassily Leontief (1905–1999), who later won the Nobel Memorial Prize in Economic
Sciences for his work in this area.
Innovation can be defined simply as a "new idea, device or method". However, innovation is often also viewed
as the application of better solutions that meet new requirements, unarticulated needs, or existing market needs.
The technological innovation system is a concept developed within the scientific field of innovation studies
which serves to explain the nature and rate of technological change.[1]
A Technological Innovation System can
be defined as ‗a dynamic network of agents interacting in a specific economic/industrial area under a particular
institutional infrastructure and involved in the generation, diffusion, and utilization of technology‘
What is 'Efficiency'?
Efficiency signifies a level of performance that describes using the least amount of input to achieve the highest
amount of output. Efficiency refers to the use of all inputs in producing any given output, including personal
time and energy. It is a measurable concept that can be determined using the ratio of useful output to total input.
It minimizes the waste of resources such as physical materials, energy and time while accomplishing the desired
output.
What is 'Economic Efficiency'
Economic efficiency implies an economic state in which every resource is optimally allocated to serve each
individual or entity in the best way while minimizing waste and inefficiency. When an economy is economically](https://image.slidesharecdn.com/basiceconomics-230320164710-a62a74a3/85/Basic-Economics-pdf-89-320.jpg)
![efficient, any changes made to assist one entity would harm another. In terms of production, goods are produced
at their lowest possible cost, as are the variable inputs of production.
What is 'Production Efficiency'
Production efficiency is an economic level at which the economy can no longer produce additional amounts of a
good without lowering the production level of another product. This happens when an economy is operating
along its production possibility frontier. Efficient production is achieved when a product is created at its lowest
average total cost; production efficiency measures whether the economy is producing as much as possible
without wasting precious resources
What is 'Market Efficiency'
Market efficiency refers to the degree to which market prices reflect all available, relevant information. If
markets are efficient, than all information is already incorporated into prices, and so there is no way to "beat" the
market because there are no under- or overvalued securities available. Market efficiency was developed in 1970
by economist Eugene Fama, whose theory of efficient market hypothesis (EMH) stated it is not possible for an
investor to outperform the market, and that market anomalies should not exist because they will immediately
be arbitraged away. Fama later won the Nobel Prize for his efforts. Investors who agree with this theory tend to
buy index funds that track overall market performance and are proponents of passive portfolio management.
Breaking down 'Operational Efficiency'
Operational efficiency in the investment markets is typically centered around transaction costs associated with
investments. Operational efficiency in the investment markets can be compared to general business practices for
operational efficiency in production. Operationally efficient transactions are those that are exchanged with the
highest margin, meaning an investor seeks to pay the lowest fee to earn the highest profit. Similarly, companies
seek to earn the highest gross margin profit from their products by manufacturing goods at the lowest cost. In
nearly all cases, operational efficiency can be improved by economies of scale. In the investment markets this
can translate to buying more shares of an investment at a fixed trading cost to reduce the fee per share.
Sustainable development is the organizing principle for meeting human development goals while at the same
time sustaining the ability of natural systems to provide the natural resources and ecosystem services upon
which the economy and society depend. The desired result is a state of society where living conditions and
resource use continue to meet human needs without undermining the integrity and stability of the natural
system. Sustainable development can be classified as development that meet the needs of the present without
compromising the ability of future generations.
Livestock are domesticated animals raised in an agricultural setting to produce labor and commodities such
as meat, eggs, milk, fur,leather, and wool. The term is sometimes used to refer solely to those that are bred for
consumption, while other times it refers only to farmed ruminants, such as cattle and goats.
In the various fields of healthcare, a population study is a study of a group of individuals taken from the
general population who share a common characteristic, such as age,sex, or health condition. This group may be
studied for different reasons, such as their response to a drug or risk of getting a disease.
Demography (from prefix demo- from Ancient Greek δῆμος dēmos meaning "the people", and -graphy from
γράφω graphō, implies "writing, description or measurement"[1]
) is the statistical study of populations,
especially human beings. As a very general science, it can analyze any kind of dynamic living population, i.e.,
one that changes over time or space (see population dynamics). Demography encompasses the study of the size,
structure, and distribution of these populations, and spatial or temporal changes in them in response](https://image.slidesharecdn.com/basiceconomics-230320164710-a62a74a3/85/Basic-Economics-pdf-90-320.jpg)
![to birth, migration, aging, and death. Based on the demographic research of the earth, earth's population up to
the year 2050 and 2100 can be estimated by demographers. Demographics are quantifiable characteristics of a
given population.
Stillbirth is typically defined as fetal death at or after 20 to 28 weeks of pregnancy.[1][2]
It results in a baby born
without signs of life.[2]
A stillbirth can result in the feeling of guilt in the mother.[7]
The term is in contrast
to miscarriage which is an early pregnancy loss and live birth where the baby is born alive, even if it dies shortly
after.
In human reproduction, a live birth occurs when a fetus, whatever its gestational age, exits the maternal body
and subsequently shows any sign of life, such as voluntary movement, heartbeat, or pulsation of the umbilical
cord, for however brief a time and regardless of whether the umbilical cord or placenta are intact
Sterility is the physiological inability to effect sexual reproduction in a living thing, members of whose kind
have been produced sexually. Sterility has a wide range of causes. It may be an inherited trait, as in the mule; or
it may be acquired from the environment, for example through physical injury or disease, or by exposure
to radiation.
Birth control, also known as contraception and fertility control, is a method or device used to
prevent pregnancy.[1]
Birth control has been used since ancient times, but effective and safe methods of birth
control only became available in the 20th century.[2]
Planning, making available, and using birth control is
called family planning.[3][4]
Some cultures limit or discourage access to birth control because they consider it to
be morally, religiously, or politically undesirable.
In human demography and population biology, fecundity is the potential for reproduction of
an organism or population, measured by the number of gametes (eggs), seed set, or asexual propagules.
Fecundity is similar to fertility,[1][2]
the natural capability to produce offspring. A lack of fertility
is infertility while a lack of fecundity would be called sterility.
Fertility is the natural capability to produce offspring. As a measure, fertility rate is the number of offspring
born per mating pair, individual or population. Fertility differs fromfecundity, which is defined as
the potential for reproduction (influenced by gamete production, fertilization and carrying a pregnancy to
term)[citation needed]
. A lack of fertility isinfertility while a lack of fecundity would be called sterility.
Mortality is the state of being mortal, or susceptible to death; the opposite of immortality.
In mathematics, a ratio is a relationship between two numbers indicating how many times the first number
contains the second.[1]
For example, if a bowl of fruit contains eight oranges and six lemons, then the ratio of
oranges to lemons is eight to six (that is, 8:6, which is equivalent to the ratio 4:3). Similarly, the ratio of lemons
to oranges is 6:8 (or 3:4) and the ratio of oranges to the total amount of fruit is 8:14 (or 4:7).
A population pyramid, also called an "age-sex pyramid", is a graphical illustration that shows the distribution
of various age groups in a population (typically that of a country or region of the world), which forms the shape
of a pyramid when the population is growing.[1]
This tool can be used to visualize and age of a particular
population.[2]
It is also used in ecology to determine the overall age distribution of a population; an indication of
the reproductive capabilities and likelihood of the continuation of a species.](https://image.slidesharecdn.com/basiceconomics-230320164710-a62a74a3/85/Basic-Economics-pdf-91-320.jpg)
![Urban Poverty: It occurs in the metropolitan areas with population over 50,000. These are some major
challenges faced by the Urban Poor:
• Limited access to health and education.
• Inadequate housing and services.
• Violent and unhealthy environment because of overcrowding.
• Little or no social protection mechanism.
Absolute Poverty:
Absolute poverty refers to a situation which individuals are unable to attendant necessities of life such as food,
cloth, shelter, safe drinking water, health facilities, primary education etc.
In other word, it is a situation in which the level of income of the people is so low that they cannot afford must
of their basic needs.
2. Relative poverty:
Relative poverty is the situation in which a person has enough income to sustain the life but the income and
living standard is lower compared to rest of the community. It is also the condition of less income in a country
compare to the worldwide income average income.
Structural transformation is defined as the transition of an economy from low productivity and labour
intensive economic activities to higher productivity and skill intensive activities. The driving force behind
structural transformation is the change of productivity in the modern sector, which is dominated by
manufacturing and services.
In sociology and economics, Social dualism is a theory developed by economist Julius Herman Boeke which
characterizes a society in the economic sense by the social spirit, the organisational forms and the technique
dominating it.[1]
According to Boeke, "These three aspects are interdependent and in this connection typify a
society, in this way that a prevailing social spirit and the prevailing forms of organisation and of technique give
the society its style, its appearance, so that in their interrelation they may be called the social system, the social
style or the social atmosphere of that society
Types of dualism:
I. Social dualism: Social dualism is a dualism found in society. It is developed by Booke(1954). He has
expressed the dualism in the sense of eastern developing countries and it exists in the form of:
• Traditional society system Vs Modern social system.
• Traditional society Vs Modern society.
• Traditional institutions Vs Modern social institutions.
II. Economic dualism: Economic dualism means existence of two types of economies in the national economic
system; for example
• Rural Vs Urban
• Traditional technology Vs Modern technology.
• Privatization Vs Nationalization.
III. Environmental dualism: This kind of dualism is common in developing countries like Nepal. This is found
as the following perspectives:
• Rural Vs Urban area.
• Ecological Vs Diversity.
• Regional Vs Diversity.
• Bio-climatic Vs Diversity.](https://image.slidesharecdn.com/basiceconomics-230320164710-a62a74a3/85/Basic-Economics-pdf-94-320.jpg)
![The product mix is a subset of the marketing mix and is an important part of thebusiness model of a company.
The product mix has the following dimensions
Width
The width of the mix refers to the number of product lines the company has to offer.
For e.g., If a company produce only soft drinks and juices, this means its mix is two products wide. Coca-Cola
deals in juices, soft drinks, and mineral water and hence the product mix of Coca-Cola is three products wide.
Length
Length of the product mix refers to the total number of products in the mix. That is if a company has 5 product
lines and 10 products each under those product lines, the length of the mix will be 50 [5 x 10].
Depth
The depth of the product mix refers to the total number of products within a product line. There can be
variations in the products of the same product line. For e.g. Colgate has different variants under the same
product line like Colgate advanced, Colgate active salt, etc.
Consistency
Product mix consistency refers to how closely products are linked to each other. Less the variation among
products more is the consistency. For example, a company dealing in just dairy products has more consistency
than a company dealing in all types of electronics.
Marketing Mix Definition
Marketing mix is the set of tactics a business use to promote and sell its products in the market. These tactics
range from developing the product, deciding its price and places where it will be sold, to deciding its
communication and promotional strategies.
The tactics are further divided into 4Ps – Product, Price, Place, and Promotion. However, nowadays, the
marketing mix constitutes several other Pslike Process, People and physical evidence as vital mix elements.
Product mix
Product is an item produced or procured by the business to satisfy the needs of the customer. It is the actual item
which is held for sale in the market. The product can be tangible or intangible (it can be a good or a service). It
is not necessary that the business produce the product. It can also procure it from somewhere else.
What is a 'Product Line'
A product line is a group of related products under a single brand sold by the same company. Companies sell
multiple product lines under their various brands. Companies often expand their offerings by adding to existing
product lines, because consumers are more likely to purchase products from brands with which they are already
familiar.
What is a 'Brand'
A brand is an identifying symbol, mark, logo, name, word and/or sentence that companies use to distinguish
their product from others. A combination of one or more of those elements can be utilized to create a brand
identity. Legal protection given to a brand name is called a trademark.
What is a 'Brand Extension'
Brand extension, also known as brand stretching, leverages the reputation and popularity of the well-known
brand to increase demand for new products. Brand extension is the use of a well-established brand name for a
new product or new product category.
Packaging is the science, art and technology of enclosing or protecting products for distribution, storage, sale,
and use. Packaging also refers to the process of designing, evaluating, and producing packages. Packaging can](https://image.slidesharecdn.com/basiceconomics-230320164710-a62a74a3/85/Basic-Economics-pdf-97-320.jpg)
![be described as a coordinated system of preparing goods for transport, warehousing, logistics, sale, and end use.
Packaging contains, protects, preserves, transports, informs, and sells.[1]
In many countries it is fully integrated
into government, business, institutional, industrial, and personal use.
Package labeling (American English) or labelling (British English) is any written, electronic, or graphic
communication on the package or on a separate but associated label.
Distribution (or place) is one of the four elements of the marketing mix. Distribution is the process of making a
product or service available for the consumer or business user that needs it. This can be done directly by the
producer or service provider, or using indirect channels with distributors or intermediaries. The other three
elements of the marketing mix are product, pricing, andpromotion.
Typical intermediaries involved in distribution include:
Wholesaler: A merchant intermediary who sells chiefly to retailers, other merchants, or industrial, institutional,
and commercial users mainly for resale or business use. Wholesalers typically sell in large quantities.
(Wholesalers, by definition, do not deal directly with the public).[9]
Retailer: A merchant intermediary who sells direct to the public. There are many different types of retail outlet
- from hypermarts and supermarkets to small, independent stores.
Agent: An intermediary who is authorised to act for a principal in order to facilitate exchange. Unlike merchant
wholesalers and retailers, agents do not take title to goods, but simply put buyers and sellers together. Agents are
typically paid via commissions by the principal. For example, travel agents are paid a commission of around
15% for each booking made with an airline or hotel operator.
Jobber: A jobber is a special type of wholesaler, typically one who operates on a small scale and sells only to
retailers or institutions. For example, rack jobbers are small independent wholesalers who operate from a truck,
supplying convenience stores with snack foods and drinks on a regular basis
In marketing, promotion refers to any type of marketing communication used to inform or persuade target
audiences of the relative merits of a product, service, brand or issue. The aim of promotion is to increase
awareness, create interest, generate sales or createbrand loyalty. It is one of the basic elements of the market
mix, which includes the four P's: price, product, promotion, and place.
A vision statement is a declaration of an organization's objectives, intended to guide its internal decision-
making.[1]
A vision statement is not limited to business organizations and may also be used by non-profit or
governmental entities
A mission statement is a short statement of an organization's purpose, identifying the goal of its operations:
what kind of product or service it provides, its primary customers ormarket, and its geographical region of
operation.[1][2]
It may include a short statement of such fundamental matters as the organization's values or
philosophies, a business's main competitive advantages, or a desired future state—the "vision".
Pricing is the process whereby a business sets the price at which it will sell its products and services, and may
be part of the business's marketing plan. In setting prices, the business will take into account the price at which it
could acquire the goods, themanufacturing cost, the market place, competition, market condition, brand, and
quality of product.
What is a 'Distribution Channel'
A distribution channel is a chain of businesses or intermediaries through which a good or service passes until it
reaches the end consumer. It can include wholesalers, retailers, distributors and even the internet. Channels are](https://image.slidesharecdn.com/basiceconomics-230320164710-a62a74a3/85/Basic-Economics-pdf-98-320.jpg)
![broken into direct and indirect forms: A direct channel allows the consumer to buy the good from the
manufacturer, and an indirect channel allows the consumer to buy the good from a wholesaler or retailer.
Physical distribution is the group of activities associated with the supply of finished product from the
production line to the consumers. The physical distribution considers many sales distribution channels, such as
wholesale and retail, and includes critical decision areas like customer service, inventory, materials, packaging,
order processing, and transportation and logistics. You often will hear these processes be referred to
as distribution, which is used to describe the marketing and movement of products.
In marketing, the promotional mix describes a blend of promotional variables chosen by marketers to help a
firm reach its goals. It has been identified as a subset of the marketing mix.[1]
It is believed that there is an
optimal way of allocating budgets for the different elements within the promotional mix to achieve best
marketing results, and the challenge for marketers is to find the right mix of them.
Definition of 'Promotional Budget'
A promotional budget is a specified amount of money set aside to promote the products or beliefs of a business
or organization. Promotional budgets are created to anticipate the essential costs associated with growing a
business or maintaining a brand name. The budget is often set according to a percentage of sales or profits in
order to maintain an expected growth rate.
Cooperative Marketing
Cooperative marketing can be defined as an agreement between two companies to promote or sell each other‘s
product while selling their own. The products can either be complementary or might have different seasonal
cycles.
To explain in simpler terms, if you and your neighbour sell different products from a common premise it will be
called as cooperative marketing. The arrangements in cooperative marketing are usually free from any legal
bindings and are informal.
Applied Economics
Applied economics is a field that applies of economic theories and principles to real-world situations with the
desired aim of predicting potential outcomes. The use of applied economics is designed to analytically review
potential outcomes without the "noise" associated with explanations that are not backed by numbers. Applied
economics can involve the use of econometrics and case studies.
Social Security
Social Security is an important part of the Old-Age, Survivors, and Disability Insurance program and run by the
Social Security Administration. This is a social welfare and insurance plan managed by the U.S. federal
government that pays benefits to retirees, workers who become disabled and survivors of deceased workers.
Social Security's benefits include retirement income, disability income, Medicare and Medicaid, and death and
survivorship benefits. Social Security is one of the largest government programs in the world, paying out
hundreds of billions of dollars per year.
Retirement benefits may begin as early as age 62 at a discounted rate, and the amount you receive in retirement
increases from the 62 through 70. You do not have to take benefits at 70 years old, but there is no
monetary benefit to waiting beyond that age Social Security bases the amount of income one receives on
" average indexed monthly earnings" during the 35 years in which you earned the most. Spouses are also
eligible to receive Social Security benefits, even if they have limited or non-existent work histories. A divorced
spouse can also receive spousal benefits, if the marriage lasted 10 years or longer.](https://image.slidesharecdn.com/basiceconomics-230320164710-a62a74a3/85/Basic-Economics-pdf-99-320.jpg)
![In economics, a price mechanism is the manner in which the prices of goods or services affect the supply and
demand of goods and services, principally by the price elasticity of demand. A price mechanism affects both
buyers and sellers who negotiate prices.[1]
A price mechanism, part of a market mechanism, comprises various
ways to match up buyers and sellers. Price mechanism is a mechanism where price plays a key role in directing
the activities of producers, consumers, resource suppliers. An example of a price mechanism uses announced bid
and ask prices. Generally speaking, when two parties wish to engage in trade, the purchaser will announce a
price he is willing to pay (the bid price) and seller will announce a price he is willing to accept (the ask price).
What is the 'Circular Flow Of Income'
The circular flow of income is a neoclassical economic model depicting how money flows through the
economy. In its simplest version, the economy is modeled as consisting only of households and firms. Money
flows to workers in the form of wages, and money flows back to firms in exchange for products. This simplistic
model suggests the old economic adage that supply creates its own demand.
Environmental damage or degradation is the deterioration of the environment through depletion of resources
such as air, water and soil; the destruction of ecosystems and the extinction of wildlife. It is defined as any
change or disturbance to the environment perceived to be deleterious or undesirable.
Environmental pollution is definitely a serious threat for the entire world in this age of development and
industrialization. The pollution levels in developed cities are rising at an alarming pace. Environmental
protection is the need of the hour, and countries across the world are working on developing technologies, and
imposing certain restrictions to reduce or control this grave problem. There have been many summits at the
international level between executives and ministers of different nations, to discuss and plan strategies for
reducing of all kinds of pollution.
Air Pollution
The disturbances caused to the composition of the air due to contamination of the atmosphere by human
activities is known as air pollution. Release of poisonous gases in the atmosphere because of vehicles,
construction activities, volcanic eruptions, smoke from industries, etc., are major causes of air pollution. It can
cause serious health problems, and hence, it is becomes important to have strict rules and regulations to control
the contamination of air. Mass education about the ill effects of air pollution can help to reduce it.
Water Pollution
The degradation and contamination of water by harmful chemicals and waste matter is termed as water
pollution. Chemical factories and manufacturing plants have caused excessive dumping of chemical waste into
water bodies, rendering the water useless for human needs. Consumption of such water can be harmful for the
public health. Though there are laws regarding water pollution, much needs to be done in this regard, to
maintain environmental balance and beauty.
Noise pollution
Any kind of undesirable and loud noise, which can be disturbing for human beings, as well as for other animals,
and causes health hazards, is known as noise pollution. This problem is caused mainly due to the noise of
airplanes, automobiles, machinery, construction activities, crowds, etc. This can be especially dangerous for
patients in critical conditions. Declaring silence zones at appropriate places, and proper implementation of the
rules can help to lower the adverse effects of noise pollution greatly.
Soil Pollution
Contamination of the soil or land because of improper or incorrect agricultural techniques, dumping of chemical](https://image.slidesharecdn.com/basiceconomics-230320164710-a62a74a3/85/Basic-Economics-pdf-104-320.jpg)
![wastes by factories and industries, etc., are some of the sources of soil pollution. Deforestation in huge amounts
is also equally responsible for soil pollution. Certain mining activities are also believed to cause this problem.
More Types of Pollution
Radioactive Pollution:It is mainly caused by the improper handling of nuclear waste, accidents in nuclear
power plants and uranium mining.
Marine Pollution:It results due to contamination of the marine water bodies, and causes a drastic and long-term
impact on the marine flora and fauna, as well as on humans. Main sources of this problem are due to excessive
use of pesticides for agricultural purposes, crude oil leakage, factory sewage, etc.
Thermal Pollution:It is characterized by excessive heat, and is mainly the result of deforestation and power
plants.
Personal Pollution:This means the harmful effects of a bad and improper lifestyle on the human body, which
can lead to diseases and disorders. Smoking, drinking, and irregular eating habits are the main causes of
personal pollution.
To safeguard our environment, we must begin at a smaller and fundamental level for curbing pollution. Only
then will it make a difference to our planet, resulting in a significant reduction of environmental pollution.
What is a 'Pigovian Tax'
A Pigovian (Pigouvian) tax is a liquid waste, or effluent, fee which is assessed against private individuals or
businesses for engaging in activities that create adverse side effects. Adverse side effects are those costs which
are not included as a part of the product's market price.
Pigovian taxes were named after English economist Arthur C. Pigou, a significant contributor to early
externality theory in the Cambridge tradition.
What is 'Coase Theorem '
Coase theorem is a legal and economic theory that affirms that where there are complete competitive markets
with no transactions costs, an efficient set of inputs and outputs to and from production-optimal distribution are
selected, regardless of how property rights are divided. Further, the Coase theorem asserts that when property
rights are involved, parties naturally gravitate toward the most efficient and mutually beneficial outcome.
What are 'Property Rights'
Property rights refer to the theoretical and legal ownership of specific property by individuals and the ability to
determine how such property is used. In many countries, including the United States, individuals generally
exercise private property rights – the rights of private persons to accumulate, hold, delegate, rent or sell their
property. In economics, property rights form the basis for all market exchange, and the allocation of property
rights in a society affects the efficiency of resource use.
Islamic economics is a term used to refer to Islamic commercial jurisprudence.
Economic inequality is the difference found in various measures of economic well-being among individuals in
a group, among groups in a population, or among countries. Economic inequality sometimes refers to income
inequality, wealth inequality, or the wealth gap. Economists generally focus on economic disparity in three
metrics: wealth,income, and consumption.[1]
The issue of economic inequality is relevant to notions
of equity, equality of outcome, and equality of opportunity.
FIqh (religious law) has developed several traditional concepts having to do with economics. These included:
Zakat—the "charitable taxing of certain assets, such as currency, gold, or harvest, with an eye to allocating these
taxes to eight expenditures that are also explicitly defined in the Quran, such as aid to those in need."](https://image.slidesharecdn.com/basiceconomics-230320164710-a62a74a3/85/Basic-Economics-pdf-105-320.jpg)
![ Gharar—"uncertainty". The presence of any element of excessive uncertainty, in a contract is prohibited.
Riba—"referred to as usury (modern Islamic economists reached consensus that Riba is any kind of interest,
rather than just usury)"
Another source lists "general rules" include prohibition of Riba, Gharar, and also
Qimar (gambling) and
the encouragement of Taa‘won (mutual cooperation)
"the overriding doctrine of fairness in commercial dealings is established."
These concepts, like others in Islamic law, came from study of the Quran and ahadith—or as one observer put it,
were
constructed on the basis of isolated prescriptions, anecdotes, examples, words of the Prophet, all gathered
together and systematized by commentators according to an inductive, casuistic method.
Islamic taxes are taxes sanctioned by Islamic law. They are based on both "the legal status of taxable land" and
on "the communal or religious status of the taxpayer".
Islamic taxes include
zakat - one of the five pillars of Islam. Only imposed on Muslims, it is generally described as a 2.5% tax on
savings to be donated to the Muslim poor and needy.[1][2]
It was a tax collected by the Islamic state.
jizya - a per capita yearly tax historically levied by Islamic states on certain non-Muslim subjects—dhimmis—
permanently residing in Muslim lands under Islamic law, the tax excluded the poor, women, children and the
elderly.[1][3][4][5]
(see below)
kharaj - a land tax at first imposed only on non-Muslims but which was later imposed on Muslims as well.[1]
ushr - a 10% tax on the harvests of irrigated land and 10% tax on harvest from rain-watered land and 5% on
Land dependent on well water.[2]
The term has also been used for a 10% tax on merchandise imported from
states that taxed the Muslims on their products.[6]
Caliph `Umar ibn Al-Khattāb was the first Muslim ruler to
levy ushr
Project planning is part of project management, which relates to the use of schedules such as Gantt charts to
plan and subsequently report progress within the project environment.
In project management, a schedule is a listing of a project's milestones, activities, and deliverables, usually with
intended start and finish dates. Those items are often estimatedby other information included in the project
schedule of resource allocation, budget, task duration, and linkages of dependencies and scheduled events. A
schedule is commonly used in the project planning and project portfolio management parts of project
management. Elements on a schedule may be closely related to the work breakdown structure(WBS) terminal
elements, the Statement of work, or a Contract Data Requirements List.
Definition of 'Risk Management'
In the financial world, risk management is the process of identification, analysis and acceptance or mitigation of
uncertainty in investment decisions. Essentially, risk management occurs when an investor or fund manager
analyzes and attempts to quantify the potential for losses in an investment and then takes the appropriate action
(or inaction) given his investment objectives and risk tolerance.
Broadly speaking, a risk assessment is the combination effort of 1. identifying and analyzing potential (future)
events that may negatively impact individuals, assets, and/or the environment (i.e., risk analysis); and 2. making
judgements "on the tolerability of the risk on the basis of a risk analysis" while considering influencing factors
(i.e., risk evaluation).[1][2]
Put in simpler terms, a risk assessment analyzes what can go wrong, how likely it is to
happen, what the potential consequences are, and how tolerable the identified risk is.[1]
As part of this process,
the resulting determination of risk may be expressed in a quantitative or qualitative fashion. The risk assessment](https://image.slidesharecdn.com/basiceconomics-230320164710-a62a74a3/85/Basic-Economics-pdf-106-320.jpg)
Basic Economics.pdf
- 1. Basic Economics Abu Rayhan Econ‘12’ Economics: L. Robbins, ―Economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses‖. Microeconomics: Microeconomics is the study of examining every individual economic activity, industries, and their interaction. It mainly observes how a person earns and spends his income. Macroeconomics: It is the branch of economics, which deals with the economic functioning and its performance, decision making, and structure as a whole. Microeconomics is the branch of economics that concentrates on the behavior and performance of the individual units, i.e. consumers, family, industry, firms. Here, the demand plays a key role in determining the quantity and the price of a product along with the price and quantity of related goods (complementary goods) and substitute products, so as to make a judicious decision regarding the allocation of scarce resources, concerning their alternative uses. Examples: Individual Demand, Price of a product, etc. Macroeconomics is the branch of economics that concentrates on the behavior and performance of aggregate variables and those issues which affect the whole economy. It includes regional, national and international economies and covers the major areas of the economy like unemployment, poverty, general price level, GDP (Gross Domestic Product), imports and exports, economic growth, globalization, monetary/ fiscal policy, etc. It helps in resolving the various problems of the economy, thereby enabling it to function efficiently. Examples: Aggregate Demand, National Income, etc. Basis for comparison Microeconomics Macroeconomics Meaning The branch of economics that studies the behavior of an individual consumer, firm, family is known as Microeconomics. The branch of economics that studies the behavior of the whole economy, (both national and international) is known as Macroeconomics. Deals with Individual economic variables Aggregate economic variables Business Application Applied to operational or internal issues Environment and external issues Scope Covers various issues like demand, supply, product pricing, factor pricing, production, consumption, economic welfare, etc. Covers various issues like, national income, general price level, distribution, employment, money etc. Importance Helpful in determining the prices of a product along with the prices of factors of production (land, labor, capital, entrepreneur etc.) within the economy. Maintains stability in the general price level and resolves the major problems of the economy like inflation, deflation, reflation, unemployment and poverty as a whole. Limitations It is based on unrealistic assumptions, i.e. In microeconomics it is assumed that there is a full employment in the society which is not at all possible. It has been analyzed that 'Fallacy of Composition' involves, which sometimes doesn't proves true because it is possible that what is true for aggregate may not be true for individuals too.
- 2. Positive Economics: PositiveEconomics is a branch of economics that has an objective approach, based on facts. It analyses and explains the casual relationship between variables. It explains people about how the economy of the country operates. Positive economics is alternatively known as pure economics or descriptive economics. Normative Economics: The economics that uses value judgments, opinions, beliefs is called normative economics. This branch of economics considers values and results in statements that state, ‗what should be the things‘. It incorporates subjective analyses and focuses on theoretical situations. Normative Economics suggests how the economy ought to operate. It is also known as policy economics, as it takes into account individual opinions and preferences. Hence, the statements can neither be proven right nor wrong. Basis for comparison Positive economics Normative economics Meaning A branch of economics based on data and facts is positive economics. A branch of economics based on values, opinions and judgement is normative economics. Nature Descriptive Prescriptive What it does? Analyses cause and effect relationship. Passes value judgement. Perspective Objective Subjective Study of What actually is What ought to be Testing Statements can be tested using scientific methods. Statements cannot be tested. Economic issues It clearly describes economic issue. It provides solution for the economic issue, based on value. Elasticity is the measurement of how responsive an economic variable is to a change in another variable. Elasticity can be quantified as the ratio of the change in one variable to the change in another variable, when the later variable has a causal influence on the former. It is a tool for measuring the responsiveness of a variable, or of the function that determines it, to changes in causative variables in unitless ways. Consumer demand theory relates preferences for the consumption of both goods and services to the consumption expenditures; ultimately, this relationship between preferences and consumption expenditures is used to relate preferences to consumer demand curves. The link between personal preferences, consumption and the demand curve is one of the most closely studied relations in economics. It is a way of analyzing how consumers may achieve equilibrium between preferences and expenditures by maximizing utility subject to consumer budget constraints. Production theory is the study of production, or the economic process of converting inputs into outputs. Production uses resources to create a good or service that is suitable for use, gift-giving in a gift economy, or exchange in a market economy. Costs of production: The cost-of-production theory of value states that the price of an object or condition is determined by the sum of the cost of the resources that went into making it. The cost can comprise any of
- 3. the factors ofproduction: labor, capital, land. Technology can be viewed either as a form of fixed capital (e.g. plant) or circulating capital (e.g. intermediate goods). Opportunity cost: The opportunity cost of any activity is the value of the next-best alternative thing you may have done instead. Opportunity cost depends only on the value of the next-best alternative. It doesn‘t matter whether you have 5 alternatives or 5,000. Opportunity costs can tell you when not to do something as well as when to do something. For example, you may like waffles, but you like chocolate even more. If someone offers you only waffles, you‘re going to take it. But if you‘re offered waffles or chocolate, you‘re going to take the chocolate. The opportunity cost of eating waffles is sacrificing the chance to eat chocolate. Perfect competition is a situation in which numerous small firms producing identical products compete against each other in a given industry. A good example would be that of digital marketplaces, such as eBay, on which many different sellers sell similar products to many different buyers. Imperfect competition: In economic theory, imperfect competition is a type of market structure showing some but not all features of competitive markets. Monopolistic competition is a situation in which many firms with slightly different products compete. Production costs are above what may be achieved by perfectly competitive firms, but society benefits from the product differentiation. Examples of industries with market structures similar to monopolistic competition include restaurants, cereal, clothing, shoes, and service industries in large cities. A monopoly is a market structure in which a market or industry is dominated by a single supplier of a particular good or service. Because monopolies have no competition they tend to sell goods and services at a higher price and produce below the socially optimal output level. Although not all monopolies are a bad thing, especially in industries where multiple firms would result in more problems than benefits (i.e. natural monopolies). Natural monopoly: A monopoly in an industry where one producer can produce output at a lower cost than many small producers. An oligopoly is a market structure in which a market or industry is dominated by a small number of firms (oligopolists). Oligopolies can create the incentive for firms to engage in collusion and form cartels that reduce competition leading to higher prices for consumers and less overall market output.[6] Alternatively, oligopolies can be fiercely competitive and engage in flamboyant advertising campaigns. Duopoly: A special case of an oligopoly, with only two firms. Game theory can elucidate behavior in duopolies and oligopolies.[7] A monopsony is a market where there is only one buyer and many sellers. An oligopsony is a market where there are a few buyers and many sellers. Game theory is a major method used in mathematical economics and business for modeling competing behaviors of interacting agents. The term "game" here implies the study of any strategic interaction between people. Applications include a wide array of economic phenomena and approaches, such as auctions, bargaining, acquisitions pricing, fair division, duopolies, oligopolies, social network formation, agent-based computational economics, general equilibrium, mechanism design, and voting systems, and across such broad areas as experimental economics, behavioral economics, information economics, industrial organization, and political economy.
- 4. Labor economics seeksto understand the functioning and dynamics of the markets for wage labor. Labor markets function through the interaction of workers and employers. Labor economics looks at the suppliers of labor services (workers), the demands of labor services (employers), and attempts to understand the resulting pattern of wages, employment, and income. In economics, labor is a measure of the work done by human beings. Welfare economics is a branch of economics that uses microeconomics techniques to evaluate well- being from allocation of productive factors as to desirability and economic efficiency within an economy, often relative to competitive general equilibrium. It analyzes social welfare, however measured, in terms of economic activities of the individuals that compose the theoretical society considered. Information economics or the economics of information is a branch of microeconomic theory that studies how information and information systems affect an economy and economic decisions. Supply schedule: A supply schedule is a table that shows the relationship between the price of a good and the quantity supplied. Under the assumption of perfect competition, supply is determined by marginal cost. That is, firms will produce additional output while the cost of producing an extra unit of output is less than the price they would receive. Demand schedule: A demand schedule, depicted graphically as the demand curve, represents the amount of some goods that buyers are willing and able to purchase at various prices, assuming all determinants of demand other than the price of the good in question, such as income, tastes and preferences, the price of substitute goods, and the price of complementary goods, remain the same. Following the law, the demand curve is almost always represented as downward-sloping, meaning that as price decreases, consumers will buy more of the good Equilibrium: Generally speaking, an equilibrium is defined to be the price-quantity pair where the quantity demanded is equal to the quantity supplied. It is represented by the intersection of the demand and supply curves. Market equilibrium: A situation in a market when the price is such that the quantity demanded by consumers is correctly balanced by the quantity that firms wish to supply. In this situation, the market clears. Changes in market equilibrium: Practical uses of supply and demand analysis often center on the different variables that change equilibrium price and quantity, represented as shifts in the respective curves. Comparative statics of such a shift traces the effects from the initial equilibrium to the new equilibrium. Demand curve shifts: When consumers increase the quantity demanded at a given price, it is referred to as an increase in demand. Increased demand can be represented on the graph as the curve being shifted to the right. At each price point, a greater quantity is demanded, as from the initial curve D1 to the new curve D2. Supply curve shifts: When technological progress occurs, the supply curve shifts. For example, assume that someone invents a better way of growing wheat so that the cost of growing a given quantity of wheat decreases. Otherwise stated, producers will be willing to supply more wheat at every price and this shifts the supply curve S1 outward, to S2—an increase in supply. Partial equilibrium: Partial equilibrium, as the name suggests, takes into consideration only a part of the market to attain equilibrium.
- 5. Jain proposes (attributedto George Stigler): "A partial equilibrium is one which is based on only a restricted range of data, a standard example is price of a single product, the prices of all other products being held fixed during the analysis Price elasticity of supply: The price elasticity of supply measures how the amount of a good that a supplier wishes to supply changes in response to a change in price. Elasticities of scale: Elasticity of scale or output elasticity measures the percentage change in output induced by a collective percent change in the usages of all inputs. Price elasticity of demand: Price elasticity of demand is a measure used to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price. More precisely, it gives the percentage change in quantity demanded in response to a one percent change in price (ceteris paribus, i.e. holding constant all the other determinants of demand, such as income). Cross-price elasticity of demand is a measure of the responsiveness of the demand for one product to changes in the price of a different product. It is the ratio of percentage change in the former to the percentage change in the latter. If it is positive, the goods are called substitutes because a rise in the price of the other good causes consumers to substitute away from buying as much of the other good as before and into buying more of this good. If it is negative, the goods are called complements Explicit costs are opportunity costs that involve direct monetary payment by producers. The explicit opportunity cost of the factors of production not already owned by a producer is the price that the producer has to pay for them. For instance, if a firm spends $100 on electrical power consumed, its explicit opportunity cost is $100.[5] This cash expenditure represents a lost opportunity to purchase something else with the $100. Implicit costs (also called implied, imputed or notional costs) are the opportunity costs that are not reflected in cash outflow but implied by the failure of the firm to allocate its existing (owned) resources, or factors of production to the best alternative use. For example: a manufacturer has previously purchased 1000 tons of steel and the machinery to produce a widget. The implicit part of the opportunity cost of producing the widget is the revenue lost by not selling the steel and not renting out the machinery instead of using it for production. Quick Reference to Basic Market Structures Market Structure Seller Entry Barriers Seller Number Buyer Entry Barriers Buyer Number Perfect Competition No Many No Many Monopolistic competition No Many No Many Monopoly Yes One No Many Duopoly Yes Two No Many Oligopoly Yes Few No Many Monopsony No Many Yes One Oligopsony No Many Yes Few
- 6. Scarcity refers tothe limited availability of a commodity, which may be in demand in the market. The concept of scarcity also includes an individual capacity to buy all or some of the commodities as per the available resources with that individual. Consumer surplus is an economic measure of consumer benefit. It is calculated by analyzing the difference between what consumers are willing and able to pay for a good or service relative to its market price, or what they actually do spend on the good or service. A consumer surplus occurs when the consumer is willing to pay more for a given product than the current market price. A producer surplus is a difference between how much of a good the producer is willing to supply versus how much he receives in the trade. The difference or surplus amount is the benefit the producer receives for selling the good in the market. A producer surplus is generated by market prices in excess of the lowest price producers would otherwise be willing to accept for their goods. Market price is a familiar economic concept: it is the price that a good or service is offered at, or will fetch, in the marketplace. It is of interest mainly in the study of microeconomics. Market value and market price are equal only under conditions of market efficiency, equilibrium, and rational expectations. In economics, returns to scale and economies of scale are related terms that describe what happens as the scale of production increases. They are different, non-interchangeable concepts. Elasticity is a measure of a variable's sensitivity to a change in another variable. In business and economics, elasticity refers the degree to which individuals, consumers or producers change their demand or the amount supplied in response to price or income changes. It is predominantly used to assess the change in consumer demand as a result of a change in a good or service's price. Price elasticity of demand is a measure of the change in the quantity demanded or purchased of a product in relation to its price change. Expressed mathematically, it is: Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price Income elasticity of demand refers to the sensitivity of the quantity demanded for a certain good to a change in real income of consumers who buy this good, keeping all other things constant. The formula for calculating income elasticity of demand is the percent change in quantity demanded divided by the percent change in income. Cross elasticity of demand is an economic concept that measures the responsiveness in the quantity demanded of one good when the price for another good changes. Also called cross price elasticity of demand, this measurement is calculated by taking the percentage change in the quantity demanded of one good and dividing it by the percentage change in price of the other good. The unemployment rate is the share of the labor force that is jobless, expressed as a percentage. It is a lagging indicator, meaning that it generally rises or falls in the wake of changing economic conditions, rather than anticipating them. When the economy is in poor shape and jobs are scarce, the unemployment rate can be expected to rise. When the economy is growing at a healthy rate and jobs are relatively plentiful, it can be expected to fall.
- 7. 'Seasonal Adjustment': Astatistical technique designed to even out periodic swings in statistics or movements in supply and demand related to changing seasons. Seasonal adjustments provide a clearer view of no seasonal changes in data that would otherwise be overshadowed by the seasonal differences. Absolute advantage is the ability of a country, individual, company or region to produce a good or service at a lower cost per unit than another entity that produces the same good or service. Entities with absolute advantages can produce a product or service using a smaller number of inputs or a more efficient process than another entity producing the same product or service. General Examples of Absolute Advantage If the United States produces 700 million gallons of wine per year, while Italy produces 4 billion gallons of wine per year, Italy has an absolute advantage because it produces many more gallons of wine – the output – in the same amount of time – the input – as the United States. Using another example, Jane can knit a sweater in 10 hours, and Kate can knit a sweater in eight hours. Kate has an absolute advantage over Jane because it takes her fewer hours to produce a sweater. Absolute advantage also explains why it makes sense for countries, individuals and businesses to trade. Since each has advantages in producing certain products and services, both entities can benefit from trade. So, if Jane can produce a painting in five hours, but Kate requires nine hours to produce a comparable painting, Jane has an absolute advantage over Kate in painting. Remember, Kate has an absolute advantage over Jane in knitting sweaters. If Jane and Kate specialize in the products they each have an absolute advantage in and buy the products they lack absolute advantage in from each other, they both benefit. Comparative advantage is an economic term that refers to an economy's ability to produce goods and services at a lower opportunity cost than trade partners. A comparative advantage gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins. The law of comparative advantage is popularly attributed to English political economist David Ricardo and his book ―Principles of Political Economy and Taxation‖ in 1817, although it is likely that Ricardo's mentor James Mill originated the analysis. Specialization is a method of production whereby an entity focuses on the production of a limited scope of goods to gain a greater degree of efficiency. Many countries, for example, specialize in producing the goods and services that are native to their part of the world, and they trade for other goods and services. This specialization is, therefore, the basis of global trade, as few countries have enough production capacity to be completely self- sustaining. The production possibility frontier (PPF) is a curve depicting all maximum output possibilities for two goods, given a set of inputs consisting of resources and other factors. The PPF assumes that all inputs are used efficiently. Factors such as labor, capital and technology, among others, will affect the resources available, which will dictate where the production possibility frontier lies. The PPF is also known as the production possibility curve or the transformation curve. The Pareto Efficiency is a concept named after Italian economist Vilfredo Pareto that measures the efficiency of the commodity allocation on the PPF. The Pareto Efficiency states that any point within the PPF curve is considered inefficient because the total output of commodities is below the output capacity. Conversely, any point outside the PPF curve is considered to be impossible because it represents a mix of commodities that will take more resources to produce than can be obtained.
- 8. Therefore, any mixof two commodities, given limited resources, is only efficient when it lies on the PPF curve, with one commodity on the X axis and one commodity on the Y axis. Achieving the Pareto Efficiency means that an economy is operating at maximum potential and lies directly on the PPF. Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period. Though GDP is usually calculated on an annual basis, it can be calculated on a quarterly basis as well (in the United States, for example, the government releases an annualized GDP estimate for each quarter and also for an entire year). GDP includes all private and public consumption, government outlays, investments, private inventories, paid-in construction costs and the foreign balance of trade (exports are added, imports are subtracted). Put simply, GDP is a broad measurement of a nation‘s overall economic activity – the godfather of the indicator world. Economic growth is an increase in the capacity of an economy to produce goods and services, compared from one period of time to another. It can be measured in nominal or real terms, the latter of which is adjusted for inflation. Traditionally, aggregate economic growth is measured in terms of gross national product (GNP) or gross domestic product (GDP), although alternative metrics are sometimes used. Within finance, the current market value (CMV) is the approximate current resale value for a financial instrument. Just as with any other object of value, the current market value offers interested parties a price for which they can enter into a transaction. The current market value is usually taken as the closing price for listed securities or the price offered for over-the-counter (OTC) securities. A recession is a significant decline in economic activity that goes on for more than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP), although the National Bureau of Economic Research (NBER) does not necessarily need to see this occur to call a recession. A standard of living is the level of wealth, comfort, material goods and necessities available to a certain socioeconomic class or a certain geographic area. The standard of living includes factors such as income, gross domestic product (GDP), national economic growth, economic and political stability, political and religious freedom, environmental quality, climate and safety. The standard of living is closely related to quality of life. Value added describes the enhancement a company gives its product or service before offering the product to customers. Value-added applies to instances where a firm takes a product that may be considered a homogeneous product, with few differences (if any) from that of a competitor, and provides potential customers with a feature or add-on that gives it a greater perception of value. A value-added tax (VAT) is a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale. The amount of VAT that the user pays is on the cost of the product, less any of the costs of materials used in the product that have already been taxed. Operating income is an accounting figure that measures the amount of profit realized from a business's operations, after deducting operating expenses such as wages, depreciation and cost of goods sold (COGS). Operating income takes a company's gross income, which is equivalent to total revenue minus COGS, and subtracts all operating expenses. A business's operating expenses are costs incurred from normal operating activities and include items such as office supplies and utilities.
- 9. Net exports arethe value of a country's total exports minus the value of its total imports. It is a measure used to calculate aggregate a country's expenditures or gross domestic product in an open economy. In other words, net exports equal the amount by which foreign spending on a home country's goods and services exceeds the home country's spending on foreign goods and services. Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account for declines in value over time. Businesses depreciate long-term assets for both tax and accounting purposes. For tax purposes, businesses can deduct the cost of the tangible assets they purchase as business expenses; however, businesses must depreciate these assets in accordance with IRS rules about how and when the deduction may be taken. Gross national income is the sum of a nation's gross domestic product and the net income it receives from overseas. A trade surplus is an economic measure of a positive balance of trade, where a country's exports exceed its imports. Trade Balance = Total Value of Exports - Total Value of Imports A trade surplus occurs when the result of the above calculation is positive. A trade surplus represents a net inflow of domestic currency from foreign markets. It is the opposite of a trade deficit, which represents a net outflow, and occurs when the result of the above calculation is negative. In the United States, trade balances are reported monthly by the Bureau of Economic Analysis. Relative value is a method of determining an asset's value that takes into account the value of similar assets. This is in contrast with absolute value, which looks only at an asset's intrinsic value and does not compare it to other assets. Calculations that are used to measure the relative value of stocks include the enterprise value (EV) ratio and price-to-earnings (PE) ratio. Stagflation is a condition of slow economic growth and relatively high unemployment, or economic stagnation, accompanied by rising prices, or inflation. It can also be defined as inflation and a decline in gross domestic product (GDP). Stagflation is an economic problem defined in equal parts by its rarity and by the lack of consensus among academics on how exactly it comes to pass. Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. Central banks attempt to limit inflation — and avoid deflation — in order to keep the economy running smoothly. Hyperinflation is extremely fast or out-of-control inflation. Hyperinflation occurs when price increases are so wild that the concept of inflation is meaningless. Although hyperinflation is considered to be rare, it occurred as many as 55 times in the 20th century in countries such as China, Germany, Russia, Hungary and Argentina. Deflation is the general decline in prices for goods and services occurring when the inflation rate falls below 0%. Deflation happens naturally when the money supply of an economy is fixed. In times of deflation, the purchasing power of currency and wages are higher than they otherwise would have been. This is distinct from but similar to price deflation, which is a general decrease in the price level. A deflationary spiral is a downward price reaction to an economic crisis leading to lower production, lower wages, decreased demand and still lower prices. Deflation occurs when general price levels decline, as opposed
- 10. to inflation whichis when general price levels rise. When deflation occurs, central banks and monetary authorities can enact expansionary monetary policies to spur demand and economic growth. If monetary policy efforts fail, however, due to greater-than-anticipated weakness in the economy or because target interest rates are already zero or close to zero, a deflationary spiral may occur even with an expansionary monetary policy in place. Such a spiral amounts to a vicious circle, where a chain of events reinforces an initial problem. The 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 calculated by taking price changes for each item in the predetermined basket of goods and averaging them. Changes in the CPI are used to assess price changes associated with the cost of living; the CPI is one of the most frequently used statistics for identifying periods of inflation or deflation. The producer price index (PPI) is a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time. The PPI measures price changes from the perspective of the seller and differs from the consumer price index (CPI), which measures price changes from the purchaser's perspective. The PPI considers three areas of production: industry-based, commodity-based and commodity-based final demand-intermediate demand. It was known as the wholesale price index, or WPI, until 1978. Utility is an economic term introduced by Daniel Bernoulli referring to the total satisfaction received from consuming a good or service. The economic utility of a good or service is important to understand because it will directly influence the demand, and therefore price, of that good or service. A consumer's utility is hard to measure, however, but it can be determined indirectly with consumer behavior theories, which assume that consumers will strive to maximize their utility. Marginal utility is the additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important economic concept because economists use it to determine how much of an item a consumer will buy. Positive marginal utility is when the consumption of an additional item increases the total utility. Negative marginal utility is when the consumption of an additional item decreases the total utility. The Law of Diminishing Marginal Utility states that all else equal as consumption increases the marginal utility derived from each additional unit declines. Marginal utility is derived as the change in utility as an additional unit is consumed. Utility is an economic term used to represent satisfaction or happiness. Marginal utility is the incremental increase in utility that results from consumption of one additional unit. Total utility is the aggregate level of satisfaction or fulfillment that a consumer receives through the consumption of a specific good or service. Each individual unit of a good or service has its own marginal utility, and the total utility is simply the sum of all the marginal utilities of the individual units. Classical economic theory suggests that all consumers want to get the highest possible level of total utility for the money they spend. An indifference curve is a graph that shows a combination of two goods that give a consumer equal satisfaction and utility, thereby making the consumer indifferent. Indifference curves are heuristic devices used in contemporary microeconomics to demonstrate consumer preference and the limitations of a budget. Later economists adopted the principles of indifference curves in the study of welfare economics.
- 11. Basis for comparison Cardinal utilityOrdinal utility Meaning Cardinal utility is the utility wherein the satisfaction derived by the consumers from the consumption of good or service can be expressed numerically. Ordinal utility states that the satisfaction which a consumer derives from the consumption of good or service cannot be expressed numerical units. Approach Quantitative Qualitative Realistic Less More Measurement Utils Ranks Analysis Marginal Utility Analysis Indifference Curve Analysis Promoted by Classical and Neo-classical Economists Modern Economists A budget constraint occurs when a consumer is limited in consumption patterns by a certain income. A budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income. Consumer theory uses the concepts of a budget constraint and a preference map to analyze consumer choices. Both concepts have a ready graphical representation in the two-good case. Factors of production are an economic term that describes the inputs that are used in the production of goods or services in order to make an economic profit. The factors of production include land, labor, capital and entrepreneurship. These production factors are also known as management, machines, materials and labor, and knowledge has recently been talked about as a potential new factor of production. Production Function: The function that explains the relationship between physical inputs and physical output (final output) is called the production function. We normally denote the production function in the form: Q = f(X1, X2) Where Q represents the final output and X1 and X2 are inputs or factors of production. Total Product: In simple terms, we can define Total Product as the total volume or amount of final output produced by a firm using given inputs in a given period of time. Marginal Product: The additional output produced as a result of employing an additional unit of the variable factor input is called the Marginal Product. Thus, we can say that marginal products is the addition to Total Product when an extra factor input is used. Marginal Product = Change in Output/ Change in Input Thus, it can also be said that Total Product is the summation of Marginal products at different input levels. Total Product = Ʃ Marginal Product Average Product: It is defined as the output per unit of factor inputs or the average of total product per unit of input and can be calculated by dividing the Total Product by the inputs (variable factors). Average Product = Total Product/ Units of Variable Factor Input
- 12. The law ofdiminishing marginal returns states that, at some point, adding an additional factor of production results in smaller increases in output. For example, a factory employs workers to manufacture its products, and, at some point, the company operates at an optimal level. With other production factors constant, adding additional workers beyond this optimal level will result in less efficient operations. The isoquant curve is a graph, used in the study of microeconomics, that charts all inputs that produce a specified level of output. This graph is used as a metric for the influence that the inputs have on the level of output or production that can be obtained. The isoquant curve assists firms in making adjustments to inputs to maximize outputs, and thus profits. Isoquant Curve vs. Indifference Curve The isoquant curve is a contoured line that is drawn through points that produce the same quantity of output, while the quantities of inputs – usually two or more – are changed. The mapping of the isoquant curve addresses cost minimization problems for producers. The indifference curve, on the other hand, helps to map out the utility maximization problem that consumers face. The isocost line is an important component when analyzing producer‘s behavior. The isocost line illustrates all the possible combinations of two factors that can be used at given costs and for a given producer‘s budget. In simple words, an isocost line represents a combination of inputs which all cost the same amount. The Short-run Cost is the cost which has short-term implications in the production process, i.e. these are used over a short range of output. These are the cost incurred once and cannot be used again and again, such as payment of wages, cost of raw materials, etc. Long Run: The long run is a period of time in which all factors of production and costs are variable. In the long run, firms are able to adjust all costs, whereas, in the short run, firms are only able to influence prices through adjustments made to production levels. Additionally, while a firm may be a monopoly in the short term, they may expect competition in the long run. Short Run: The short run is the concept that, within a certain period in the future, at least one input is fixed while others are variable. In economics, it expresses the idea that an economy behaves differently depending on the length of time it has to react to certain stimuli. The short run does not refer to a specific duration of time but rather is unique to the firm, industry or economic variable being studied. A key principle guiding the concept of short run and long run is that in the short run, firms face both variable and fixed costs, which means that output, wages and prices do not have full freedom to reach a new equilibrium. Fixed Cost: A fixed cost is an expense or cost that does not change with an increase or decrease in the number of goods or services produced or sold. Fixed costs are expenses that have to be paid by a company, independent of any business activity. It is one of the two components of the total cost of running a business, the other being variable costs. A variable cost is a corporate expense that changes in proportion with production output. Variable costs increase or decrease depending on a company's production volume; they rise as production increases and fall as production decreases. In economics, average cost and/or unit cost is equal to total cost (TC) divided by the number of goods produced (the output quantity, Q). It is also equal to the sum of variable costs (total variable costs divided by Q)
- 13. plus average fixedcosts (total fixed costs divided by Q). Average costs may be dependent on the time period considered (increasing production may be expensive or impossible in the short term, for example). Average costs affect the supply curve and are a fundamental component of supply and demand. The average cost method is an inventory costing method in which the cost of each item in an inventory is calculated on the basis of the average cost of all similar goods in the inventory. The average cost method is calculated by dividing the cost of goods in inventory by the total number of items available for sale. The marginal cost of production is the change in total cost that comes from making or producing one additional item. The purpose of analyzing marginal cost is to determine at what point an organization can achieve economies of scale. Average Total Cost (ATC) = Total Cost / Q (Output is quantity produced or ‗Q‘) Average Variable Cost (AVC) = Total Variable Cost / Q Average Fixed Cost (AFC) = ATC – AVC Total Cost (TC) = (AVC + AFC) X Output (Which is Q) Total Variable Cost (TVC) = AVC X Output Total Fixed Cost (TFC) = TC – TVC Marginal Cost (MC) = Change in Total Costs / Change in Output Marginal Product (MP) = Change in Total Product / Change in Variable Factor Marginal Revenue (MR) = Change in Total Revenue / Change in Q Average Product (AP) = TP / Variable Factor Total Revenue (TR) = Price X Quantity Average Revenue (AR) = TR / Output Total Product (TP) = AP X Variable Factor Economic Profit = TR – TC > 0 A Loss = TR – TC < 0 Break Even Point = AR = ATC Profit Maximizing Condition = MR = MC A unit cost is the total expenditure incurred by a company to produce, store and sell one unit of a particular product or service. Unit costs include all fixed costs, or overhead costs, and all variable costs, or direct material and labor costs. Determining the unit cost is a quick way to check if a company is producing a product efficiently. Breakeven Point (BEP): Breakeven point is the price level at which the market price of a security is equal to the original cost. For options trading, the breakeven point is the market price that an underlying asset must reach for an option buyer to avoid a loss if they exercise the option. For a call buyer, the breakeven point is the strike price plus the premium paid, while breakeven for a put position is the strike price minus the premium paid. Economies of Scale: Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger factory will produce power hand tools at a lower unit price, and a larger medical system will reduce cost per medical procedure. Gross Profit: Gross profit is the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services. Gross profit will appear on a company's income statement, and can be calculated with this formula: Gross profit = Revenue - Cost of Goods Sold
- 14. Gross profit isalso called sales profit and gross income. Marginal Profit: Marginal profit is the profit earned by a firm or individual when one additional (marginal) unit is produced and sold. It is the difference between marginal cost and marginal product (also known as marginal revenue), and is often used to determine whether to expand or contract production, or to stop production altogether. Under mainstream economic theory, a company will maximize its overall profits when marginal cost equals marginal product, or when marginal profit is exactly zero. Operating Profit: Operating profit is an accounting figure that measures the profit earned from a company's ongoing core business operations, thus excluding deductions of interest and taxes. This value also does not include any profit earned from the firm's investments, such as earnings from firms in which the company has partial interest. Operating profit can be calculated using the following formula: Operating Profit = Operating Revenue - Cost of Goods Sold (COGS) - Operating Expenses - Depreciation - Amortization Net Income - NI: Net income - NI is equal to net earnings (profit) calculated as sales less cost of goods sold, selling, general and administrative expenses, operating expenses, depreciation, interest, taxes and other expenses. This number appears on a company's income statement and is an important measure of how profitable the company is. Net income also refers to an individual's income after taking taxes and deductions into account. In geometry, an envelope of a family of curves in the plane is a curve that is tangent to each member of the family at some point, and these points of tangency together form the whole envelope. Classically, a point on the envelope can be thought of as the intersection of two "infinitesimally adjacent" curves, meaning the limit of intersections of nearby curves. This idea can be generalized to an envelope of surfaces in space, and so on to higher dimensions. Revenue: Revenue is the amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise. It is the top line or gross income figure from which costs are subtracted to determine net income. Revenue is calculated by multiplying the price at which goods or services are sold by the number of units or amount sold. Revenue is also known as sales on the income statement. Operating Revenue: Operating revenue is revenue generated from a company's primary business activities. For example, a retailer produces revenue through merchandise sales, and a physician derives revenue from the medical services he/she provides. What constitutes operating revenue varies per business or industry. Total revenue is the total receipts a seller can obtain from selling goods or service to buyers. It can be written as P × Q, which is the price of the goods multiplied by the quantity of the sold goods. Total Revenue: The income earned by a seller or producer after selling the output is called the total revenue. In fact, total revenue is the multiple of price and output. The behavior of total revenue depends on the market where the firm produces or sells. ―Total revenue is the sum of all sales, receipts or income of a firm.‖ Dooley Total revenue may be defined as the ―product of planned sales (output) and expected selling price.‖ Clower and Due
- 15. Average Revenue: Average revenuerefers to the revenue obtained by the seller by selling the per unit commodity. It is obtained by dividing the total revenue by total output. ―The average revenue curve shows that the price of the firm‘s product is the same at each level of output.‖ Stonier and Hague Marginal Revenue: Marginal revenue is the net revenue obtained by selling an additional unit of the commodity. ―Marginal revenue is the change in total revenue which results from the sale of one more or one less unit of output.‖ Ferguson. Thus, marginal revenue is the addition made to the total revenue by selling one more unit of the good. In algebraic terms, marginal revenue is the net addition to the total revenue by selling n units of a commodity instead of n – 1. Market: A market is a medium that allows buyers and sellers of a specific good or service to interact in order to facilitate an exchange. This type of market may either be a physical marketplace where people come together to exchange goods and services in person, as in a bazaar or shopping center, or a virtual market wherein buyers and sellers do not interact, as in an online market. Market can also refer to the general market where securities are traded. This form of the term may also refer to specific securities markets and may take place in person or online. The term "market" can also refer to people with the desire and ability to buy a specific product or service. Equity Market: An equity market is a market in which shares are issued and traded, either through exchanges or over-the-counter markets. Also known as the stock market, it is one of the most vital areas of a market economy because it gives companies access to capital and investors a slice of ownership in a company with the potential to realize gains based on its future performance. Black Market: A black market is economic activity that takes place outside government-sanctioned channels. Black market transactions usually occur ―under the table‖ to let participants avoid government price controls or taxes. Shadow Market: A shadow market includes any unregulated private market in which individuals or entities can purchase assets or property that is not currently publicly traded. The purpose of a shadow market is to shield participants from the oversight and transparency of conventional marketplaces which often include significant documentation. Because activity and transactions on a shadow market occur largely unrecognized, it offers participants the opportunity for strategies or schemes otherwise unavailable in public markets. Fixed Exchange Rate: A fixed exchange rate is a regime applied by a country whereby the government or central bank ties the official exchange rate to another country's currency or the price of gold. The purpose of a fixed exchange rate system is to keep a currency's value within a narrow band. Interest Rate: Interest rate is the amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest rates are typically noted on an annual basis, known as the annual percentage rate (APR). The assets borrowed could include cash, consumer goods, and large assets such as a vehicle or building. Firm: A firm is a business organization, such as a corporation, limited liability company or partnership, that sells goods or services to make a profit. While most firms have just one location, a single firm can consist of one or more establishments, as long as they fall under the same ownership and utilize the same Employer
- 16. Identification Number (EIN).The title "firm" is typically associated with business organizations that practice law, but the term can be used for a wide variety of business operation units, such as accounting. "Firm" is often used interchangeably with "business" or "enterprise." Industry: An industry is a group of companies that are related based on their primary business activities. In modern economies, there are dozens of industry classifications, which are typically grouped into larger categories called sectors. Individual companies are generally classified into an industry based on their largest sources of revenue. For example, while an automobile manufacturer might have a financing division that contributes 10% to the firm's overall revenues, the company would be classified in the automaker industry by most classification systems. In economics and econometrics, the Cobb–Douglas production function is a particular functional form of the production function, widely used to represent the technological relationship between the amounts of two or more inputs (particularly physical capital and labor) and the amount of output that can be produced by those inputs. The Cobb–Douglas form was developed and tested against statistical evidence by Charles Cobb and Paul Douglas during 1927–1947 Constant elasticity of substitution (CES), in economics, is a property of some production functions and utility functions. Specifically, it arises in a particular type of aggregator function which combines two or more types of consumption goods, or two or more types of production inputs into an aggregate quantity. This aggregator function exhibits constant elasticity of substitution. Cartel: A cartel is an organization created from a formal agreement between a group of producers of a good or service to regulate supply in an effort to regulate or manipulate prices. In other words, a cartel is a collection of otherwise independent businesses or countries that act together as if they were a single producer and thus are able to fix prices for the goods they produce and the services they render without competition. Price Leadership: Price leadership is when a leading firm in its sector determines the price of goods or services. This can leave the leader's rivals with little choice but to follow its lead and match the prices if they are to hold onto their market share. Alternatively, competitors may also choose to lower their prices in the hope of gaining market share. Market Share: Market share represents the percentage of an industry, or market's total sales, that is earned by a particular company over a specified time period. Market share is calculated by taking the company's sales over the period and dividing it by the total sales of the industry over the same period. This metric is used to give a general idea of the size of a company in relation to its market and its competitors. Dominant firm: Firm that controls at least half of the market in which it operates and has no significant competition. Its competitors are mostly small firms who compete with each other for the remaining market share Pareto Efficiency: Pareto efficiency, or Pareto optimality, is an economic state where resources cannot be reallocated to make one individual better off without making at least one individual worse off. Pareto efficiency implies that resources are allocated in the most efficient manner, but does not imply equality or fairness. Externality: An externality is a positive or negative consequence of an economic activity experienced by unrelated third parties. Pollution emitted by a factory that spoils the surrounding environment and affects the
- 17. health of nearbyresidents is an example of a negative externality. The effect of a well-educated labor force on the productivity of a company is an example of a positive externality. A positive externality (also called "external benefit" or "external economy" or "beneficial externality") is the positive effect an activity imposes on an unrelated third party. Similar to a negative externality, it can arise either on the production side, or on the consumption side A negative externality (also called "external cost" or "external diseconomy") is an economic activity that imposes a negative effect on an unrelated third party. It can arise either during the production or the consumption of a good or service. Pollution is termed an externality because it imposes costs on people who are "external" to the producer and consumer of the polluting product Linear Programming (LP): Linear programming is a mathematical method that is used to determine the best possible outcome or solution from a given set of parameters or list of requirements, which are represented in the form of linear relationships. It is most often used in computer modeling or simulation in order to find the best solution in allocating finite resources such as money, energy, manpower, machine resources, time, space and many other variables. In most cases, the "best outcome" needed from linear programming is maximum profit or lowest cost. Macroeconomics Gross National Product – GNP: Gross national product (GNP) is an estimate of total value of all the final products and services turned out in a given period by the means of production owned by a country's residents. GNP is commonly calculated by taking the sum of personal consumption expenditures, private domestic investment, government expenditure, net exports and any income earned by residents from overseas investments, minus income earned within the domestic economy by foreign residents. Net exports represent the difference between what a country exports minus any imports of goods and services. GNP is related to another important economic measure called gross domestic product (GDP), which takes into account all output produced within a country's borders regardless of who owns the means of production. GNP starts with GDP, adds residents' investment income from overseas investments, and subtracts foreign residents' investment income earned within a country. Gross Domestic Product – GDP: Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period. Though GDP is usually calculated on an annual basis, it can be calculated on a quarterly basis as well (in the United States, for example, the government releases an annualized GDP estimate for each quarter and also for an entire year). GDP includes all private and public consumption, government outlays, investments, private inventories, paid-in construction costs and the foreign balance of trade (exports are added, imports are subtracted). Put simply, GDP is a broad measurement of a nation‘s overall economic activity – the godfather of the indicator world. Gross National Income (GNI): Gross national income is the sum of a nation's gross domestic product and the net income it receives from overseas. Net National Product – NNP: Net national product (NNP) is the monetary value of finished goods and services produced by a country's citizens, overseas and domestically, in a given period (i.e., the gross national product (GNP) minus the amount of GNP required to purchase new goods to maintain existing stock (i.e., depreciation).
- 18. Inflation: Inflation isthe rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. Central banks attempt to limit inflation — and avoid deflation — in order to keep the economy running smoothly. Demand-Pull Inflation: Demand-pull inflation is used by Keynesian economics to describe what happens when price levels rise because of an imbalance in the aggregate supply and demand. When the aggregate demand in an economy strongly outweighs the aggregate supply, prices go up. Economists describe demand-pull inflation as a result of too many dollars chasing too few goods. Demand-pull inflation results from strong consumer demand. Many individuals purchasing the same good will cause the price to increase, and when such an event happens to a whole economy for all types of goods, it is called demand-pull inflation. Cost-Push Inflation: Cost-push inflation is a situation in which the overall price levels go up (inflation) due to increases in the cost of wages and raw materials. Cost-push inflation develops because the higher costs of production factors decreases in aggregate supply (the amount of total production) in the economy. Since there are fewer goods being produced (supply weakens) and demand for these goods remains consistent, the prices of finished goods increase (inflation). Mixed Demand Inflation: The problem of identifying the basic nature-and fundamental source of inflation continues. Does inflation arise from the demand side of the goods, factor and asset markets or from the supply side or from some combination of the two—the so-called mixed inflation. Many economists have come to believe that the actual process of inflation is neither due to demand-pull alone, nor due to cost-push alone, but due to a combination of both the elements of demand-pull and cost-push—called mixed inflation. Causes of inflation Inflation means there is a sustained increase in the price level. The main causes of inflation are either excess aggregate demand (economic growth too fast) or cost push factors (supply-side factors). Summary of Main causes of inflation 1. Demand-pull inflation – aggregate demand growing faster than aggregate supply (growth too rapid) 2. Cost-push inflation – higher oil prices feeding through into higher costs 3. Devaluation – increasing cost of imported goods, also boost to domestic demand 4. Rising wages – higher wages increase firms costs and increase consumers‘ disposable income to spend more. 5. Expectations of inflation – causes workers to demand wage increases and firms to push up prices.
- 19. Stagflation: Stagflation isa condition of slow economic growth and relatively high unemployment, or economic stagnation, accompanied by rising prices, or inflation. It can also be defined as inflation and a decline in gross domestic product (GDP). Stagflation is an economic problem defined in equal parts by its rarity and by the lack of consensus among academics on how exactly it comes to pass. Economic Growth: Economic growth is an increase in the capacity of an economy to produce goods and services, compared from one period of time to another. It can be measured in nominal or real terms, the latter of which is adjusted for inflation. Traditionally, aggregate economic growth is measured in terms of gross national product (GNP) or gross domestic product (GDP), although alternative metrics are sometimes used. Inflationary Gap: An inflationary gap is a macroeconomic concept that describes the difference between the current level of real gross domestic product (GDP) and the anticipated GDP that would be experienced if an economy is at full employment, also referred to as the potential GDP. For the gap to be considered inflationary, the current real GDP must be the higher of the two metrics. Deflationary gap: This is the difference between the full employment level of output and actual output. For example, in a recession, the deflationary gap may be quite substantial, indicative of the high rates of unemployment and underused resources. A deflationary gap is also known as a negative output gap. Causes of deflationary gap Fall in aggregate demand (AD) due to Fall in exports (global recession) Fall in investment (due to banking collapse and credit crunch) Fall in consumer spending (e.g. higher interest rates, falling wages.) Economic growth well below the average trend rate of growth (AD increasing at slower rate than productive capacity) Unemployment: Unemployment occurs when a person who is actively searching for employment is unable to find work. Unemployment is often used as a measure of the health of the economy. The most frequent measure of unemployment is the unemployment rate, which is the number of unemployed people divided by the number of people in the labor force. Natural rate of unemployment: This is the summation of frictional and structural unemployment that excludes cyclical contributions of unemployment (e.g. recessions). It is the lowest rate of unemployment that a stable economy can expect to achieve, given that some frictional and structural unemployment is inevitable. Economists do not agree on the level of the natural rate, with estimates ranging from 1% to 5%, or on its meaning – some associate it with "non-accelerating inflation". The estimated rate varies from country to country and from time to time. Full Employment: Full employment is an economic situation in which all available labor resources are being used in the most efficient way possible. Full employment embodies the highest amount of skilled and unskilled labor that can be employed within an economy at any given time. Any remaining unemployment is considered to be frictional, structural or voluntary. Causes of unemployment A look at the main causes of unemployment – including demand deficient, structural, frictional and real wage unemployment.
- 20. Structural unemployment: Thisreflects a mismatch between the skills and other attributes of the labour force and those demanded by employers. Rapid industry changes of a technical and/or economic nature will usually increase levels of structural unemployment; for example, widespread implementation of new machinery or software will require future employees to be trained in this area before seeking employment. The process of globalization has contributed to structural changes in labor markets. Cyclical Unemployment: Cyclical unemployment is a factor of overall unemployment that relates to the regular ups and downs, or cyclical trends in growth and production, that occur within the business cycle. When business cycles are at their peak, cyclical unemployment will tend to be low because total economic output is being maximized. When economic output falls, as measured by the gross domestic product (GDP), the business cycle is low and cyclical unemployment will rise. Regional unemployment: When structural unemployment affects local areas of an economy, it is called ‗regional‘ unemployment. For example, unemployed coal miners in South Wales and ship workers in the North East add to regional unemployment in these areas. Classical unemployment: Classical unemployment is caused when wages are ‗too‘ high. This explanation of unemployment dominated economic theory before the 1930s, when workers themselves were blamed for not accepting lower wages, or for asking for too high wages. Classical unemployment is also called real wage unemployment. Seasonal unemployment: Seasonal unemployment exists because certain industries only produce or distribute their products at certain times of the year. Industries where seasonal unemployment is common include farming, tourism, and construction. Frictional unemployment: Frictional unemployment, also called search unemployment, occurs when workers lose their current job and are in the process of finding another one. There may be little that can be done to reduce this type of unemployment, other than provide better information to reduce the search time. This suggests that full employment is impossible at any one time because some workers will always be in the process of changing jobs. Voluntary unemployment: Voluntary unemployment is defined as a situation when workers choose not to work at the current equilibrium wage rate. For one reason or another, workers may elect not to participate in the labor market. There are several reasons for the existence of voluntary unemployment including excessively generous welfare benefits and high rates of income tax. Voluntary unemployment is likely to occur when the equilibrium wage rate is below the wage necessary to encourage individuals to supply their labor.
- 21. Hidden unemployment: Hidden,or covered, unemployment is the unemployment of potential workers that are not reflected in official unemployment statistics, due to the way the statistics are collected. In many countries, only those who have no work but are actively looking for work (and/or qualifying for social security benefits) are counted as unemployed. Those who have given up looking for work (and sometimes those who are on Government "retraining" programs) are not officially counted among the unemployed, even though they are not employed. The statistic also does not count the "underemployed"—those working fewer hours than they would prefer or in a job that doesn't make good use of their capabilities. In addition, those who are of working age but are currently in full-time education are usually not considered unemployed in government statistics. Traditional unemployed native societies who survive by gathering, hunting, herding, and farming in wilderness areas, may or may not be counted in unemployment statistics. Official statistics often underestimate unemployment rates because of hidden unemployment. Long-term unemployment is defined in European Union statistics, as unemployment lasting for longer than one year. Business Cycle: The business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles are generally measured using rise and fall in real – inflation-adjusted – gross domestic product (GDP), which includes output from the household and nonprofit sector and the government sector, as well as business output. "Output cycle" is therefore a better description of what is measured. The business or output cycle should not be confused with market cycles, measured using broad stock market indices; or the debt cycle, referring to the rise and fall in household and government debt. The different phases of business cycles are shown in Figure-1: There are basically two important phases in a business cycle that are prosperity and depression. The other phases that are expansion, peak, trough and recovery are intermediary phases. Figure-2 shows the graphical representation of different phases of a business cycle:
- 22. As shown inFigure-2, the steady growth line represents the growth of economy when there are no business cycles. On the other hand, the line of cycle shows the business cycles that move up and down the steady growth line. Stabilization Policy: A stabilization policy is a macroeconomic strategy enacted by governments and central banks to keep economic growth stable, along with price levels and unemployment. Ongoing stabilization policy includes monitoring the business cycle and adjusting benchmark interest rates to control aggregate demand in the economy. The goal is to avoid erratic changes in total output, as measured by gross domestic product (GDP), and large changes in inflation; stabilization of these factors generally leads to moderate changes in the employment rate, as well. Consumption Function: The consumption function, or Keynesian consumption function, is an economic formula that represents the functional relationship between total consumption and gross national income. It was introduced by British economist John Maynard Keynes, who argued the function could be used to track and predict total aggregate consumption expenditures. The consumption function is represented as: Where: C = Consumer spending; A = Autonomous consumption; M = Marginal propensity to consume; D = Real disposable income. Saving Function: Saving function or the propensity to save expresses the relationship between saving and the level of income. It is simply the desire of the households to hoard a part of their total disposable income. Symbolically, the functional relation between saving and income can be defined as S= f(Y). We know, Y= C + S; Thus, S= Y-C; Where, Y= Income; S= Saving; C= Consumption The equation shows that the remaining amount after the deduction of total expenditure from total income is saving. Thus, saving is that part of income which is not spent on consumption Marginal Propensity To Consume (MPC): The marginal propensity to consume (MPC) is the proportion of an aggregate raise in pay that a consumer spends on the consumption of goods and services, as opposed to saving it. Marginal propensity to consume is a component of Keynesian macroeconomic theory and is calculated as the change in consumption divided by the change in income. MPC is depicted by a consumption line, which is a sloped line created by plotting change in consumption on the vertical "y" axis and change in income on the horizontal "x" axis. Marginal Propensity to Save (MPS): A marginal propensity to save refers to the proportion of an aggregate raise in pay that a consumer spends on saving rather than on the consumption of goods and services. The marginal propensity to save is a component of Keynesian macroeconomic theory and is calculated as the change in savings divided by the change in income. Marginal propensity to save = change in saving change in income MPS is depicted by a savings line: a sloped line created by plotting change in savings on the vertical y axis and change in income on the horizontal X axis.
- 23. Marginal Propensity ToImport (MPM): The marginal propensity to import (MPM) is the amount imports increase or decrease with each unit rise or decline in disposable income. The marginal propensity to import is thus the change in imports induced by a change in income. An economy with a positive marginal propensity to consume is likely to have a positive marginal propensity to import. This is because a portion of goods consumed is likely to be imported. MPM is calculated as dIm/dY, meaning the derivative of the import function (Im) with respect to the derivative of the income function (Y). Average Propensity To Save: The average propensity to save (APS) is an economic term that refers to the proportion of income that is saved rather than spent on goods and services. Also known as the savings ratio, it is usually expressed as a percentage of total household disposable income (income minus taxes). The inverse of average propensity to save is the average propensity to consume (APC). Average Propensity To Consume: The average propensity to consume (APC) refers to the percentage of income spent on goods and services rather than on savings. A person can determine the percentage of income spent by dividing the average household consumption, or what is spent, by the average household income, or what is earned. The inverse of the average propensity to consume is the average propensity to save (APS). Personal Income: Personal income refers to all income collectively received by all individuals or households in a country. Personal income includes compensation from a number of sources including salaries, wages and bonuses received from employment or self-employment; dividends and distributions received from investments; rental receipts from real estate investments and profit-sharing from businesses. Discretionary Income: Discretionary income is the amount of an individual's income that is left for spending, investing or saving after paying taxes and paying for personal necessities, such as food, shelter and clothing. Discretionary income includes money spent on luxury items, vacations, and nonessential goods and services. Because discretionary income is the first to shrink amid a job loss or pay reduction, businesses that sell discretionary goods tend to suffer the most during economic downturns and recessions. National Savings Rate: The national savings rate is an estimate from the U.S. Commerce Department's Bureau of Economic Analysis (BEA) of the amount of income left over after subtracting consumption costs and expenditures. The National Savings Rate, though it is referred to as a "savings rate," does not actually measure the amount of money Americans are saving orinvesting for the long-term. The rate is in fact a type of quotient that shows declining or increasing trends of savings and how the economy of the country is performing. National savings include money left over by individuals, businesses, and government after their expenditures are accounted for. Disposable Income: Disposable income, also known as disposable personal income (DPI), is the amount of money that households have available for spending and saving after income taxes have been accounted for. Disposable personal income is often monitored as one of the many key economic indicators used to gauge the overall state of the economy. Investment: An investment is an asset or item acquired with the goal of generating income or appreciation. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or will later be sold at a higher price for a profit.
- 24. The investment functionis a summary of the variables that influence the levels of aggregate investments. It can be formalized as follows: I=f(r,ΔY,q) Where r is the real interest rate, Y the GDP and q is Tobin's q. The signs under the variables simply tell us if the variable influences investment in a positive or negative way (for instance, if real interest rates were to rise, investments would correspondingly fall). Gross Investment: Gross investment includes the total of all investments made in a country during one year. The country, however, does not benefit from the all of the money invested in machines and equipment because some machines age during the year. They do not work as well, and therefore contribute less to overall production. Net Investment: Net investment equals gross investment, minus annual wear and tear. Another word for the wearing out of machines is depreciation. Net investment represents the actual amount o The two types of investments are discussed below: (i) Autonomous Investment: Investment may be autonomous and induced. Usually, investment decision is governed by output and/or the rate of interest. If investment does not depend either on income/output or the rate of interest, then such investment is called autonomous investment. Thus, autonomous investment is independent of the level of income. (ii) Induced Investment: Investment that is dependent on the level of income or on the rate of interest is called induced investment. Investment that would respond to a change in national income or in the rate of interest is called induced investment. Business Fixed Investment: Business fixed investment means investment in the machines, tools and equipment that businessmen buy for use in further production of goods and services. Residential Investment: Residential investment refers to the expenditure which people make on constructing or buying new houses or dwelling apartments for the purpose of living or renting out to others. Residential investment varies from 3 per cent to 5 per cent of GDP in various countries. The marginal efficiency of capital (MEC) is that rate of discount which would equate the price of a fixed capital asset with its present discounted value of expected income. The term ―marginal efficiency of capital‖ was introduced by John Maynard Keynes in his General Theory, and defined as ―the rate of discount which would make the present valueof the series of annuities given by the returns expected from the capital asset during its life just equal its supply price‖. Multiplier: In economics, a multiplier refers to an economic factor that, when increased or changed, causes increases or changes in many other related economic variables. In terms of gross domestic product, the multiplier effect causes gains in total output to be greater than the change in spending that caused it. The term is usually used in reference to the relationship between government spending and total national income. Types of multiplier: Employment Multiplier: It refers to type of a multiplier measure by Kahn‘s where the number of employment is created, activated and supplied from the base or primary jobs. let‘s suppose in cosmetic products the multiplier is 1.5, means that for every job in the cosmetic products industry effects 1.5 other jobs. Generally, this
- 25. means that ifemployment increases by one job in cosmetic company, then 1.5 other jobs are created throughout the economy. Fiscal Multiplier: It‘s referring to that type of multiplier where an increment of government spending tends to leave a larger impact on the national income (GDP). The Mechanism used in this case is that an initial increment of spending by the Govt leads to increase consumption, this increment of consumption will make an income of another and hence further increase the level of expenditure that results in an overall increase in national income of the country. Money Multiplier: Money Multiplier is generally the amount of money that banks generate with each dollar of reserves. Reserve is the amount of deposit that banks reserve for all the reserve that wants to reserve in the bank than to lend. The money multiplier is the ratio of deposits to reserves in the banking system. The higher the reserve ratio, the tighter will be the money supply, which will result lesser excess reserve and would be lower multiplier effect for every dollar deposited. The larger the money supply, the lower the reserve requirements which means more money is being generated for every dollar deposited. Income Multiplier: An injection of investment will ultimately result many times higher increase in the income of an individual or to nation caused by that initial investment. That is why it‘s called income multiplier or investment multiplier at the same time. Negative/Reverse Multiplier: The negative multiplier refers to such situation in the economy where a minor decline in investment will trigger a huge decline in the business activity. Tax Multiplier: Tax multiplier can be thought in negative or downward multiplier because if an increase in government spending leads in ever larger increase in GDP, then a contradictory case would be an increase in tax, decreasing GDP or spending. Obviously higher taxes reduces the amount of money people used to consume and this reduction indicates less spending in the market and a leakage from the circular flow of income. Investment Multiplier: An investment multiplier refers to the concept that any increase in public or private investment spending has a more than proportionate positive impact on aggregate income and the general economy. The multiplier attempts to quantify the additional effects of a policy beyond those immediately measurable. The larger an investment's multiplier, the more efficient it is at creating and distributing wealth throughout an economy. Deposit Multiplier: The deposit multiplier, also referred to as the deposit expansion multiplier, is a function that describes the amount of money a bank creates in additional money supply through the process of lending the available capital it has in excess of the bank's reserve requirement. Simply put, it's the ratio of bank reserves to the bank deposits. Demand: Demand is an economic principle referring to a consumer's desire and willingness to pay a price for a specific good or service. Holding all other factors constant, an increase in the price of a good or service will decrease demand, and vice versa. Think of demand as your willingness to go out and buy a certain product. For example, market demand is the total of what everybody in the market wants. Aggregate Demand: Aggregate demand is an economic measurement of the sum of all final goods and services produced in an economy, expressed as the total amount of money exchanged for those goods and services. Since aggregate demand is measured by market values, it only represents total output at a given price level and does not necessarily represent quality or standard of living.
- 26. Aggregate Supply: Aggregatesupply, also known as total output, is the total supply of goods and services produced within an economy at a given overall price level in a given period. It is represented by the aggregate supply curve, which describes the relationship between price levels and the quantity of output that firms are willing to provide. Normally, there is a positive relationship between aggregate supply and the price level. Money Supply: The money supply is the entire stock of currency and other liquid instruments circulating in a country's economy as of a particular time. The money supply can include cash, coins and balances held in checking and savings accounts. Economists analyze the money supply and develop policies revolving around it through controlling interest rates and increasing or decreasing the amount of money flowing in the economy. Sticky Wage Theory: The sticky wage theory hypothesizes that pay of employees tends to have a slow response to the changes in the performance of a company or of the economy. According to the theory, when unemployment rises, the wages of those workers that remain employed tend to stay the same or grow at a slower rate than before rather than falling with the decrease in demand for labor. Specifically, wages are often said to be sticky-down, meaning that they can move up easily but move down only with difficulty. Stickiness in general is also often called ―nominal rigidity‖ and the phenomenon of sticky wages is also often referred to as ―wage stickiness.‖ Supply Shock: A supply shock is an unexpected event that changes the supply of a product or a commodity resulting in a sudden change in its price. Supply shocks can be negative (decreased supply) or positive (increased supply); however, they are almost always negative and rarely positive. Assuming aggregate demand is unchanged, a negative supply shock in a product or a commodity causes its price to spike upward while a positive supply shock exerts downward pressure on its price. Absolute Income: Economist John Maynard Keynes created a theory of consumption based on people's absolute income. According to Keynes, consumers would spend a smaller percentage of their income as their absolute income grew larger, simultaneously increasing their savings rate. Data supported the theory, but when aggregate income grew there was not a similar growth in the aggregate savings rate. Still, standard economics asserts that individuals view their income and financial position in absolute terms. Relative Income: James Duesenberry introduced the relative income hypothesis, which demonstrates that people make decisions, including savings and consuming, based not only on absolute income but on relative income as well. Duesenberry argued that consumers view their own social position and status in relation to others, and then behave accordingly. For instance, a consumer will consider his income as it relates to the income of another before making purchase decisions. Permanent Income Hypothesis: The Permanent Income Hypothesis is a theory of consumer spending which states that people will spend money at a level consistent with their expected long term average income. The level of expected long term income then becomes thought of as the level of "permanent" income that can be safely spent. A worker will save only if his or her current income is higher than the anticipated level of permanent income, in order to guard against future declines in income.
- 27. Life-Cycle Hypothesis (LCH):The Life-Cycle Hypothesis (LCH) is an economic theory that pertains to the spending and saving habits of people over the course of a lifetime. The concept was developed by Franco Modigliani and his student Richard Brumberg. LCH presumes that individuals plan their spending over their lifetimes, taking into account their future income. Accordingly, they take on debt when they are young, assuming future income will enable them to pay the debt off. They then save during middle age in order to maintain their level of consumption when they retire. This results in a "hump-shaped" pattern in which wealth accumulation is low during youth and old age, and high during middle age. Expected Rate of Inflation: Investor and public expectations of current or future inflation. These expectations may or may not be rational, butthey may affect how the market reacts to changes in target interest rates. For example, the market usually res pondswell to a cut in interest rates, but if investors expect inflation to go higher in the near future and the Feder al Reserve cuts rates, the market may not react positively. Phillips Curve: The Phillips curve is an economic concept developed by A. W. Phillips stating that inflation and unemployment have a stable and inverse relationship. The theory claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment. However, the original concept has been somewhat disproven empirically due to the occurrence of stagflation in the 1970s, when there were high levels of both inflation and unemployment. Figure 1 Phillips Curve Stabilization Policy: A stabilization policy is a macroeconomic strategy enacted by governments and central banks to keep economic growth stable, along with price levels and unemployment. Ongoing stabilization policy includes monitoring the business cycle and adjusting benchmark interest rates to control aggregate demand in the economy. The goal is to avoid erratic changes in total output, as measured by gross domestic product (GDP), and large changes in inflation; stabilization of these factors generally leads to moderate changes in the employment rate, as well. Monetary Policy: Monetary policy consists of the actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates. Monetary policy is maintained through actions such as modifying the interest rate, buying or selling government bonds, and changing the amount of money banks are required to keep in the vault (bank reserves). The Federal Reserve is in charge of monetary policy in the United States.
- 28. Fiscal Policy: Fiscalpolicy refers to the use of government spending and tax policies to influence macroeconomic conditions, including aggregate demand, employment, inflation and economic growth. The three stances of fiscal policy are: Neutral fiscal policy is usually undertaken when an economy is in neither a recession nor a boom. The amount of government deficit spending (the excess not financed bytax revenue) is roughly the same as it has been on average over time, so no changes to it are occurring that would have an effect on the level of economic activity. Expansionary fiscal policy involves government spending exceeding tax revenue by more than it has tended to, and is usually undertaken during recessions. Contractionary fiscal policy occurs when government deficit spending is lower than usual. Government spending or expenditure includes all government consumption, investment, and transfer payments. Government spending can be financed by government borrowing, or taxes. Changes in government spending is a major component of fiscal policy used to stabilize the macroeconomic business cycle. Taxes: Taxes are involuntary fees levied on individuals or corporations and enforced by a government entity - whether local, regional or national - in order to finance government activities. In economics, taxes fall on whomever pays the burden of the tax, whether this is the entity being taxed, like a business, or the end consumers of the business's goods. Transfer Payment: A transfer payment, in the United States, is a one-way payment to a person for which no money, good, or service is given or exchanged. Transfer payments are made to individuals by the federal government through various social benefit programs. These types of payments are executed by the United States to individuals through programs such as Social Security. Social Security: Social Security is an important part of the Old-Age, Survivors, and Disability Insurance program and run by the Social Security Administration. This is a social welfare and insurance plan managed by the U.S. federal government that pays benefits to retirees, workers who become disabled and survivors of deceased workers. Social Security's benefits include retirement income, disability income, Medicare and Medicaid, and death and survivorship benefits. Social Security is one of the largest government programs in the world, paying out hundreds of billions of dollars per year. Retirement benefits may begin as early as age 62 at a discounted rate, and the amount you receive in retirement increases from the 62 through 70. You do not have to take benefits at 70 years old, but there is no monetary benefit to waiting beyond that age Social Security bases the amount of income one receives on " average indexed monthly earnings" during the 35 years in which you earned the most. Spouses are also eligible to receive Social Security benefits, even if they have limited or non-existent work histories. A divorced spouse can also receive spousal benefits, if the marriage lasted 10 years or longer. A budget is a financial plan for a defined period of time, usually a year. It may also include planned sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities and cash flows. Companies, governments, families and other organizations use it to express strategic plans of activities or events in measurable terms. A budget is the sum of money allocated for a particular purpose and the summary of intended expenditures along with proposals for how to meet them. It may include a budget surplus, providing money for use at a future time, or a deficit in which expenses exceed income.
- 29. Balanced Budget: Abalanced budget is a situation in financial planning or the budgeting process where total revenues are equal to or greater than total expenses. A budget can be considered balanced in hindsight after a full year's worth of revenues and expenses have been incurred and recorded. A company's operating budget for an upcoming year can also be called balanced based on predictions or estimates. What is a 'Budget Deficit'? A budget deficit occurs when expenses exceed revenue, and it is an indicator of financial health. The government generally uses this term in reference to its spending rather than business or individuals. Accrued government deficits form the national debt. What is a 'Budget Surplus' A budget surplus is a period when income or receipts exceed outlays or expenditures. A budget surplus often refers to the financial states of governments; individuals prefer to use the term 'savings' instead of the term 'budget surplus.' A surplus is an indication that the government is being effectively managed. What is 'Balance Of Trade - BOT'? The balance of trade is the difference between the value of a country's imports and exports for a given period. The balance of trade is the largest component of a country's balance of payments. Economists use the BOT to measure the relative strength of a country's economy. The balance of trade is also referred to as the trade balance or the international trade balance. What is a 'Trade Surplus' A trade surplus is an economic measure of a positive balance of trade, where a country's exports exceed its imports. Trade Balance = Total Value of Exports - Total Value of Imports A trade surplus occurs when the result of the above calculation is positive. A trade surplus represents a net inflow of domestic currency from foreign markets. It is the opposite of a trade deficit, which represents a net outflow, and occurs when the result of the above calculation is negative. In the United States, trade balances are reported monthly by the Bureau of Economic Analysis. What is the 'Balance of Payments (BOP)' The balance of payments is a statement of all transactions made between entities in one country and the rest of the world over a defined period of time, such as a quarter or a year. What is a 'Trade Deficit'? A trade deficit is an economic measure of international trade in which a country's imports exceeds its exports. A trade deficit represents an outflow of domestic currency to foreign markets. It is also referred to as a negative balance of trade (BOT). What is 'Foreign Direct Investment - FDI' Foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country. Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets, including establishing ownership or controlling interest in a foreign company. Foreign direct investments are distinguished from portfolio investments in which an investor merely purchases equities of foreign-based companies.
- 30. What is a'Current Account Deficit'? The current account deficit is a measurement of a country‘s trade where the value of the goods and services it imports exceeds the value of the goods and services it exports. The current account includes net income, such as interest and dividends, and transfers, such as foreign aid, although these components make up only a small percentage of the total current account. The current account represents a country‘s foreign transactions and, like the capital account, is a component of a country‘s balance of payments. Definition of capital mobility – easy for physical assets and finance to move across geographical boundaries. Capital immobility – when capital faces restrictions on the free movement. Definition of 'Policy Mix' The combination of fiscal and monetary policy a nation's policymakers use to manage the economy. The policy mix is the combination of a country's monetary policy and fiscal policy. These two channels influence growth and employment, and are generally determined by the central bank and the government (e.g., the United States Congress) respectively Purchasing power parity (PPP) is a neoclassical economic theory that states that the exchange rate between two countries is equal to the ratio of the currencies' respectivepurchasing power. Theories that invoke the purchasing power parity assume that in some circumstances (for example, as a long-run tendency) it would cost exactly the same number of, for example, US dollars to buy euros and then buy a market basket of goods as it would cost to directly purchase the market basket of goods with dollars. A fall in either currency's purchasing power would lead to a proportional decrease in that currency's valuation on the foreign exchange market. The concept of purchasing power parity allows one to estimate what the exchange rate between two currencies would have to be in order for the exchange to be at par with the purchasing power of the two countries' currencies. Using that PPP rate for hypothetical currency conversions, a given amount of one currency thus has the same purchasing power whether used directly to purchase a market basket of goods or used to convert at the PPP rate to the other currency and then purchase the market basket using that currency. Observed deviations of the exchange rate from purchasing power parity are measured by deviations of the real exchange rate from its PPP value of 1.
- 31. Mathematics In mathematics, theadjective constant means non-varying. The noun constant may have two different meanings. It may refer to a fixed and well-defined number or other mathematical object. A parameter is a quantity that influences the output or behavior of a mathematical object but is viewed as being held constant. Parameters are closely related to variables, and the difference is sometimes just a matter of perspective. Variables are viewed as changing while parameters typically either don't change or change more slowly. In some contexts, one can imagine performing multiple experiments, where the variables are changing through each experiment, but the parameters are held fixed during each experiment and only change between experiments. Common Types of Variables Categorical variable: variables than can be put into categories. For example, the category ―Toothpaste Brands‖ might contain the variables Colgate and Aqua fresh. Confounding variable: extra variables that have a hidden effect on your experimental results. Continuous variable: a variable with infinite number of values, like ―time‖ or ―weight‖. Control variable: a factor in an experiment which must be held constant. For example, in an experiment to determine whether light makes plants grow faster, you would have to control for soil quality and water. Dependent variable: the outcome of an experiment. As you change the independent variable, you watch what happens to the dependent variable. Discrete variable: a variable that can only take on a certain number of values. For example, ―number of cars in a parking lot‖ is discrete because a car park can only hold so many cars. Independent variable: a variable that is not affected by anything that you, the researcher, does. Usually plotted on the x-axis. A measurement variable has a number associated with it. It‘s an ―amount‖ of something, or a‖number‖ of something. Nominal variable: another name for categorical variable. Ordinal variable: similar to a categorical variable, but there is a clear order. For example, income levels of low, middle, and high could be considered ordinal. Qualitative variable: a broad category for any variable that can‘t be counted (i.e. has no numerical value). Nominal and ordinal variables fall under this umbrella term. Quantitative variable: A broad category that includes any variable that can be counted, or has a numerical value associated with it. Examples of variables that fall into this category include discrete variables and ratio variables. Random variables are associated with random processes and give numbers to outcomes of random events. A ranked variable is an ordinal variable; a variable where every data point can be put in order (1st, 2nd, 3rd, etc.). Ratio variables: similar to interval variables, but has a meaningful zero. Less Common Types of Variables Attribute variable: another name for a categorical variable (in statistical software) or a variable that isn‘t manipulated (in design of experiments). Binary variable: a variable that can only take on two values, usually 0/1. Could also be yes/no, tall/short or some other two-variable combination. Covariate variable: similar to an independent variable, it has an effect on the dependent variable but is usually not the variable of interest. See also: Noncomitant variable. Dichotomous variable: Another name for a binary variable.
- 32. Dummy Variables:used in regression analysis when you want to assign relationships to unconnected categorical variables. For example, if you had the categories ―has dogs‖ and ―owns a car‖ you might assign a 1 to mean ―has dogs‖ and 0 to mean ―owns a car.‖ Endogenous variable: similar to dependent variables, they are affected by other variables in the system. Used almost exclusively in econometrics. Exogenous variable: variables that affect others in the system. Explanatory Variable: a type of independent variable. When a variable is independent, it is not affected at all by any other variables. When a variable isn‘t independent for certain, it‘s an explanatory variable. Extraneous variables are any variables that you are not intentionally studying in your experiment or test. Interval variable: a meaningful measurement between two variables. Also sometimes used as another name for a continuous variable. Intervening variable: a variable that is used to explain the relationship between variables. Latent Variable: a hidden variable that can‘t be measured or observed directly. Manifest variable: a variable that can be directly observed or measured. Manipulated variable: another name for independent variable. Mediating variable: variables that explain how the relationship between variables happens. For example, it could explain the difference between the predictor and criterion. Observed Variable: a measured variable (usually used in SEM). Outcome variable: similar in meaning to a dependent variable, but used in a non-experimental study. Polychotomous variables: variables that can have more than two values. Predictor variable: similar in meaning to the independent variable, but used in regression and in non- experimental studies. Responding variable: an informal term for dependent variable, usually used in science fairs. Scale Variable: basically, another name for a measurement variable. Test Variable: another name for the Dependent Variable. Treatment variable: another name for independent variable. A quantitative variable is measured numerically. With measurements of quantitative variables you can do things like add and subtract, and multiply and divide, and get a meaningful result. In the previous example, "Age" was a quantitative variable. The Natural Numbers The natural (or counting) numbers are 1,2,3,4,5,1,2,3,4,5, etc. There are infinitely many natural numbers. The set of natural numbers, {1,2,3,4,5,...}{1,2,3,4,5,...}, is sometimes written NN for short. The whole numbers are the natural numbers together with 00. (Note: a few textbooks disagree and say the natural numbers include 00.) The sum of any two natural numbers is also a natural number (for example, 4+2000=20044+2000=2004), and the product of any two natural numbers is a natural number (4×2000=80004×2000=8000). This is not true for subtraction and division, though. The integers are the set of real numbers consisting of the natural numbers, their additive inverses and zero. {...,−5,−4,−3,−2,−1,0,1,2,3,4,5,...}{...,−5,−4,−3,−2,−1,0,1,2,3,4,5,...} The set of integers is sometimes written JJ or ZZ for short. The sum, product, and difference of any two integers is also an integer. But this is not true for division... just try 1÷21÷2.
- 33. The rational numbersare those numbers which can be expressed as a ratio between two integers. For example, the fractions 1313 and −11118−11118 are both rational numbers. All the integers are included in the rational numbers, since any integer zz can be written as the ratio z1z1. All decimals which terminate are rational numbers (since 8.278.27 can be written as 827100827100.) Decimals which have a repeating pattern after some point are also rationals: for example, 0.0833333....=1120.0833333....=112. The set of rational numbers is closed under all four basic operations, that is, given any two rational numbers, their sum, difference, product, and quotient is also a rational number (as long as we don't divide by 00). An irrational number is a number that cannot be written as a ratio (or fraction). In decimal form, it never ends or repeats. The ancient Greeks discovered that not all numbers are rational; there are equations that cannot be solved using ratios of integers. The first such equation to be studied was 2=x22=x2. What number times itself equals 22? 2√2 is about 1.4141.414, because 1.4142=1.9993961.4142=1.999396, which is close to 22. But you'll never hit exactly by squaring a fraction (or terminating decimal). The square root of 22 is an irrational number, meaning its decimal equivalent goes on forever, with no repeating pattern: 2√=1.41421356237309...2=1.41421356237309... The real numbers is the set of numbers containing all of the rational numbers and all of the irrational numbers. The real numbers are ―all the numbers‖ on the number line. There are infinitely many real numbers just as there are infinitely many numbers in each of the other sets of numbers. But, it can be proved that the infinity of the real numbers is a bigger infinity. The "smaller", or countable infinity of the integers and rationals is sometimes called ℵ 0ℵ 0(alef-naught), and the uncountable infinity of the reals is called ℵ 1ℵ 1(alef-one). There are even "bigger" infinities, but you should take a set theory class for that! (Decimal)—Represent any number using 10 digits [0–9] Base 2 (Binary)—Represent any number using 2 digits [0–1] Base 8 (Octal)—Represent any number using 8 digits [0–7] Base 16(Hexadecimal)—Represent any number using 10 digits and 6 characters [0–9, A, B, C, D, E, F] Set theory is a branch of mathematical logic that studies sets, which informally are collections of objects. Although any type of object can be collected into a set, set theory is applied most often to objects that are relevant to mathematics. The language of set theory can be used in the definitions of nearly all mathematical objects. A set that has no element should be called as Empty set. Another name for Empty set could be Null set and Void set. Number of element in set X is represented as n(X). The empty set is denoted as Φ. Thus, n(Φ) = 0. The cardinality of an empty set is zero since it has no element. Singleton Set: A set that has one and only one element should be called as Singleton set. Sometimes, it is known as unit set. The cardinality of singleton is one. If A is a singleton, then we can express it as A = {x : x = A} Example: Set A = {5} is a singleton set. Finite and Infinite Set: A set that has predetermined number of elements or finite number of elements are said to be Finite set. Like {1 ,2, 3, 4, 5, 6} is a finite set whose cardinality is 6, since it has 6 elements. Otherwise, it is called as infinite set. It may be uncountable or countable. The union of some infinite sets is
- 34. infinite and thepower set of any infinite set is infinite. Examples: 1. Set of all the days in a week is a finite set. 2. Set of all integers is infinite set. Union of Sets: Union of two or else most numbers of sets could be the set of all elements that belongs to every element of all sets. In the union set of two sets, every element is written only once even if they belong to both the sets. This is denoted as ‗∪‘. If we have sets A and B, then the union of these two is A U B and called as A union B. Mathematically, we can denote it as A U B = {x : x ∈∈ A or x∈∈ B} The union of two sets is always commutative i.e.A U B = B U A. Example: A = {1,2,3} B = {1,4,5} A ∪∪ B = {1,2,3,4,5} Intersection of Sets: It should be the set of elements that are common in both the sets. Intersection is similar to grouping up the common elements. The symbol should be denoted as ‗∩‘. If A and B are two sets, then the intersection is denoted as A ∩∩ B and called as A intersection B and mathematically, we can write it as A∩B={x:x∈A∧x∈B}A∩B={x:x∈A∧x∈B} Example: A = {1,2,3,4,5} B = {2,3,7} A ∩∩ B = {2,3} Difference of Sets: The difference of set A to B should be denoted as A - B. That is, the set of element that are in set A not in set B is A - B = {x: x ∈∈ A and x ∉ B} And, B - A is the set of all elements of the set B which are in B but not in A i.e. B - A = {x: x ∈∈ B and x ∉ A}. Example: If A = {1,2,3,4,5} and B = {2,4,6,7,8}, then A - B = {1,3,5} and B - A = {6,7,8} Subset of a Set: In set theory, a set P is the subset of any set Q, if the set P is contained in set Q. It means, all the elements of the set P also belongs to the set Q. It is represented as '⊆‘ or P ⊆⊆ Q. Example: A = {1,2,3,4,5} B = {1,2,3,4,5,7,8} Here, A is said to be the subset of B. Disjoint Sets: If two sets A and B should have no common elements or we can say that the intersection of any two sets A and B is the empty set, then these sets are known as disjoint sets i.e. A ∩∩ B = ϕϕ. That means, when this condition n (A ∩ B) = 0 is true, then the sets are disjoint sets. Example: A = {1,2,3} B = {4,5}
- 35. n (A ∩B) = 0. Therefore, these sets A and B are disjoint sets. Equality of Two Sets: Two sets are said to be equal or identical to each other, if they contain the same elements. When the sets P and Q is said to be equal, if P ⊆ Q and Q ⊆ P, then we will write as P = Q. Examples: 1. If A = {1,2,3} and B = {1,2,3}, then A = B. 2. Let P = {a, e, i, o, u} and B = {a, e, i, o, u, v}, then P ≠≠ Q, since set Q has element v as the extra element. Equation: In mathematics, an equation is a statement of an equality containing one or more variables. Solving the equation consists of determining which values of the variables make the equality true. Variables are also called unknowns and the values of the unknowns that satisfy the equality are called solutions of the equation. There are two kinds of equations: identities and conditional equations. An identity is true for all values of the variable. A conditional equation is true for only particular values of the variables. An equation is written as two expressions, connected by a equals sign ("="). The expressions on the two sides of the equals sign are called the "left-hand side" and "right-hand side" of the equation. Equations can be classified according to the types of operations and quantities involved. Important types include: An algebraic equation or polynomial equation is an equation in which both sides are polynomials (see also system of polynomial equations). These are further classified by degree: linear equation for degree one quadratic equation for degree two cubic equation for degree three quartic equation for degree four quintic equation for degree five sextic equation for degree six septic equation for degree seven octic equation for degree eight A functional equation is an equation in which the unknowns are functions rather than simple quantities A differential equation is a functional equation involving derivatives of the unknown functions An integral equation is a functional equation involving the ant derivatives of the unknown functions An integro-differential equation is a functional equation involving both the derivatives and the ant derivatives of the unknown functions A difference equation is an equation where the unknown is a function f that occurs in the equation through f(x), f(x−1), …, f(x−k), for some whole integer k called the order of the equation. If x is restricted to be an integer, a difference equation is the same as a recurrence relation Function: In mathematics, a function was originally the idealization of how a varying quantity depends on another quantity. For example, the position of a planet is a function of time. Historically, the concept was elaborated with the infinitesimal calculus at the end of the 17th century, and, until the 19th century, the functions that were considered were differentiable (that is, they had a high degree of regularity). The concept of function was formalized at the end of the 19th century in terms of set theory, and this greatly enlarged the domains of application of the concept. A function is a process or a relation that associates each element x of a set X, the domain of the function, to a single element y of another set Y (possibly the same set), the codomain of the function. If the function is called f, this relation is denoted y = f(x) (read for x), the element x is the argument or input of the function,
- 36. and y isthe value of the function, the output, or the image of x by f. The symbol that is used for representing the input is the variable of the function (one often says that f is a function of the variable x) Algebraic Functions: A function which consists of finite number of terms involving powers and roots of independent variable x and the four fundamental operations of addition, subtraction, multiplication and division is called an algebraic function. For example, f(x)=5x3−2x2+5x+6f(x)=5x3−2x2+5x+6, g(x)=(2x+4)√(x−1)2g(x)=(2x+4)(x−1)2 Polynomials, rational functions and irrational functions are all the examples of algebraic functions. The exponential function is one of the most important functions in mathematics (though it would have to admit that the linear function ranks even higher in importance). To form an exponential function, we let the independent variable be the exponent a function whose value is a constant raised to the power of the argument, especially the function where the constant is e. In mathematics, the logarithm is the inverse function to exponentiation. That means the logarithm of a given number x is the exponent to which another fixed number, the base b, must be raised, to produce that number x. In the simplest case the logarithm counts repeated multiplication of the same factor; e.g., since 1000 = 10 × 10 × 10 = 103 , the "logarithm to base 10" of 1000 is 3. The logarithm of x tobase b is denoted as logb (x) (or, without parentheses, as logb x, or even without explicit base as log x, when no confusion is possible). More generally, exponentiation allows any positive real number to be raised to any real power, always producing a positive result, so the logarithm for any two positive real numbers b and x where b is not equal to 1, is always a unique real number y. Differentiation, in mathematics, process of finding the derivative, or rate of change, of a function. In contrast to the abstract nature of the theory behind it, the practical technique of differentiation can be carried out by purely algebraic manipulations, using three basic derivatives, four rules of operation, and a knowledge of how to manipulate functions. In mathematics, a partial derivative of a function of several variables is its derivative with respect to one of those variables, with the others held constant (as opposed to the total derivative, in which all variables are allowed to vary). Partial derivatives are used invector calculus and differential geometry. Matrix: A matrix is a rectangular array of numbers or other mathematical objects for which operations such as addition and multiplication are defined. Most commonly, a matrix over afield F is a rectangular array of scalars each of which is a member of F. Most of this article focuses on real and complex matrices, that is, matrices whose elements are real numbers or complex numbers, respectively. Matrix: In order to arrange numerous numbers, mathematics provides a simple solution: matrices. A matrix can be defined as a rectangular grid of numbers, symbols, and expressions arranged in rows and columns. These grids are usually charted by brackets around them. The dimensions of a matrix are represented as R X C, where R is the number of rows and C is the number of columns. This R X Cnotation is also called the order of the matrix. Types of Matrices Null Matrix: A matrix that has all 0 elements is called a null matrix. It can be of any order. For example, we could have a null matrix of the order 2 X 3. It's also a singular matrix, since it does not have an inverse and its determinant is 0.
- 37. Any matrix thatdoes have an inverse can be called a regular matrix. Row Matrix: A row matrix is a matrix with only one row. Its order would be 1 X C, where C is the number of columns. For example, here's a row matrix of the order 1 X 5: Column Matrix: A column matrix is a matrix with only one column. It is represented by an order of R X 1, where R is the number of rows. Here's a column matrix of the order 3 X 1: Square Matrix: A matrix where the number of rows is equal to the number of columns is called a square matrix. Here's a square matrix of the order 2 X 2: Diagonal Matrix: A diagonal matrix is a square matrix where all the elements are 0 except for those in the diagonal from the top left corner to the bottom right corner. Let's take a look at a diagonal matrix of order 4 X 4: A special type of diagonal matrix, where all the diagonal elements are equal is called a scalar matrix. We can see a 3 X 3 scalar matrix here: A scalar matrix whose diagonal elements are all 1 is called a unit matrix, or identity matrix. Upper Triangular Matrix A square matrix where all the elements below the left-right diagonal are 0 is called an upper triangular matrix. Here's an upper triangular matrix of order 3 X 3: Lower Triangular Matrix A square matrix where all the elements above the left-right diagonal are 0 is called a lower triangular matrix. Here's what a lower triangular matrix of order 3 X 3 could look like:
- 38. Symmetric Matrix A matrixwhose transpose is the same as the original matrix is called a symmetric matrix. Only a square matrix can be a symmetric matrix. The transpose of a matrix is another matrix that is formed by switching the rows and columns of a given matrix. The given matrix A is a 3 X 3 symmetric matrix, since it's the same as its transpose AT . In mathematics, a square matrix is a matrix with the same number of rows and columns. An n-by-n matrix is known as a square matrix of order n. Any two square matrices of the same order can be added and multiplied. The Rank of a Matrix The maximum number of linearly independent rows in a matrix A is called the row rank of A, and the maximum number of linarly independent columns in A is called the column rank of A. If A is an mby n matrix, that is, if A has m rows and n columns, then it is obvious that The concept of a Taylor series was formulated by the Scottish mathematician James Gregory and formally introduced by the English mathematician Brook Taylor in 1715. If the Taylor series is centered at zero, then that series is also called a Maclaurin series, named after the Scottish mathematician Colin Maclaurin, who made extensive use of this special case of Taylor series in the 18th century. What is 'Compound Interest' Compound interest (or compounding interest) is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan. What is a 'Benefit Cost Ratio - BCR' A benefit cost ratio (BCR) is an indicator used in cost-benefit analysis, to show the relationship between the costs and benefits of a proposed project, in monetary or qualitative terms. What is 'Internal Rate of Return - IRR' Internal rate of return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments. Internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. IRR calculations rely on the same formula as NPV does. The following is the formula for calculating NPV: Where: Ct = net cash inflow during the period t Co= total initial investment costs r = discount rate, and t = number of time periods
- 39. Statistics What is 'Statistics' Statisticsis a form of mathematical analysis that uses quantified models, representations and synopses for a given set of experimental data or real-life studies. Statistics studies methodologies to gather, review, analyze and draw conclusions from data. Some statistical measures include mean, regression analysis, skewness, kurtosis, variance and analysis of variance. What is 'Population' Population is the entire pool from which a statistical sample is drawn. In statistics, population may refer to people, objects, events, hospital visits, measurements, etc. A population can, therefore, be said to be an aggregate observation of subjects grouped together by a common feature. What is a 'Sample' A sample is a smaller, manageable version of a larger group. It is a subset containing the characteristics of a larger population. Samples are used in statistical testing when population sizes are too large for the test to include all possible members or observations. A sample should represent the whole population and not reflect bias toward a specific attribute. Inductive statistics The branch of statistics that deals with generalizations, predictions, estimations, and decisions about a populatio nfrom data sampled from that population. What is 'Descriptive Statistics' Descriptive statistics are brief descriptive coefficients that summarize a given data set, which can be either a representation of the entire or a sample of a population. Descriptive statistics are broken down into measures of central tendency and measures of variability (spread). Measures of central tendency include the mean, median, and mode, while measures of variability include the standard deviation, variance, the minimum and maximum variables, and the kurtosis and skewness. Discrete numerical variable A variable whose values are whole numbers (counts) is called discrete. For example, the number of items bought by a customer in a supermarket is discrete. Continuous numerical variable A variable that may contain any value within some range is called continuous. For example, the time that the customer spends in the supermarket is continuous. Rounding a numerical value means replacing it by another value that is approximately equal but has a shorter, simpler, or more explicit representation; for example, replacing $23.4476 with $23.45, or the fraction 312/937 with 1/3, or the expression√2 with 1.414. Definition of 'Frequency Distribution' Frequency distribution is a representation, either in a graphical or tabular format that displays the number of observations within a given interval. The intervals must be mutually exclusive and exhaustive, and the interval size depends on the data being analyzed and the goals of the analyst. Frequency distributions are typically used within a statistical context.
- 40. What is the'Normal Distribution' The normal distribution, also known as the Gaussian distribution, is a probability distribution that is symmetric about the mean, showing that data near the mean are more frequent in occurrence than data far from the mean. What is a 'Probability Distribution' A probability distribution is a statistical function that describes all the possible values and likelihoods that a random variable can take within a given range. This range will be bounded between the minimum and maximum possible values, but precisely where the possible value is likely to be plotted on the probability distribution depends on a number of factors. Data Vs Information Comparison Chart Basis for comparison Data Information Meaning Data means raw facts gathered about someone or something, which is bare and random. Facts, concerning a particular event or subject, which are refined by processing is called information. What is it? It is just text and numbers. It is refined data. Based on Records and Observations Analysis Form Unorganized Organized Useful May or may not be useful. Always Specific No Yes Dependency Does not depend on information. Without data, information cannot be processed. Definition of Data Data is defined as the collection of facts and details like text, figures, observations, symbols or simply description of things, event or entity gathered with a view to drawing inferences. It is the raw fact, which should be processed to gain information. It is the unprocessed data, that contains numbers, statements and characters before it is refined by the researcher The term data is derived from Latin term ‗datum‘ which refers to ‗something given‘. The concept of data is connected with scientific research, which is collected by various organizations, government departments, institutions and non-government agencies for a variety of reasons. There can be two types of data: Primary Data Qualitative Data Quantitative Data Secondary Data Internal Data External Data Definition of Information Information is described as that form of data which is processed, organised, specific and structured, which is presented in the given setting. It assigns meaning and improves the reliability of the data, thus ensuring understandability and reduces uncertainty. When the data is transformed into information, it is free from unnecessary details or immaterial things, which has some value to the researcher.
- 41. The term informationdiscovered from the Latin word ‗informare‘, which refers to ‗give form to‘. Raw data is not at all meaningful and useful as information. It is refined and cleaned through purposeful intelligence to become information. Therefore data is manipulated through tabulation, analysis and similar other operations which enhance the explanation and interpretation. Key Differences between Data and Information The points given below are substantial, so far as the difference between data and information is concerned: 1. Raw facts gathered about a condition, event, idea, entity or anything else which is bare and random, is called data. Information refers to facts concerning a particular event or subject, which are refined by processing. 2. Data are simple text and numbers, while information is processed and interpreted data. 3. Data is in an unorganized form, i.e. it is randomly collected facts and figures which are processed to draw conclusions. On the other hand, when the data is organized, it becomes information, which presents data in a better way and gives meaning to it. 4. Data is based on observations and records, which are stored in computers or simply remembered by a person. As against this, information is considered more reliable than data, as a proper analysis is conducted to convert data into information by the researcher or investigator. 5. The data collected by the researcher, may or may not be useful to him, as when the data is gathered, it is not known what they are about or what they represent? Conversely, information is valuable and useful to the researcher because it is presented in the given context and so readily available to the researcher for use. 6. Data is not always specific to the need of the researcher, but information is always specific to his requirements and expectations, because all the irrelevant facts and figures are eliminated, during the transformation of data into information. 7. When it comes to dependency, data does not depend on information. However, information cannot exist without data. Raw data, also known as primary data, is data (e.g., numbers, instrument readings, figures, etc.) collected from a source. If a scientist sets up a computerized thermometer which records the temperature of a chemical mixture in a test tube every minute, the list of temperature readings for every minute, as printed out on a spreadsheet or viewed on a computer screen is "raw data". Arrays a kind of data structure that can store a fixed-size sequential collection of elements of the same type. An array is used to store a collection of data, but it is often more useful to think of an array as a collection of variables of the same type. Class interval The size of each class into which a range of a variable is divided, as represented by the divisions of a histogram or bar chart. Limit of the class are the point between which that class exist. They are basically number of class interval. For example, we have class interval 2-8, then lower limit is 2 and upper limit is 8. Class Boundary When we have different classes of data, there is always an upper and a lower class limit for it i.e. the dataset has a smallest and largest value. Class boundary is the midpoint of the upper class limit of one class and the lower class limit of the subsequent class. Each class thus has an upper and a lower class boundary. It must be noted that upper class boundary of one class and the lower class boundary of the subsequent class are the same. Class boundaries are not a part of the dataset.
- 42. Definition of 'Histogram' Ahistogram is a graphical representation that organizes a group of data points into user-specified ranges. It is similar in appearance to a bar graph. The histogram condenses a data series into an easily interpreted visual by taking many data points and grouping them into logical ranges or bins. Cumulative Frequency Distribution Definition Technically, a cumulative frequency distribution is the sum of the class and all classes below it in a frequency distribution. All that means is you‘re adding up a value and all of the values that came before it. In statistics, a central tendency (or measure of central tendency) is a central or typical value for a probability distribution. It may also be called a center or location of the distribution. Colloquially, measures of central tendency are often called averages. The term central tendency dates from the late 1920s. The most common measures of central tendency are the arithmetic mean, the median and the mode. A central tendency can be calculated for either a finite set of values or for a theoretical distribution, such as the normal distribution. Occasionally authors use central tendency to denote "the tendency of quantitative data to cluster around some central value." The central tendency of a distribution is typically contrasted with its dispersion or variability; dispersion and central tendency are the often characterized properties of distributions. Analysts may judge whether data has a strong or a weak central tendency based on its dispersion. Mean A mean is the mathematical average of a group of two or more numerals. The mean for a specified set of numbers can be computed in multiple ways, including the arithmetic mean, which shows how well a specific commodity performs over time, and the geometric mean, which shows the performance results of an investor‘s portfolio invested in that same commodity over the same period. What is the 'Arithmetic Mean' The arithmetic mean is a mathematical representation of the typical value of a series of numbers, computed as the sum of all the numbers in the series divided by the count of all numbers in the series. The arithmetic mean is sometimes referred to as the average or simply as the mean. Some mathematicians and scientists prefer to use the term "arithmetic mean" to distinguish it from other measures of averaging, such as the geometric mean and the harmonic mean. What is the 'Geometric Mean' The geometric mean is the average of a set of products, the calculation of which is commonly used to determine the performance results of an investment or portfolio. It is technically defined as "the 'n'th root product of 'n' numbers." The geometric mean must be used when working with percentages, which are derived from values, while the standard arithmetic mean works with the values themselves. Definition of 'Harmonic Mean' The harmonic mean is an average. It is calculated by dividing the number of observations by the reciprocal of each number in the series. Thus, the harmonic mean is the reciprocal of the arithmetic mean of the reciprocals. The harmonic mean of 1,4, and 4 is:
- 43. What is a'Median' Median is the middle number in a sorted list of numbers. To determine the median value in a sequence of numbers, the numbers must first be arranged in value order from lowest to highest. If there is an odd amount of numbers, the median value is the number that is in the middle, with the same amount of numbers below and above. If there is an even amount of numbers in the list, the middle pair must be determined, added together and divided by two to find the median value. The median can be used to determine an approximate average, or mean. The median is sometimes used as opposed to the mean when there are outliers in the sequence that might skew the average of the values. The median of a sequence can be less affected by outliers than the mean. What is a 'Quartile' A quartile is a statistical term describing a division of observations into four defined intervals based upon the values of the data and how they compare to the entire set of observations. What does 'Decile' mean A decile is a method of splitting up a set of ranked data into 10 equally large subsections. This type of data ranking is performed as part of many academic and statistical studies in the finance field. The data may be ranked from largest to smallest values, or vice versa. A percentile (or a centile) is a measure used in statistics indicating the value below which a given percentage of observations in a group of observations fall. For example, the 20th percentile is the value (or score) below which 20% of the observations may be found. What is 'Mode' The mode is a statistical term that refers to the most frequently occurring number found in a set of numbers. The mode is found by collecting and organizing data in order to count the frequency of each result. The result with the highest number of occurrences is the mode of the set. Other popular measures of central tendency include the mean, or the average of a set; and the median, or the middle value in a set. Try not to confuse a quarter with a quartile. What is 'Dispersion' Dispersion is a statistical term that describes the size of the range of values expected for a particular variable. In finance, dispersion is used in studying the effects of investor and analyst beliefs on securities trading, and in the study of the variability of returns from a particular trading strategy or investment portfolio. It is often interpreted as a measure of the degree of uncertainty and, thus, risk, associated with a particular security or investment portfolio. Range The range is the difference between the largest and the smallest observation in the data. The prime advantage of this measure of dispersion is that it is easy to calculate. On the other hand, it has lot of disadvantages. It is very sensitive to outliers and does not use all the observations in a data set. It is more informative to provide the minimum and the maximum values rather than providing the range. Interquartile range Interquartile range is defined as the difference between the 25th and 75th percentile (also called the first and third quartile). Hence the interquartile range describes the middle 50% of observations. If the interquartile range is large it means that the middle 50% of observations are spaced wide apart. The important advantage of
- 44. interquartile range isthat it can be used as a measure of variability if the extreme values are not being recorded exactly (as in case of open-ended class intervals in the frequency distribution).[2] Other advantageous feature is that it is not affected by extreme values. The main disadvantage in using interquartile range as a measure of dispersion is that it is not amenable to mathematical manipulation. Standard deviation Standard deviation (SD) is the most commonly used measure of dispersion. It is a measure of spread of data about the mean. SD is the square root of sum of squared deviation from the mean divided by the number of observations. This formula is a definitional one and for calculations, an easier formula is used. The computational formula also avoids the rounding errors during calculation. In both these formulas n - 1 is used instead of n in the denominator, as this produces a more accurate estimate of population SD. The reason why SD is a very useful measure of dispersion is that, if the observations are from a normal distribution, then 68% of observations lie between mean ± 1 SD 95% of observations lie between mean ± 2 SD and 99.7% of observations lie between mean ± 3 SD The other advantage of SD is that along with mean it can be used to detect skewness. The disadvantage of SD is that it is an inappropriate measure of dispersion for skewed data. The semi-interquartile range is a measure of spread or dispersion. It is computed as one half the difference between the 75th percentile [often called (Q3)] and the 25th percentile (Q1). The formula for semi-interquartile range is therefore: (Q3-Q1)/2. What is 'Standard Deviation' The standard deviation is a statistic that measures the dispersion of a dataset relative to its mean and is calculated as the square root of the variance. It is calculated as the square root of variance by determining the variation between each data point relative to the mean. If the data points are further from the mean, there is higher deviation within the data set; thus, the more spread out the data, the higher the standard deviation. In finance, standard deviation is a statistical measurement; when applied to the annual rate of return of an investment, it sheds light on the historical volatility of that investment. The greater the standard deviation of a security, the greater the variance between each price and the mean, which shows a larger price range. For example, a volatile stock has a high standard deviation, while the deviation of a stable blue-chip stock is usually rather low. What is 'Variance' Variance is a measurement of the spread between numbers in a data set. The variance measures how far each number in the set is from the mean. Variance is calculated by taking the differences between each number in the set and the mean, squaring the differences (to make them positive) and dividing the sum of the squares by the number of values in the set. What is 'Coefficient of Variation (CV)' A coefficient of variation (CV) is a statistical measure of the dispersion of data points in a data series around the mean. It is calculated as follows: (standard deviation) / (expected value). The coefficient of variation represents
- 45. the ratio ofthe standard deviation to the mean, and it is a useful statistic for comparing the degree of variation from one data series to another, even if the means are drastically different from one another. What is 'Skewness' Skewness is the degree of distortion from the symmetrical bell curve, or normal distribution, in a set of data. Skewness can be negative, positive, zero or undefined. Skewness describes the degree a set of data varies from the standard distribution in a set of statistical data. Most data sets, including commodity returns and stock prices, have either positive skew, a curve skewed toward the left of the data average, or negative skew, a curve skewed toward the right of the data average. Kurtosis Kurtosis measures whether the data are light-tailed (less outlier-prone) or heavy-tailed (more outlier-prone) than the normal distribution. Data sets with high kurtosis have heavy tails, or outliers, which implies greater investment risk in the form of occasional wild returns. Data sets with low kurtosis have light tails, or lack of outliers, which implies lesser investment risk. Definition of 'Probability Density Function - PDF' Probability density function (PDF) is a statistical expression that defines a probability distribution for a continuous random variable as opposed to a discrete random variable. When the PDF is graphically portrayed, the area under the curve will indicate the interval in which the variable will fall. The total area in this interval of the graph equals the probability of a continuous random variable occurring. What is a 'rectangle' Rectangle is a financial term used to describe a specific pattern securities form on a chart. Definition of 'Bar Graph' A bar graph is a chart that plots data using rectangular bars (called bins) that represent the total amount of observations in the data for that category. A bar chart is a style of bar graph; it is often used to represent the price range of a stock over a single day. In finance and economics, an example of a bar graph is one that compares median household income for several states, in which one axis represents different categories, the different states, and the other represents a discrete range of data points, median income. What is 'Symmetrical Distribution' Symmetrical distribution occurs when the values of variables occur at regular frequencies and the mean, median and mode occur at the same point. In graph form, symmetrical distribution often appears as a bell curve. If a line were drawn dissecting the middle of the graph, it would show two sides that mirror each other. What is 'Asymmetrical Distribution' Asymmetrical distribution is a situation in which the values of variables occur at irregular frequencies and the mean, median and mode occur at different points. An asymmetric distribution exhibits skewness. In contrast, a Gaussian or normal distribution, when depicted on a graph, is shaped like a bell curve and the two sides of the graph are symmetrical. What is a 'Line Graph' A line graph, also known as a line chart, is a graph that measures changes in values over time and is represented by individual data points connected by straight lines.
- 46. What is 'Correlation' Correlation,in the finance and investment industries, is a statistic that measures the degree to which two securities move in relation to each other. Correlations are used in advanced portfolio management, computed as the correlation coefficient, which has a value that must fall between -1 and 1. What is the 'Correlation Coefficient' The correlation coefficient is a statistical measure that calculates the strength of the relationship between the relative movements of the two variables. The range of values for the correlation coefficient bounded by 1.0 on an absolute value basis or between -1.0 to 1.0. If the correlation coefficient is greater than 1.0 or less than -1.0, the correlation measurement is incorrect. A correlation of -1.0 shows a perfect negative correlation, while a correlation of 1.0 shows a perfect positive correlation. A correlation of 0.0 shows zero or no relationship between the movement of the two variables. What is a 'Linear Relationship' Linear relationship is a statistical term used to describe the relationship between a variable and a constant. Linear relationships can be expressed either in a graphical format where the variable and the constant are connected via a straight line or in a mathematical format where the independent variable is multiplied by the slope coefficient, added by a constant, which determines the dependent variable. Linear Equation Mathematically, a linear relationship is one that satisfies the equation: y = mx + b In this equation, ―x‖ and ―y‖ are two variables which are related by the parameters ―m‖ and ―b‖. Graphically, y = mx + b plots in the x-y plane as a line with slope ―m‖ and y-intercept ―b‖. The slope ―m‖ is calculated from any two individual points (x1, y1) and (x2, y2) as: m = (y2 - y1) / (x2 - x1) while the y-intercept ―b‖ is simply the value of ―y‖ when x=0. Linear Function Mathematically similar to a linear relationship is the concept of a linear function. In one variable, a linear function can be written as f(x) = mx + b which is identical to the given formula for a linear relationship except that the symbol f(x) is used in place of ―y‖. This substitution is made to highlight the meaning that x is mapped to f(x), whereas the use of y simply indicates that x and y are two quantities, related by A and B. In the study of linear algebra, the properties of linear functions are extensively studied and made rigorous. Given a scalar C and two vectors A and B from RN , the most general definition of a linear function states that c*f(A +B) = c*f(A) + c*f(B) What is 'Covariance' Covariance is a measure of the directional relationship between the returns on two risky assets. A positive covariance means that asset returns move together while a negative covariance means returns move inversely. Covariance is calculated by analyzing at-return surprises (standard deviations from expected return) or by multiplying the correlation between the two variables by the standard deviation of each variable.
- 47. What does 'InverseCorrelation' mean An inverse correlation, also known as negative correlation, is a contrary relationship between two variables such that they move in opposite directions. For example, with variables A and B, as A increases, B decreases, and as A decreases, B increases. In statistical terminology, an inverse correlation is denoted by the correlation coefficient "r" having a value between -1 and 0, with r = -1 indicating perfect inverse correlation. What is 'Positive Correlation ' Positive correlation is a relationship between two variables in which both variables move in tandem. A positive correlation exists when one variable decreases as the other variable decreases, or one variable increases while the other increases. In statistics, a perfect positive correlation is represented by 1, while 0 indicates no correlation, and negative 1 indicates a perfect negative correlation. What is 'Negative Correlation' Negative correlation is a relationship between two variables in which one variable increases as the other decreases, and vice versa. In statistics, a perfect negative correlation is represented by the value -1.00, a 0.00 indicates no correlation, and a +1.00 indicates a perfect positive correlation. A perfect negative correlation means the relationship that exists between two variables is negative 100% of the time. Definition of 'Serial Correlation' Serial correlation is the relationship between a given variable and a lagged version of itself over various time intervals. Serial correlations are often found in repeating patterns, when the level of a variable affects its future level. In finance, this correlation is used by technical analysts to determine how well the past price of a security predicts the future price. Serial correlation is also known as autocorrelation or lagged correlation. What is 'Autocorrelation' Autocorrelation is a mathematical representation of the degree of similarity between a given time series and a lagged version of itself over successive time intervals. It is the same as calculating the correlation between two different time series, except that the same time series is actually used twice: once in its original form and once lagged one or more time periods. Index numbers are meant to study changes in the effects of factors which cannot be measured directly. According to Bowley, ―Index numbers are used to measure the changes in some quantity which we cannot observe directly‖. For example, changes in business activity in a country are not capable of direct measurement, but it is possible to study relative changes in business activity by studying the variations in the values of some such factors which affect business activity, and which are capable of direct measurement. Types of Index Numbers Simple Index Number: A simple index number is a number that measures a relative change in a single variable with respect to a base. These type of Index numbers are constructed from a single item only. Composite Index Number: A composite index number is a number that measures an average relative changes in a group of relative variables with respect to a base. A composite index number is built from changes in a number of different items. Price index Numbers: Price index numbers measure the relative changes in prices of a commodity between two periods. Prices can be either retail or wholesale. Price index number are useful to comprehend and interpret varying economic and business conditions over time. Quantity Index Numbers: These types of index numbers are considered to measure changes in the physical
- 48. quantity of goodsproduced, consumed or sold of an item or a group of items. Methods of constructing index numbers: There are two methods to construct index numbers: Price relative and aggregate methods (Srivastava, 1989). Probability Probability is the measure of the likelihood that an event will occur. Probability is quantified as a number between 0 and 1, where, loosely speaking, 0 indicates impossibility and 1 indicates certainty. The higher the probability of an event, the more likely it is that the event will occur. A simple example is the tossing of a fair (unbiased) coin. Since the coin is fair, the two outcomes ("heads" and "tails") are both equally probable; the probability of "heads" equals the probability of "tails"; and since no other outcomes are possible, the probability of either "heads" or "tails" is 1/2 (which could also be written as 0.5 or 50%). This problem asked us to find some probabilities involving a spinner. Let's look at some definitions and examples from the problem above. Definition Example An experiment is a situation involving chance or probability that leads to results called outcomes. In the problem above, the experiment is spinning the spinner. An outcome is the result of a single trial of an experiment. The possible outcomes are landing on yellow, blue, green or red. An event is one or more outcomes of an experiment. One event of this experiment is landing on blue. Probability is the measure of how likely an event is. The probability of landing on blue is one fourth. In order to measure probabilities, mathematicians have devised the following formula for finding the probability of an event. Probability Of An Event P(A) = The Number Of Ways Event A Can Occur The total number Of Possible Outcomes Events When we say "Event" we mean one (or more) outcomes. Example Events: Getting a Tail when tossing a coin is an event Rolling a "5" is an event. An event can include several outcomes: Choosing a "King" from a deck of cards (any of the 4 Kings) is also an event Rolling an "even number" (2, 4 or 6) is an event Events can be: Independent (each event is not affected by other events), Dependent (also called "Conditional", where an event is affected by other events) Mutually Exclusive (events can't happen at the same time) Let's look at each of those types. Independent Events Events can be "Independent", meaning each event is not affected by any other events. This is an important idea! A coin does not "know" that it came up heads before ... each toss of a coin is a perfect isolated thing. Example: You toss a coin three times and it comes up "Heads" each time ... what is the chance that the next toss will also be a "Head"? The chance is simply 1/2, or 50%, just like ANY OTHER toss of the coin.
- 49. What it didin the past will not affect the current toss! Some people think "it is overdue for a Tail", but really truly the next toss of the coin is totally independent of any previous tosses. Saying "a Tail is due", or "just one more go, my luck is due" is called The Gambler's Fallacy Dependent Events But some events can be "dependent" ... which means they can be affected by previous events. Example: Drawing 2 Cards from a Deck After taking one card from the deck there are less cards available, so the probabilities change! Let's look at the chances of getting a King. For the 1st card the chance of drawing a King is 4 out of 52 But for the 2nd card: If the 1st card was a King, then the 2nd card is less likely to be a King, as only 3 of the 51 cards left are Kings. If the 1st card was not a King, then the 2nd card is slightly more likely to be a King, as 4 of the 51 cards left are King. This is because we are removing cards from the deck. Replacement: When we put each card back after drawing it the chances don't change, as the events are independent. Without Replacement: The chances will change, and the events are dependent. Tree Diagrams When we have Dependent Events it helps to make a " Tree Diagram " Example: Soccer Game You are off to soccer, and love being the Goalkeeper, but that depends who is the Coach today: with Coach Sam your probability of being Goalkeeper is 0.5 with Coach Alex your probability of being Goalkeeper is 0.3 Sam is Coach more often ... about 6 of every 10 games (a probability of 0.6). Let's build the Tree Diagram! Start with the Coaches. We know 0.6 for Sam, so it must be 0.4 for Alex (the probabilities must add to 1): Then fill out the branches for Sam (0.5 Yes and 0.5 No), and then for Alex (0.3 Yes and 0.7 No): Now it is neatly laid out we can calculate probabilities (read more at Tree Diagrams ). Mutually Exclusive Mutually Exclusive means we can't get both events at the same time. It is either one or the other, but not both Examples: Turning left or right are Mutually Exclusive (you can't do both at the same time) Heads and Tails are Mutually Exclusive Kings and Aces are Mutually Exclusive What does 'Mutually Exclusive' mean "Mutually exclusive" is a statistical term describing two or more events that cannot occur simultaneously. It is used to describe a situation where the occurrence of one event is not influenced or caused by another event. For example, it is impossible to roll a five and a three on a single die at the same time. Similarly, someone with $10,000 to invest cannot simultaneously buy $10,000 worth of stocks and invest $10,000 in a mutual fund. The concept of mutual exclusivity is often applied in capital budgeting.
- 50. What is the'Binomial Distribution' The binomial distribution is a probability distribution that summarizes the likelihood that a value will take one of two independent values under a given set of parameters or assumptions. The underlying assumptions of the binomial distribution are that there is only one outcome for each trial, that each trial has the same probability of success, and that each trial is mutually exclusive, or independent of each other. What is the 'Normal Distribution' The normal distribution, also known as the Gaussian distribution, is a probability distribution that is symmetric about the mean, showing that data near the mean are more frequent in occurrence than data far from the mean. In probability theory and statistics, the Poisson distribution (French pronunciation: [pwas ; in English often rendered/ˈpwɑːsɒn/), named after French mathematician Siméon Denis Poisson, is a discrete probability distribution that expresses the probability of a given number of events occurring in a fixed interval of time or space if these events occur with a known constant rate and independently of the time since the last event. The Poisson distribution can also be used for the number of events in other specified intervals such as distance, area or volume. In probability theory, the multinomial distribution is a generalization of the binomial distribution. For example, it models the probability of counts for rolling a k-sided die n times. For n independent trials each of which leads to a success for exactly one of k categories, with each category having a given fixed success probability, the multinomial distribution gives the probability of any particular combination of numbers of successes for the various categories. The multinomial distribution is used to find probabilities in experiments where there are more than two outcomes. What is 'Regression' Regression is a statistical measure used in finance, investing and other disciplines that attempts to determine the strength of the relationship between one dependent variable (usually denoted by Y) and a series of other changing variables (known as independent variables). Regression helps investment and financial managers to value assets and understand the relationships between variables, such as commodity prices and the stocks of businesses dealing in those commodities. What is 'Nonlinear Regression' Nonlinear regression is a form of regression analysis in which data is fit to a model and then expressed as a mathematical function. Simple linear regression relates two variables (X and Y) with a straight line (y = mx + b), while nonlinear regression must generate a line (typically a curve) as if every value of Y was a random variable. The goal of the model is to make the sum of the squares as small as possible. The sum of squares is a measure that tracks how much observations vary from the mean of the data set. It is computed by first finding the difference between the mean and every point of data in the set. Then, each of those differences is squared. Lastly, all of the squared figures are added together. The smaller the sum of these squared figures, the better the function fits the data points in the set. Nonlinear regression uses logarithmic functions, trigonometric functions, exponential functions, and other fitting methods. What is 'Hedonic Regression' Hedonic regression is a revealed-preference method used in economics to determine the relative importance of the variables which affect the price of a good or service. These factors are determined using regression analysis.
- 51. What is 'MultipleLinear Regression - MLR' Multiple linear regression (MLR) is a statistical technique that uses several explanatory variables to predict the outcome of a response variable. The goal of multiple linear regression (MLR) is to model the relationship between the explanatory and response variables. The model for MLR, given n observations, is: yi = B0 + B1xi1 + B2xi2 + ... + Bpxip + E where i = 1,2, ..., n What is 'Residual Value' The residual value is the estimated value of a fixed asset at the end of its lease or at the end of its useful life. The lessor uses residual value as one of its primary methods for determining how much the lessee pays in lease payments. As a general rule, the longer the useful life or lease period of an asset, the lower its residual value. Definition of 'Homoskedastic' Homoskedastic (also spelled "homoscedastic") refers to a condition in which the variance of the residual, or error term, in a regression model is constant. That is, the error term does not vary much as the value of the predictor variable changes. Definition of 'Heteroskedastic' Heteroskedastic refers to a condition in which the variance of the residual term, or error term, in a regression model varies widely. If this is true, it may vary in a systematic way, and there may be some factor that can explain this. If so, then the model may be poorly defined and should be modified so that this systematic variance is explained by one or more additional predictor variables. What is 'Autoregressive Conditional Heteroskedasticity - ARCH' Autoregressive conditional heteroskedasticity (ARCH) is a time-series statistical model used to analyze effects left unexplained by econometric models. In these models, the error term is the residual result left unexplained by the model. The assumption of econometric models is that the variance of this term will be uniform. This is known as "homoskedasticity." However, in some circumstances, this variance is not uniform, but "heteroskedastic." What is an 'Error Term' An error term is a variable in a statistical or mathematical model, which is created when the model does not fully represent the actual relationship between the independent variables and the dependent variables. As a result of this incomplete relationship, the error term is the amount at which the equation may differ during empirical analysis. The error term is also known as the residual, disturbance, or remainder term. What is a 'Chi Square Statistic' A chi square statistic is a measurement of how expectations compare to results. The data used in calculating a chi square statistic must be random, raw, mutually exclusive, drawn from independent variables, and drawn from a large enough sample. For example, the results of tossing a coin 100 times meets these criteria. What are 'Degrees of Freedom' Degrees of freedom are the number of values in a study that have the freedom to vary. They are commonly discussed in relationship to various forms of hypothesis testing in statistics, such as a chi-square. It is essential to
- 52. calculate degrees offreedom when trying to understand the importance of a chi-square statistic and the validity of the null hypothesis. What is a 'Coefficient of Determination' The coefficient of determination is a measure used in statistical analysis that assesses how well a model explains and predicts future outcomes. It is indicative of the level of explained variability in the data set. The coefficient of determination, also commonly known as "R-squared," is used as a guideline to measure the accuracy of the model. One way of interpreting this figure is to say that the variables included in a given model explain approximately x% of the observed variation. So, if the R2 = 0.50, then approximately half of the observed variation can be explained by the model. What is 'Standard Error' Standard error is the approximate standard deviation of a statistical sample population. Standard error is a statistical term that measures the accuracy with which a sample represents a population. In statistics, a sample mean deviates from the actual mean of a population; this deviation is the standard error. What is a 'Sampling Error' A sampling error is a statistical error that occurs when an analyst does not select a sample that represents the entire population of data and the results found in the sample do not represent the results that would be obtained from the entire population. Sampling is an analysis performed by selecting a number of observations from a larger population, and the selection can produce both sampling errors and non-sampling errors. What is a 'Non-Sampling Error' A non-sampling error is an error that results during data collection, causing the data to differ from the true values. Non-sampling error differs from sampling error. A sampling error is limited to any differences between sample values and universe values that arise because the entire universe was not sampled. Sampling error can result even when no mistakes of any kind are made. The "errors" result from the mere fact that data in a sample is unlikely to perfectly match data in the universe from which the sample is taken. This "error" can be minimized by increasing the sample size. Non-sampling errors cover all other discrepancies, including those that arise from a poor sampling technique. Definition of 'Trend Analysis' Trend analysis is a technique used in technical analysis that attempts to predict the future stock price movements based on recently observed trend data. Trend analysis is based on the idea that what has happened in the past gives traders an idea of what will happen in the future. There are three main types of trends: short-, intermediate- and long-term. What is 'R-Squared' R-squared is a statistical measure that represents the proportion of the variance for a dependent variable that's explained by an independent variable. In investing, R-squared is generally considered the percentage of a fund or security's movements that can be explained by movements in a benchmark index. For example, an R-squared for a fixed-income security versus a bond index identifies the security's proportion of price movement that is predictable based on a price movement of the index. The same can be applied to a stock versus the S&P 500 index, or any other relevant index.
- 53. What is the'Line of Best Fit' Line of best fit refers to a line through a scatter plot of data points that best expresses the relationship between those points. Statisticians typically use the least squares method to arrive at the geometric equation for the line, either though manual calculations or regression analysis software. A straight line will result from a simple linear regression analysis of two or more independent variables. A regression involving multiple related variables can produce a curved line in some cases. What is a 'Blue Chip' A blue chip is a nationally recognized, well-established, and financially sound company. Blue chips generally sell high-quality, widely accepted products and services. Blue chip companies are known to weather downturns and operate profitably in the face of adverse economic conditions, which helps to contribute to their long record of stable and reliable growth. The name "blue chip" came about from the game of poker in which the blue chips have the highest value. What is 'Hypothesis Testing' Hypothesis testing is an act in statistics whereby an analyst tests an assumption regarding a population parameter. The methodology employed by the analyst depends on the nature of the data used and the reason for the analysis. Hypothesis testing is used to infer the result of a hypothesis performed on sample data from a larger population. What is a 'Null Hypothesis' A null hypothesis is a type of hypothesis used in statistics that proposes that no statistical significance exists in a set of given observations. The null hypothesis attempts to show that no variation exists between variables or that a single variable is no different than its mean. It is presumed to be true until statistical evidence nullifies it for an alternative hypothesis. What is a 'Z-Test' A z-test is a statistical test used to determine whether two population means are different when the variances are known and the sample size is large. The test statistic is assumed to have a normal distribution, and nuisance parameters such as standard deviation should be known in order for an accurate z-test to be performed. What is a 'T Distribution' A T distribution is a type of probability distribution that is appropriate for estimating population parameters for small sample sizes and unknown population variances. A T distribution resembles a normal distribution, but it differs from the normal distribution by its degrees of freedom. A T distribution has a smaller number of independent observations. However, the higher the degrees of freedom, the closer that distribution will resemble a standard normal distribution with a mean of 0, and a standard deviation of 1. The T distribution is also known as the "Student's T Distribution." What are 'Degrees of Freedom' Degrees of freedom are the number of values in a study that have the freedom to vary. They are commonly discussed in relationship to various forms of hypothesis testing in statistics, such as a chi-square. It is essential to calculate degrees of freedom when trying to understand the importance of a chi-square statistic and the validity of the null hypothesis.
- 54. What is a'Confidence Interval' A confidence interval is an interval that will contain a population parameter a specified proportion of the time. The confidence interval can take any number of probabilities, with the most common being 95% or 99%. What is a 'One-Tailed Test' A one-tailed test is a statistical test in which the critical area of a distribution is one-sided so that it is either greater than or less than a certain value, but not both. If the sample being tested falls into the one-sided critical area, the alternative hypothesis will be accepted instead of the null hypothesis. One-tailed test is also known as a directional hypothesis or directional test. What is a 'Two-Tailed Test' A two-tailed test is a statistical test in which the critical area of a distribution is two-sided and tests whether a sample is greater than or less than a certain range of values. If the sample being tested falls into either of the critical areas, the alternative hypothesis is accepted instead of the null hypothesis. The two-tailed test gets its name from testing the area under both tails of a normal distribution, although the test can be used in other non- normal distributions. Definition of 'Goodness-of-Fit' The goodness of fit test is a statistical hypothesis test to see how well sample data fit a distribution from a population with a normal distribution. In other words, it tells you if your sample data represents the data you would expect to find in the actual population. What is 'Statistical Significance' Statistical significance refers to the claim that a result from data generated by testing or experimentation is not likely to occur randomly or by chance, but is instead likely to be attributable to a specific cause. Statistical significance can be strong or weak, and it is important for academic disciplines or practitioners that rely heavily on analyzing data and research, such as economics, finance, investing, medicine, physics and biology. When analyzing a data set and doing the necessary tests to discern whether one or more variables have an effect on an outcome, statistical significance helps support the fact that the results are real and not caused by luck or chance. Problems arise in tests of statistical significance because researchers are usually working with samples of larger populations and not the populations themselves. As a result, the samples must be representative of the population, so the data contained in the sample must not be biased in any way. In most sciences, included economics, statistical significance is relevant if a claim can be made at a level of 95 percent (or sometimes 99 percent). What is 'Statistically Significant' Statistically significant is the likelihood that a relationship between two or more variables is caused by something other than chance. Statistical hypothesis testing is used to determine whether the result of a data set is statistically significant. This test provides a p-value, representing the probability that random chance could explain the result; in general, a p-value of 5% or lower is considered to be statistically significant. What is the 'P-Value' The p-value is the level of marginal significance within a statistical hypothesis test representing the probability of the occurrence of a given event. The p-value is used as an alternative to rejection points to provide the smallest level of significance at which the null hypothesis would be rejected. A smaller p-value means that there is stronger evidence in favor of the alternative hypothesis.
- 55. What is a'Type I Error' A type I error is a kind of error that occurs during the hypothesis testing process when a null hypothesis is rejected even though it is true and should not be rejected. In hypothesis testing, a null hypothesis is established before the onset of a test. In some cases, the null hypothesis assumes the absence of a cause and effect relationship between the item being tested and the stimuli being applied to the test subject in order to trigger an outcome to the test. This is denoted as "n=0." If, when the test is conducted, the result seems to indicate that the stimuli applied to the test subject causes a reaction then the null hypothesis that the stimuli has no effect on the test subject will be rejected. What is a 'Type II Error' A type II error is a statistical term used within the context of hypothesis testing that describes the error that occurs when one fails to reject a null hypothesis that is actually false. The error rejects the alternative hypothesis, even though it does not occur due to chance. A type II error does not reject the null hypothesis, even though the alternative hypothesis is the true state of nature. What is 'Central Limit Theorem - CLT' The central limit theorem states that when samples from a data set with a known variance are aggregated their mean roughly equals the population mean. Said another way, CLT is a statistical theory that states that given a sufficiently large sample size from a population with a finite level of variance, the mean of all samples from the same population will be approximately equal to the mean of the population. Furthermore, all the samples will follow an approximate normal distribution pattern, with all variances being approximately equal to the variance of the population divided by each sample's size. What is a 'Residual Sum of Squares - RSS' A residual sum of squares (RSS) is a statistical technique used to measure the amount of variance in a data set that is not explained by a regression model. The residual sum of squares is a measure of the amount of error remaining between the regression function and the data set. A smaller residual sum of squares figure represents a regression function which explains a greater amount of the data. What is a 'Time Series' A time series is a sequence of numerical data points in successive order. In investing, a time series tracks the movement of the chosen data points, such as a security‘s price, over a specified period of time with data points recorded at regular intervals. There is no minimum or maximum amount of time that must be included, allowing the data to be gathered in a way that provides the information being sought by the investor or analyst examining the activity. Time Series Forecasting Time series forecasting uses information regarding historical values and associated patterns to predict future activity. Most often, this relates to trend analysis, cyclical fluctuation analysis and issues of seasonality. As with all forecasting methods, success is not guaranteed. Time Series Analysis Time series analysis is a statistical technique that deals with time series data, or trend analysis. Time series data means that data is in a series of particular time periods or intervals. The data is considered in three types: Time series data: A set of observations on the values that a variable takes at different times. Cross-sectional data: Data of one or more variables, collected at the same point in time. Pooled data: A combination of time series data and cross-sectional data.
- 56. Terms and concepts: Dependence:Dependence refers to the association of two observations with the same variable, at prior time points. Stationarity: Shows the mean value of the series that remains constant over a time period; if past effects accumulate and the values increase toward infinity, then stationarity is not met. Differencing: Used to make the series stationary, to De-trend, and to control the auto-correlations; however, some time series analyses do not require differencing and over-differenced series can produce inaccurate estimates. Specification: May involve the testing of the linear or non-linear relationships of dependent variables by using models such as ARIMA, ARCH, GARCH, VAR, Co-integration, etc. What is 'Seasonality' Seasonality is a characteristic of a time series in which the data experiences regular and predictable changes that recur every calendar year. Any predictable change or pattern in a time series that recurs or repeats over a one- year period can be said to be seasonal. Seasonal effects are different from cyclical effects, as seasonal cycles are observed within one calendar year, while cyclical effects, such as boosted sales due to low unemployment rates, can span time periods shorter or longer than one calendar year. What is 'Sampling' Sampling is a process used in statistical analysis in which a predetermined number of observations are taken from a larger population. The methodology used to sample from a larger population depends on the type of analysis being performed but may include simple random sampling or systematic sampling. In business, a CPA performing an audit uses sampling to determine the accuracy of account balances in the financial statements, and managers use sampling to assess the success of the firm‘s marketing efforts. What is a 'Sampling Distribution' A sampling distribution is a probability distribution of a statistic obtained through a large number of samples drawn from a specific population. The sampling distribution of a given population is the distribution of frequencies of a range of different outcomes that could possibly occur for a statistic of a population. What is 'Simple Random Sample' A simple random sample is a subset of a statistical population in which each member of the subset has an equal probability of being chosen. A simple random sample is meant to be an unbiased representation of a group. An example of a simple random sample would be the names of 25 employees being chosen out of a hat from a company of 250 employees. In this case, the population is all 250 employees, and the sample is random because each employee has an equal chance of being chosen. What is 'Stratified Random Sampling' Stratified random sampling is a method of sampling that involves the division of a population into smaller groups known as strata. In stratified random sampling, or stratification, the strata are formed based on members' shared attributes or characteristics. Stratified random sampling is also called proportional random sampling or quota random sampling. For example, a researcher looking to analyze the characteristics of people belonging to different annual income divisions, will create strata (groups) according to annual family income such as – Less than $20,000, $21,000 – $30,000, $31,000 to $40,000, $41,000 to $50,000 etc. and people belonging to different income groups can be observed to draw conclusions of which income strata have which characteristics. Marketers can analyze which
- 57. income groups totarget and which ones to eliminate in order to create a roadmap that would definitely bear fruitful results. What is a 'Representative Sample' A representative sample is a small quantity of something that accurately reflects the larger entity. An example is when a small number of people accurately reflect the members of an entire population. In a classroom of 30 students of 15 males and 15 females, a representative sample might include six students: three males and three females. What is 'Attribute Sampling' Attribute sampling is a statistical process typically used in audit procedures to analyze the characteristics of a given population. Attribute sampling is often used to test whether a company's internal controls are being followed. What is 'Acceptance Sampling' Acceptance sampling is a statistical measure used in quality control that allows a company to measure the quality of a batch of products by selecting a specified number of products for testing. The quality of these products will be viewed as the quality level for the group of products. A company cannot test every one of its products due to either ruining the products, or the volume of products being too large. Acceptance sampling solves this by testing a sample of the product for defects. The process involves batch size, sample size and the number of defects acceptable in the batch. This process allows a company to measure the quality of a batch with a specified degree of statistical certainty without having to test every unit of product. The statistical reliability of a sample is generally measured by a t-statistic. What is a 'Sampling Error' A sampling error is a statistical error that occurs when an analyst does not select a sample that represents the entire population of data and the results found in the sample do not represent the results that would be obtained from the entire population. Sampling is an analysis performed by selecting a number of observations from a larger population, and the selection can produce both sampling errors and non-sampling errors. What is a 'Non-Sampling Error' A non-sampling error is an error that results during data collection, causing the data to differ from the true values. Non-sampling error differs from sampling error. A sampling error is limited to any differences between sample values and universe values that arise because the entire universe was not sampled. Sampling error can result even when no mistakes of any kind are made. The "errors" result from the mere fact that data in a sample is unlikely to perfectly match data in the universe from which the sample is taken. This "error" can be minimized by increasing the sample size. Non-sampling errors cover all other discrepancies, including those that arise from a poor sampling technique. Sampling Methods can be classified into one of two categories: Probability Sampling: Sample has a known probability of being selected Non-probability Sampling: Sample does not have known probability of being selected as in convenience or voluntary response surveys Probability Sampling In probability sampling it is possible to both determine which sampling units belong to which sample and the probability that each sample will be selected. The following sampling methods are examples of probability sampling:
- 58. Quota sample The definingcharacteristic of a quota sample is that the researcher deliberately sets the proportions of levels or strata within the sample. This is generally done to insure the inclusion of a particular segment of the population. The proportions may or may not differ dramatically from the actual proportion in the population. The researcher sets a quota, independent of population characteristics. Example: A researcher is interested in the attitudes of members of different religions towards the death penalty. In Iowa a random sample might miss Muslims (because there are not many in that state). To be sure of their inclusion, a researcher could set a quota of 3% Muslim for the sample. However, the sample will no longer be representative of the actual proportions in the population. This may limit generalizing to the state population. But the quota will guarantee that the views of Muslims are represented in the survey. Purposive sample A purposive sample is a non-representative subset of some larger population, and is constructed to serve a very specific need or purpose. A researcher may have a specific group in mind, such as high level business executives. It may not be possible to specify the population -- they would not all be known, and access will be difficult. The researcher will attempt to zero in on the target group, interviewing whomever is available. A subset of a purposive sample is a snowball sample -- so named because one picks up the sample along the way, analogous to a snowball accumulating snow. A snowball sample is achieved by asking a participant to suggest someone else who might be willing or appropriate for the study. Snowball samples are particularly useful in hard-to-track populations, such as truants, drug users, etc. Convenience sample A convenience sample is a matter of taking what you can get. It is an accidental sample. Although selection may be unguided, it probably is not random, using the correct definition of everyone in the population having an equal chance of being selected. Volunteers would constitute a convenience sample. Social research applications require two essential types of sampling: 1. Probability Sampling: Probability sampling technique selects random members of a population by setting a few selection criteria. These selection parameters allow every member to have the equal opportunities to be a part of various samples. 2. Non-probability Sampling: Non probability sampling method is reliant on a social researcher‘s ability to select members and not on a fixed selection process which makes it difficult for all elements of a population to have equal opportunities to be included in a sample. In this blog, we discuss the various probability and non-probability sampling methods that can be implemented in social research. Probability Sampling Methods for Social Research: This sampling method considers every member of the population and forms samples on the basis of a fixed process. For example, in a population of 1000 members, each of these members will have 1/1000 chances of being selected to be a part of a sample. It gets rid of bias in the population and gives a fair chance to all members to be included in the sample. Cluster Sampling: Cluster sampling is a method where the researchers divide the entire population into sections or clusters that represent a population. Clusters are identified and included in a sample on the basis of criteria such as age, location, sex etc. which makes it extremely easy for a survey creator to derive effective inference from the feedback.
- 59. For example, ifthe government of the United States wishes to evaluate the number of immigrants in North America, they can divide it into clusters on the basis of states such as California, Texas, Florida, Massachusetts, Colorado, Hawaii etc. This way of conducting a survey will be more effective as the results will be organized into states. Systematic Sampling: Using systematic sampling method, members of a sample are chosen at regular intervals of a population. It requires selection of a starting point for the sample and sample size which is then repeated at regular intervals and so, this sampling technique is the least time-consuming. For example, a researcher intends to collect a systematic sample of 500 people in a population of 5000. Each element of the population will be numbered from 1-5000 and every 10th individual will be chosen to be a part of the sample (Total population/ Sample Size = 5000/500 = 10). Stratified Random Sampling: A social research organization conducts stratified random sampling to bifurcate the population into non- overlapping, distinct groups (strata) and by randomly selecting members of these strata, online surveys can be conducted. A farm is an area of land that is devoted primarily to agricultural processes with the primary objective of producing food and other crops; it is the basic facility in food production. The name is used for specialized units such as arable farms, vegetable farms, fruit farms, dairy, pig and poultry farms, and land used for the production of natural fibres, biofuel and other commodities. What is a 'Subsidy' A subsidy is a benefit given to an individual, business or institution, usually by the government. It is usually in the form of a cash payment or a tax reduction. The subsidy is typically given to remove some type of burden, and it is often considered to be in the overall interest of the public, given to promote a social good or an economic policy. The labor force is the sum of persons in employment plus persons in unemployment. Together these two groups of the population represent the current supply of labor for the production of goods and services taking place in a country through market transactions in exchange for remuneration. Decentralization is the process by which the activities of an organization, particularly those regarding planning and decision-making are distributed or delegated away from a central, authoritative location or group. Concepts of decentralization have been applied togroup dynamics and management science in private businesses and organizations, political science, law and administration, economics and technology. What is an 'Export'? An export is a function of international trade whereby goods produced in one country are shipped to another country for future sale or trade. The sale of such goods adds to the producing nation's gross output. What are 'Net Exports'? Net exports are the value of a country's total exports minus the value of its total imports. It is a measure used to calculate aggregate a country's expenditures or gross domestic product in an open economy. In other words, net exports equal the amount by which foreign spending on a home country's goods and services exceeds the home country's spending on foreign goods and services. What is an 'Import'? An import is a good or service brought into one country from another. The word "import" is derived from the word "port" since goods are often shipped via boat to foreign countries. Along with exports, imports form the
- 60. backbone of internationaltrade. If the value of a country's imports exceeds the value of its exports, the country has a negative balance of trade. What is a 'Net Importer' A net importer is a country or territory whose value of imported goods and services is higher than its exported goods and services over a given period of time. A net importer, by definition, runs a current account deficit in the aggregate; however, it may run deficits or surpluses with individual countries or territories depending on the types of goods and services traded, competitiveness of these goods and services, exchange rates, levels of government spending, trade barriers, etc. What is 'Import Duty '? Import duty is a tax collected on imports and some exports by a country's customs authorities. It is usually based on the imported good's value. Depending on the context, import duty may also be referred to as customs duty, tariff, import tax or import tariff. In economics, aggregate expenditure (AE) is a measure of national income. Aggregate expenditure is defined as the current value of all the finished goods and services in the economy. The aggregate expenditure is thus the sum total of all the expenditures undertaken in the economy by the factors during a given time period. It refers to the expenditure incurred on consumer goods, planned investment and the expenditure made by the government in the economy. In an open economy scenario, the aggregate expenditure also includes the difference between the exports and the imports. Aggregate expenditures is defined as : AE = C+Ip+G+NX, C = Household Consumption Ip = Planned Investment G = Government spending NX = Net exports (Exports − Imports) Definition of 'Export Incentives' Export incentives are regulatory, legal, monetary or tax programs designed to encourage businesses to export certain types of goods or services. What is the 'Dependency Ratio' The dependency ratio is a measure showing the ratio of the number of dependents aged zero to 14 and over the age of 65 to the total population aged 15 to 64. This indicator gives insight into the amount of people of nonworking age compared to the number of those of working age. The ratio can be calculated as: Dependency Ratio = (Number of dependents / Population aged 15 to 64) x 100% It is also referred to as the total dependency ratio. What is the 'Working-age Population'? The working-age population is the total population in a region that is considered able and likely to work based on the number of people in a predetermined age range. The working-age population measure is used to give an estimate of the total number of potential workers within an economy. What is 'Life Expectancy' Life expectancy is the statistical age that a person is expected to live. Uses for life expectancy include many in the financial world. In most countries, the calculation of the statistical age is from a national statistical agency.
- 61. SPARRSO (Bangladesh SpaceResearch and Remote Sensing Organisation/D4Mohakash Gabeshona O Dur Anudhaban Protishthan') a multisectoral research and development agency of the Government of Bangladesh under the ministry of defence. It is functioning as an autonomous organisation and is engaged in developing peaceful uses of space science and REMOTE SENSING technology in the country. Bangladesh Council of Scientific and Industrial Research (BCSIR) (Bengali: বাাংলাদেশ ববজ্ঞান ও বশল্প গদবষণা পবিষে) is a scientific research organization and regulatory body of Bangladesh. Its main objective is to pursue scientific research for the betterment of the Bangladeshi. It was established on 16 November 1973 Bangladesh Standards and Testing Institution (BSTI) is a Government agency under the Ministry of Industries constituted for the purpose of controlling the standard of service and quality of the goods BANSDOC (Bangladesh National Scientific and Technical Documentation Centre) started functioning in 1962 as a small unit of the Pakistan National Scientific and Technical Documentation Centre (PANSDOC) at the premises of the East Regional Laboratories of the Pakistan Council of Scientific and Industrial Research (PCSIR) in DHAKA. After liberation it was placed under the BANGLADESH COUNCIL OF SCIENTIFIC AND INDUSTRIAL RESEARCH (BCSIR) and was renamed Bangladesh National Scientific and Technical Documentation Centre in 1972. The aim of the centre was to put the scientific literature of the world at the disposal of researchers, teachers, industrialists, technicians, and in general, all those who are active in the field of science and technology. In 1987, BANSDOC was placed under the direct administrative control of Science and Technology Division (now an independent ministry) of the government so that it could be made the Central Documentation Centre of the country. What is 'Poverty' Poverty is a state or condition in which a person or community lacks the financial resources and essentials for a minimum standard of living. What is 'Poverty Gap ' The poverty gap is the average shortfall of the total population from the poverty line. This measurement is used to reflect the intensity of poverty. The poverty line used to measure this gap is the amount typical to the poorest countries in the world combined with the latest information on the cost of living in developing countries. The poverty line is indicated by the widely accepted international standard for extreme poverty. This standard is $1.25 daily. However, it's been difficult to set a common international poverty threshold since different countries have different thresholds for poverty. Absolute poverty – is a condition where household income is below a necessary level to maintain basic living standards (food, shelter, housing). This condition makes it possible to compare between different countries and also over time. Relative poverty – A condition where household income is a certain percentage below median incomes. For example, the threshold for relative poverty could be set at 50% of median incomes (or 60%) Women's economic empowerment refers to the ability for women to enjoy their right to control and benefit from resources, assets, incomeand their own time, as well as the ability to manage risk and improve their economic status and well being Economic geography is the study of the location, distribution and spatial organization of economic activities across the world. It represents a traditional subfield of the discipline of geography. However, many economists have also approached the field in ways more typical of the discipline of economics.
- 62. Economic development isthe process by which a nation improves the economic, political, and social well- being of its people. Whereas economic development is a policy intervention endeavor with aims of improving the economic and social well-being of people, economic growth is a phenomenon of market productivity and rise in GDP. Consequently, as economist Amartya Sen points out, "economic growth is one aspect of the process of economic development". A resource is a source or supply from which a benefit is produced. Natural resources are resources that exist without actions of humankind. This includes all valued characteristics such as magnetic, gravitational, electrical properties and forces etc. On earth it includes: sunlight, atmosphere, water, land (includes all minerals) along with all vegetation, crops and animal life that naturally subsists upon or within the heretofore identified characteristics and substances There are various methods of categorizing natural resources, these include source of origin, stage of development, and by their renewability. On the basis of origin, natural resources may be divided into two types: Biotic — Biotic resources are obtained from the biosphere (living and organic material), such as forests and animals, and the materials that can be obtained from them. Fossil fuels such as coal and petroleum are also included in this category because they are formed from decayed organic matter. Abiotic – Abiotic resources are those that come from non-living, non-organic material. Examples of abiotic resources include land, freshwater, air, rare earth metals and heavy metals including ores such as gold, iron, copper, silver, etc. Considering their stage of development, natural resources may be referred to in the following ways: Potential resources — Potential resources are those that exist in a region and may be used in the future. For example, petroleumoccurs with sedimentary rocks in various regions, but until the time it is actually drilled out and put into use, it remains a potential resource. Actual resources — Actual resources are those that have been surveyed, their quantity and quality determined and are being used in present times. The development of an actual resource, such as wood processing depends upon the technology available and the cost involved. Reserve resources — The part of an actual resource which can be developed profitably in the future is called a reserve resource. Stock resources — Stock resources are those that have been surveyed but cannot be used by organisms due to lack of technology. For example: hydrogen. What is a 'Renewable Resource' A renewable resource is a substance of economic value that can be replaced or replenished in the same or less amount of time as it takes to draw the supply down. Some renewable resources have essentially an endless supply, such as solar energy, wind energy and geothermal pressure, while other resources are considered renewable even though some time or effort must go into their renewal, such as wood, oxygen, leather and fish. Most precious metals are considered renewable as well; even though they are not naturally replaced, they can be recycled because they are not destroyed during their extraction and use. What is a 'Nonrenewable Resource' A nonrenewable resource is a resource of economic value that cannot be readily replaced by natural means on a level equal to its consumption. Most fossil fuels, such as oil, natural gas and coal are considered nonrenewable resources in that their use is not sustainable because their formation takes billions of years.
- 63. What is a'Pigovian Tax' A Pigovian (Pigouvian) tax is a liquid waste, or effluent, fee which is assessed against private individuals or businesses for engaging in activities that create adverse side effects. Adverse side effects are those costs which are not included as a part of the product's market price. Pigovian taxes were named after English economist Arthur C. Pigou, a significant contributor to early externality theory in the Cambridge tradition. Definition of 'Kyoto Protocol' An international agreement that aims to reduce carbon dioxide emissions and the presence of greenhouse gases. Countries that ratify the Kyoto Protocol are assigned maximum carbon emission levels and can participate in carbon credit trading. Emitting more than the assigned limit will result in a penalty for the violating country in the form of a lower emission limit in the following period. Human Resources are the people who make up the workforce of an organization, business sector, or economy. "Human capital" is sometimes used synonymously with "human resources", although human capital typically refers to a more narrow effect (i.e., the knowledge the individuals embody and economic growth). Likewise, other terms sometimes used include manpower, talent, labour,personnel, or simply people. Let us try to identify the basic types of migration: Internal Migration – It is the moving within a state, country, or continent. External Migration – It is the moving in a different state, country, or continent. Emigration – It is the leaving of one‘s country to move to another. (Ex. Leaving Philippines for United States) Immigration – It is the moving in from a country to a new one. (See what is migration?) Population Transfer – It is when a government pushed or forces a large group of people out of a country or region. This is usually based on ethnicity or religion. It is also otherwise known as an forced migration or involuntary migration. Impelled Migration – It is also called an imposed migration or reluctant migration. A group of people or an individual leaves a country or region because of unfavorable situations due to political, religious, social factors. Step Migration – It is a progressive step by step migration from a shorter distance to a rather farther destination in the end. (Ex. from city to province to capital to abroad, out of the country.) Chain Migration – It is a series or connection of migration within a family or a defined group of people like ethnicity. It begins with one individual who brings in other family members after sometime. (Ex. Chinatowns) Intercontinental – It is the movement of people between continents. (ex. Philippines to United States) Intra-continental -It is the movement of people between countries on a given continent. (ex. Philippines to Singapore) Interregional – It is the movement of people within countries. It is domestic in nature that is migration from rural to urban and vice versa. This is usually the movement of people from the countryside to cities in search of opportunities. (Ex. Cebu Philippines to Manila Philippines) Rural-Urban Migration: It is usually an interregional migration with a specific origin that is from the countrysides or rural areas to a specific destinations which is the urban areas of the country. The purpose is usually to find a greener pasture or to find better opportunities to make money. (ex. Argao to Cebu City) Seasonal Migration – This is usually due to climate or planting reasons. People in the past move from one place to another for the purpose of crop planting and harvesting. At present, people move from one place to the other because of climate. Some retirees move from one place to the other during winter season. Return Migration – Some people returns to the country or place of origin after outliving the reasons for which they left in the first place. Many young Filipinos move to United States to find a better place to earn a
- 64. living. Ultimately asthey retire, they sometimes tend to retire in the Philippines because of their attachments to family and friends perhaps. Long and short-term migration: People may consider migrating for good if the condition in their home is one that is threatening. For example, people move for better health care if they have some disease that requires some level of attention that can only be received in another place. On the other hand, it may be temporal in nature. For example, a person may study in another place, but may decide to stay and work for many years before going back for good. Technology transfer, also called transfer of technology (TOT), is the process of transferring (disseminating) technology from the places and in-groups of its origination to wider distribution among more people and places. It occurs along various axes: among universities, from universities to businesses, from large businesses to smaller ones, from governments to businesses, across borders, both formally and informally, and both openly and surreptitiously. Often it occurs by concerted effort to share skills, knowledge, technologies, methods of manufacturing, samples of manufacturing, and facilities among governments or universities and other institutions to ensure that scientific and technological developments are accessible to a wider range of users who can then further develop and exploit the technology into new products, processes, applications, materials, or services. It is closely related to (and may arguably be considered a subset of) knowledge transfer. Horizontal transfer is the movement of technologies from one area to another. At present transfer of technology (TOT) is primarily horizontal. Vertical transfer occurs when technologies are moved from applied research centers to research and development departments Development economics is a branch of economics which deals with economic aspects of the development process in low income countries. Its focus is not only on methods of promoting economic development, economic growth and structural change but also on improving the potential for the mass of the population, for example, through health, education and workplace conditions, whether through public or private channels Economic Growth refers to the rise in the value of everything produced in the economy. It implies the yearly increase in the country‘s GDP or GNP, in percentage terms. It alludes to considerable rise in per-capita national product, over a period, i.e. the growth rate of increase in total output, must be greater than the population growth rate. Economic Growth is often contrasted with Economic Development, which is defined as the increase in the economic wealth of a country or a particular area, for the welfare of its residents. Here, you should know that economic growth is an essential but not the only condition for economic development. Key Differences between Economic Growth and Economic Development 1. Economic growth is the positive change in the real output of the country in a particular span of time economy. Economic Development involves a rise in the level of production in an economy along with the advancement of technology, improvement in living standards and so on. 2. Economic growth is one of the features of economic development. 3. Economic growth is an automatic process. Unlike economic development, which is the outcome of planned and result-oriented activities. 4. Economic growth enables an increase in the indicators like GDP, per capita income, etc. On the other hand, economic development enables improvement in the life expectancy rate, infant mortality rate, literacy rate and poverty rates. 5. Economic growth can be measured when there is a positive change in the national income, whereas economic development can be seen when there is an increase in real national income.
- 65. 6. Economic growthis a short-term process which takes into account yearly growth of the economy. But if we talk about economic development it is a long term process. 7. Economic Growth applies to developed economies to gauge the quality of life, but as it is an essential condition for the development, it applies to developing countries also. In contrast to, economic development applies to developing countries to measure progress. 8. Economic Growth results in quantitative changes, but economic development brings both quantitative and qualitative changes. 9. Economic growth can be measured in a particular period. As opposed to economic development is a continuous process so that it can be seen in the long run. A developed country, industrialized country, more developed country, or more economically developed country (MEDC), is a sovereign state that has a developed economy and advanced technological infrastructure relative to other less industrialized nations. Most commonly, the criteria for evaluating the degree of economic development are gross domestic product (GDP), gross national product (GNP), the per capita income, level of industrialization, amount of widespread infrastructure and general standard of living. Which criteria are to be used and which countries can be classified as being developed are subjects of debate. A developing country (or a low and middle income country (LMIC), less developed country, less economically developed country (LEDC), underdeveloped country) is a country with a less developed industrial base and a low Human Development Index (HDI) relative to other countries. However, this definition is not universally agreed upon. There is also no clear agreement on which countries fit this category.[2] A nation's GDP per capitacompared with other nations can also be a reference point. The Least Developed Countries (LDCs) is a list of developing countries that, according to the United Nations, exhibit the lowest indicators of socioeconomic development, with the lowest Human Development Index ratings of all countries in the world. The concept of LDCs originated in the late 1960s and the first group of LDCs was listed by the UN in its resolution 2768 (XXVI) of 18 November 1971. A country is classified among the Least Developed Countries if it meets three criteria: Poverty – adjustable criterion based on GNI per capita averaged over three years. As of 2018 a country must have GNI per capita less than US $1,025 to be included on the list, and over $1,230 to graduate from it. Human resource weakness (based on indicators of nutrition, health, education and adult literacy). Economic vulnerability (based on instability of agricultural production, instability of exports of goods and services, economic importance of non-traditional activities, merchandise export concentration, handicap of economic smallness, and the percentage of population displaced by natural disasters). Below is an outline of Rostow's Five Stages of Growth: Traditional Society characterized by subsistence agriculture or hunting and gathering; almost wholly a "primary" sector economy limited technology Some advancements and improvements to processes, but limited ability for economic growth because of the absence of modern technologies, lack of class or individual economic mobility, with stability prioritized and change seen negatively This is where society generally begins before progressing towards the next stages of growth No centralized nations or political systems. Pre-conditions to "take-off" External demand for raw materials initiates economic change.
- 66. Development ofmore productive, commercial agriculture and cash crops not consumed by producers and/or largely exported. Widespread and enhanced investment in changes to the physical environment to expand production (i.e. irrigation, canals, ports) Increasing spread of technology and advances in existing technologies Changing social structure, with previous social equilibrium now in flux Individual social mobility begins Development of national identity and shared economic interests. Take-off Urbanization increases, industrialization proceeds, technological breakthroughs occur. "Secondary" (goods-producing) sector expands and ratio of secondary vs. primary sectors in the economy shifts quickly towards secondary. Textiles and apparel are usually the first "take-off" industry, as happened in Great Britain's classic "Industrial Revolution" An Example of the Take-off phase is the Agriculture (Green) Revolution in the 1960s. Drive to Maturity Diversification of the industrial base; multiple industries expand and new ones take root quickly Manufacturing shifts from investment-driven (capital goods) towards consumer durables and domestic consumption Rapid development of transportation infrastructure. Large-scale investment in social infrastructure (schools, universities, hospitals, etc.) Age of Mass Consumption the industrial base dominates the economy; the primary sector is of greatly diminished weight in economy and society widespread and normative consumption of high-value consumer goods (e.g. automobiles) consumers typically (if not universally), have disposable income, beyond all basic needs, for additional goods Urban society (a movement away from rural countrysides to the cities) Beyond consumption age of diminishing relative marginal utility as well as an age for durable consumer goods large families and Americans feel as if they were born into a society that has high economic security and high consumption a stage where its merely speculation on whether there is further consumer diffusion or what the new generation will bring for growth What is the 'Endogenous Growth Theory' The endogenous growth theory is an economic theory which argues that economic growth is generated from within a system as a direct result of internal processes. More specifically, the theory notes that the enhancement of a nation's human capital will lead to economic growth by means of the development of new forms of technology and efficient and effective means of production. What is the 'Neoclassical Growth Theory'? Neoclassical growth theory is an economic theory that outlines how a steady economic growth rate can be accomplished with the proper amounts of the three driving forces: labor, capital and technology. The theory states that by varying the amounts of labor and capital in the production function, an equilibrium state can be accomplished. The theory also argues that technological change has a major influence on an economy, and economic growth cannot continue without advances in technology.
- 67. What is 'ForeignAid'? Foreign aid is money that one country voluntarily transfers to another, which can take the form of a gift, a grant or a loan. In the United States, the term usually refers only to military and economic assistance the federal government provides to other governments. Broader definitions of aid include money transferred across borders by religious organizations, nongovernment organizations (NGOs) and foundations. Some have argued that remissions should be included, but they are rarely assumed to constitute aid. What is 'Foreign Investment' Foreign investment involves capital flows from one country to another, granting extensive ownership stakes in domestic companies and assets. Foreign investment denotes that foreigners have an active role in management as a part of their investment. A modern trend leans toward globalization, where multinational firms have investments in a variety of countries. What is 'Foreign Direct Investment - FDI' Foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country. Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets, including establishing ownership or controlling interest in a foreign company. Foreign direct investments are distinguished from portfolio investments in which an investor merely purchases equities of foreign-based companies. What is 'External Debt' External debt is the portion of a country's debt that was borrowed from foreign lenders including commercial banks, governments or international financial institutions. These loans, including interest, must usually be paid in the currency in which the loan was made. In order to earn the needed currency, the borrowing country may sell and export goods to the lender's country. Public finance Public finance is the study of the role of the government in the economy. It is the branch of economics which assesses thegovernment revenue and government expenditure of the public authorities and the adjustment of one or the other to achieve desirable effects and avoid undesirable ones. The purview of public finance is considered to be threefold: governmental effects on (1) efficient allocation of resources, (2)distribution of income, and (3) macroeconomic stabilization. What is Private Finance? Private Finance can be classified into two categories the personal finance and business finance. Personal finance deals with the process of optimizing finances by individuals such as people, families and single consumers. A great example is an individual financing his/her own car by mortgage. Personal finance involves financial planning at the lowest individual level. It includes savings accounts, insurance policies, consumer loans, stock market investments, retirement plans and credit cards. Business Finance involves the process of optimizing finances by business organizations. It involves asset acquisition and proper allocation of funds to in a way that maximizes the achievement of set goals. Businesses can require finances on either of the three levels; short, medium or long term.
- 68. What is a'Private Good' A private good is a product that must be purchased to be consumed, and consumption by one individual prevents another individual from consuming it. In other words, a good is considered to be a private good if there is competition between individuals to obtain the good and if consuming the good prevents someone else from consuming it. Economists refer to private goods as rivalrous and excludable. What is a 'Public Good' A public good is a product that one individual can consume without reducing its availability to another individual, and from which no one is excluded. Economists refer to public goods as "nonrivalrous" and "nonexcludable." National defense, sewer systems, public parks and other basic societal goods can all be considered public goods. Government revenue is money received by a government. It is an important tool of the fiscal policy of the government and is the opposite factor of government spending. Revenues earned by the government are received from sources such as taxes levied on the incomes and wealth accumulation of individuals and corporations and on the goods and services produced, exports and imports, non-taxable sources such as government-owned corporations' incomes, central bank revenue and capital receipts in the form of external loans and debts from international financial institutions. It is used to benefit the country. Tax revenue is the income that is gained by governments through taxation. Taxation is the primary source of income for a state. Revenue may be extracted from sources such as individuals, public enterprises,
- 69. trade, royalties onnatural resources and/or foreign aid. An inefficient collection of taxes is greater in countries characterized by poverty, a large agricultural sector and large amounts of foreign aid. Non-tax revenue or non-tax receipts are government revenue not generated from taxes. Aid from another level of government (intragovernmental aid): in the United States, federal grants may be considered non-tax revenue to the receiving states, and equalization payments Aid from abroad (foreign aid) What are 'Taxes' Taxes are involuntary fees levied on individuals or corporations and enforced by a government entity - whether local, regional or national - in order to finance government activities. In economics, taxes fall on whomever pays the burden of the tax, whether this is the entity being taxed, like a business, or the end consumers of the business's goods. There are several very common types of taxes: Income Tax - a percentage of individual earnings filed to the federal government Corporate Tax - a percentage of corporate profits taken as tax by the government to fund federal programs. Sales Tax - taxes levied on certain goods and services Property Tax - based on the value of land and property assets Tariff - taxes on imported goods imposed in the aim of strengthening internal businesses Estate tax - rate applied to the fair market value of a property at the time of death What is 'Tax Base' A tax base is a total amount of assets or income that can be taxed by a taxing authority, usually by the government. It is used to calculate tax liabilities. This can be in different forms, incluing income or property. Tax Liability = Tax Base x Tax Rate What is a 'Tax Rate' A tax rate is the percentage at which an individual or corporation is taxed. The tax rate is the tax imposed by the federal government and some states based on an individual's taxable income or a corporation's earnings. The United States uses a progressive tax rate system, where the percentage of tax increases as taxable income increases. What is an 'Income Tax' An income tax is a tax that governments impose on financial income generated by all entities within their jurisdiction. By law, businesses and individuals must file an income tax return every year to determine whether they owe any taxes or are eligible for a tax refund. Income tax is a key source of funds that the government uses to fund its activities and serve the public. What is a 'Corporate Tax' A corporate tax is a levy placed on the profit of a firm to raise taxes. After operating earnings are calculated by deducting expenses, including the cost of goods sold (COGS) and depreciation from revenues, enacted tax rates are applied to generate a legal obligation the business owes the government. Rules surrounding corporate taxation vary greatly around the world and must be voted upon and approved by the government to be enacted. What is a 'Sales Tax' A sales tax is a consumption tax imposed by the government on the sale of goods and services. A conventional sales tax is levied at the point of sale, collected by the retailer, and passed on to the government. A business is
- 70. liable for salestaxes in a given jurisdiction if it has a nexus there, which can be a brick-and-mortar location, an employee, an affiliate, or some other presence, depending on the laws in that jurisdiction. What is an 'Excise Tax' An excise tax is an indirect tax on the sale of a particular good or service such as fuel, tobacco and alcohol. Indirect means the tax is not directly paid by an individual consumer — instead, the Internal Revenue Service (IRS) levies the tax on the producer or merchant, who passes it onto the consumer by including it in the product's price. What is a 'Direct Tax ' A direct tax is paid directly by an individual or organization to the imposing entity. A taxpayer, for example, pays direct taxes to the government for different purposes, including real property tax, personal property tax, income tax or taxes on assets. What is an 'Indirect Tax' An indirect tax is collected by one entity in the supply chain (usually a producer or retailer) and paid to the government, but it is passed on to the consumer as part of the purchase price of a good or service. The consumer is ultimately paying the tax by paying more for the product. What is a 'Value-Added Tax - VAT' A value-added tax (VAT) is a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale. The amount of VAT that the user pays is on the cost of the product, less any of the costs of materials used in the product that have already been taxed. What is a 'Consumption Tax' A consumption tax is a tax on the purchase of a good or service. Consumption taxes can take the form of sales taxes, tariffs, excise, and other taxes on consumed goods and services. Consumption tax can also refer to a taxing system as a whole in which people are taxed based on how much they consume rather than how much they add to the economy (income tax). Definition of 'Cascade Tax' A cascade tax is tax that is levied on a good at each stage of the production process up to the point of being sold to the final consumer. A cascade tax is a type of turnover tax with each successive transfer being taxed inclusive of any previous cascade taxes being levied. Because each successive turnovers includes the taxes of all previous turnovers, the end tax amount will be greater than the stated cascade tax rate. Definition of 'Property Tax' Property tax is a real estate ad-valorem tax, calculated by a local government, which is paid by the owner of the property. The tax is usually based on the value of the owned property, including land. The local governing body will use the assessed tax to fund water and sewer improvements, provide law enforcement and fire service and other items deemed necessary. What is an 'Estate Tax' An estate tax is a tax levied on an heir's inherited portion of an estate if the value of the estate exceeds an exclusion limit set by law. The estate tax is mostly imposed on assets left to heirs, but it does not apply to the transfer of assets to a surviving spouse. The right of spouses to leave any amount to one another is known as the
- 71. unlimited marital deduction,but when the surviving spouse who inherited an estate dies, the beneficiaries may then owe estate taxes if the estate exceeds the exclusion limit. What is a 'Progressive Tax' A progressive tax is a tax that imposes a lower tax rate on low-income earners compared to those with a higher income, making it based on the taxpayer's ability to pay. That means it takes a larger percentage from high- income earners than it does from low-income individuals. What is a 'Regressive Tax' A regressive tax is a tax applied uniformly, taking a larger percentage of income from low-income earners than from high-income earners. It is in opposition to a progressive tax, which takes a larger percentage from high- income earners. What is a 'Proportional Tax' A proportional tax is an income tax system where the same percentage of tax is levied on all taxpayers, regardless of their income. A proportional tax applies the same tax rate across low, middle, and high-income taxpayers. In contrast, the progressive tax system, adjust tax rates by incomes. A marginal rate taxing system, such as the flat tax, has a constant rate for both businesses and individual taxpayers. What is a 'Flat Tax' A flat tax system applies the same tax rate to every taxpayer regardless of income bracket. Typically, a flat tax applies the same tax rate to all taxpayers, with no deductions or exemptions allowed, but some politicians such as Ted Cruz and Rand Paul have proposed flat tax systems that keep certain deductions in place. Most flat tax systems or proposals do not tax income from dividends, distributions, capital gains, and other investments. What is a 'tax year' A tax year refers to the 12-month period covered by a particular tax return. The Internal Revenue Service allows some flexibility in determining the start and end dates of a tax year, and it is not necessarily the same period as a fiscal year. What is the 'Effective Tax Rate' The effective tax rate is the average taxation rate for a corporation or individual. The effective tax rate for individuals is the average rate at which their earned income is taxed, and the effective tax rate for a corporation is the average rate at which its pre-tax profits are taxed. What is 'Tax Break' A tax break is a savings on a taxpayer's liability. It is also used to refer to favorable tax treatment of any class of persons in the United States. If the government gives a tax break to a particular group of people or type of organization, it reduces the amount of tax they have to pay or changes the tax system in a way that benefits them. What is 'Taxable Income' Taxable income is the amount of income used to calculate how much tax an individual or a company owes to the government in a given tax year. It is generally described as gross income or adjusted gross income (which is
- 72. minus any deductionsor exemptions allowed in that tax year). Taxable income includes wages, salaries, bonuses and tips, as well as investment income and unearned income. Definition of 'Marginal Tax Rate' A marginal tax rate is the tax rate incurred on each additional dollar of income. The marginal tax rate for an individual will increase as income rises. This method of taxation aims to fairly tax individuals based upon their earnings, with low-income earners being taxed at a lower rate than higher income earners. A single tax is a system of taxation based mainly or exclusively on one tax, typically chosen for its special properties, often being a tax on land value. A multiple tax refers to the tax system in which taxes are levied on various items or bases. A modern economy is not one objective economy. It tries to forge ahead simultaneously along the paths of growth, equitable distribution of income and wealth, economic stabilization, and soon. Definition of 'Ad Valorem Tax' An ad valorem tax is a tax based on the assessed value of an item such as real estate or personal property. The most common ad valorem taxes are property taxes levied on real estate. However, ad valorem taxes may also extend to a number of tax applications, such as import duty taxes on goods from abroad. What is 'Double Taxation' Double taxation is a taxation principle referring to income taxes paid twice on the same source of earned income. It can occur when income is taxed at both the corporate level and personal level. Double taxation also occurs in international trade when the same income is taxed in two different countries. What is a 'Public Good' A public good is a product that one individual can consume without reducing its availability to another individual, and from which no one is excluded. Economists refer to public goods as "nonrivalrous" and "nonexcludable." National defense, sewer systems, public parks and other basic societal goods can all be considered public goods. Definition matrix Excludable Non-excludable Rivalrous Private goods food, clothing, cars, parking spaces Common-pool resources fish stocks, timber, coal Non-rivalrous Club goods cinemas, private parks, satellite television Public goods free-to-air television, air, national defense A public good has two characteristics: 1. Non-rivalry: This means that when a good is consumed, it doesn‘t reduce the amount available for others. – E.g. benefiting from a street light doesn‘t reduce the light available for others but eating an apple would. 2. Non-excludability: This occurs when it is not possible to provide a good without it being possible for others to enjoy. For example, if you erect a dam to stop flooding – you protect everyone in the area (whether they contributed to flooding defences or not.
- 73. A public goodis often (though not always) under-provided in a free market because its characteristics of non- rivalry and non-excludability mean there is an incentive not to pay. In a free market, firms may not provide the good as they have difficulty charging people for their use. Quasi-Public Goods These are goods which have an element of non-excludability and non-rivalry. Roads are a good example. Once provided most people can use them, for example, those who have a driving licence. However, when you use a road, the amount others can benefit is reduced to some extent, because there will be increased congestion. Club Goods Club goods are products that are excludable but non-rival. Thus, individuals can be prevented from consuming them, but their consumption does not reduce their availability to other individuals (at least until a point of overuse or congestion is reached). Club goods are sometimes also referred to as artificially scarce resources. They are often provided by natural monopolies. Examples of club goods include: cable television, cinemas, wireless internet, tollroads etc. Government debt (also known as public interest, public debt, national debt and sovereign debt)[1][2] is the debt owed by a government. By contrast, the annual "government deficit" refers to the difference between government receipts and spending in a single year. Government debt can be categorized as internal debt (owed to lenders within the country) and external debt (owed to foreign lenders). Another common division of government debt is by duration until repayment is due. Short term debt is generally considered to be for one year or less, long term is for more than ten years. Medium term debt falls between these two boundaries. A broader definition of government debt may consider all government liabilities, including future pension payments and payments for goods and services which the government has contracted but not yet paid. Internal and External Debt: Public loans floated within the country are called internal debt. Public borrowings from other countries are referred as external debt. External debt represents a claim of foreigners against the real income (GNP) of the country, when it borrows from other countries and has to repay at the time of maturity. External public debt permits import of real resources. It enables the country to consume more than it produces. Productive and Unproductive Debt: Public debt is said to be productive or reproductive, when government loans are invested in productive assets or enterprises such as railways, irrigation, multipurpose projects etc., which yield a sufficient income to the public authority to pay out annual interest on the debt as well as help in repaying the principal in the long run. As such, a productive public debt is self-liquidating in nature; so the community experiences no net burden of such debt. An unproductive debt, on the other hand, is one which does not add to the productive assets of a country. When the government borrows for unproductive purposes like financing a war, or for lavish expenditure on public administration, etc., such public loans are regarded as unproductive. Compulsory and Voluntary Debt: When government borrows from people by using coercive methods, loans so raised are referred to as compulsory public debt. Under the Compulsory Deposit Scheme in India, tax-payers have to compulsorily deposit a prescribed amount and defaulters are punished. This is a case of compulsory debt. Usually, public borrowings are voluntary in nature. When the government floats a loan by issuing securities, members of the public and institutions like commercial banks may subscribe to them.
- 74. Redeemable and IrredeemableDebts: On the criterion of maturity, public debts may be classified as redeemable or irredeemable. Loans which the government promises to pay off at some future date are called redeemable debts. For redeemable debts, the government has to make some arrangement for their repayment. They are, therefore, terminable loans. Whereas loans for which no promise is made by the government regarding the exact date of maturity, and all that the government does is to agree to pay interest regularly for the bonds issued, are called irredeemable debts. Short-term, Medium-term and Long-term loans: According to their duration, redeemable loans may further be classified as short-term, medium-term or long- term debts. Short-term debts mature within a short period say, of 3 to 9 months. For instance, Treasury Bills are an instrument of credit extensively used as a means of short-term (usually 90 days) borrowing by the government, generally, for covering temporary deficits in the budgets. Interest rates on such loans are generally low. Long-term debts, on the other hand, are those repayable after a long period of time, generally, ten years or more. For development finance, such loans are usually raised by the government. Long-term loans usually bear a high rate of interest. Funded and Unfunded Debt: Funded debt is, in fact, a long-term debt, exceeding the duration of at least a year. It comprises securities which are marketable on the stock exchange. Funded debt in its proper sense is, however, an obligation to pay a fixed sum of interest, subject to the option of the government to repay the principal. In such debts, the creditor bond- holder has no right to anything but the interest. Unfunded debts, on the other hand, are for a comparatively short duration. They are generally redeemable within a year. Unfunded debts are, thus, incurred always in anticipation of public revenue, a temporary measure to meet current needs. A debt management plan (DMP) is a formal agreement between a debtor and a creditor that addresses the terms of an outstanding debt.[1] This commonly refers to a personal finance process of individuals addressing high consumer debt. Debt management plans help reduce outstanding, unsecured debts over time to help the debtor regain control of finances. The process can secure a lower overall interest rate, longer repayment terms, or an overall reduction in the debt itself Deficit financing is the budgetary situation where expenditure is higher than the revenue. It is a practice adopted for financing the excess expenditure with outside resources. The expenditure revenue gap is financed by either printing of currency or through borrowing. Various indicators of deficit in the budget are: 1. Budget deficit = total expenditure – total receipts 2. Revenue deficit = revenue expenditure – revenue receipts 3. Fiscal Deficit = total expenditure – total receipts except borrowings 4. Primary Deficit = Fiscal deficit- interest payments 5. Effective revenue Deficit-= Revenue Deficit – grants for the creation of capital assets 6. Monetized Fiscal Deficit = that part of the fiscal deficit covered by borrowing from the RBI. Public expenditure is spending made by the government of a country on collective needs and wants such as pension, provision,infrastructure, etc.[1] Until the 19th century, public expenditure was limited as laissez faire philosophies believed that money left in private hands could bring better returns. In the 20th century, John
- 75. Maynard Keynes arguedthe role of public expenditure in determining levels of income and distribution in the economy. Since then government expenditures has shown an increasing trend. A "budget" is a plan for the accomplishment of programs related to objectives and goals within a definite time period, including an estimate of resources required, together with an estimate of resources available, usually compared with one or more past periods and showing future requirements.[4] A local government is a form of public administration which, in a majority of contexts, exists as the lowest tier of administration within a given state. The term is used to contrast with offices at state level, which are referred to as the central government, national government, or (where appropriate) federal government and also to supranational government which deals with governing institutions between states. Local governments generally act within powers delegated to them by legislation or directives of the higher level of government. In federal states, local government generally comprises the third (or sometimes fourth) tier of government, whereas inunitary states, local government usually occupies the second or third tier of government, often with greater powers than higher-level administrative divisions. Agricultural economics is an applied field of economics concerned with the application of economic theory in optimizing the production and distribution of food and fibre—a discipline known as agricultural economics. Agricultural economics was a branch of economics that specifically dealt with land usage. It focused on maximizing the crop yield while maintaining a good soil ecosystem. What Is Returns to Scale? The terms 'economies of scale' and 'returns to scale' are related, but they mean very different things in economics. While economies of scale refers to the cost savings that are realized from an increase in the volume of production, returns to scale is the variation or change in productivity that is the outcome from a proportionate increase of all the input. An increasing returns to scale occurs when the output increases by a larger proportion than the increase in inputs during the production process. For example, if input is increased by 3 times, but output increases by 3.75 times, then the firm or economy has experienced an increasing returns to scale. A decreasing returns to scale occurs when the proportion of output is less than the desired increased input during the production process. For example, if input is increased by 3 times, but output is reduced 2 times, the firm or economy has experienced decreasing returns to scale. A constant returns to scale means that the proportionate increase in input is exactly equal to the increase in output. In Barry's case the 25% increase in input would result in a 25% increase output. So, with the additional 2 barbers, production would increase from 250 to 313 clients. The level of efficiency is maintained. In common law systems, land tenure is the legal regime in which land is owned by an individual, who is said to "hold" the land. The French verb "tenir" means "to hold" and "tenant" is the present participle of "tenir". The sovereign monarch, known as The Crown, held land in its own right. All private owners are either its tenants or sub-tenants. Tenuresignifies the relationship between tenant and lord, not the relationship between tenant and land. Subsistence agriculture is a self-sufficiency farming system in which the farmers focus on growing enough food to feed themselves and their entire families. The output is mostly for local requirements with little or no surplus trade. The typical subsistence farm has a range of crops and animals needed by the family to feed and clothe themselves during the year. Planting decisions are made principally with an eye toward what the family will need during the coming year, and secondarily toward market prices
- 76. In a generalsense, when only few enterprises are run by the farmer, in which he has acquired special knowledge, it is known as specialized farming. Specifically, specialized farming refers to only one kind of farm business such as raising food crops or rearing sheep or raising dairy cattle. Raising two to three crops makes it specialized. The motive behind specialized farming is profit. Diversified Farming: A diversified farm is one that has several production enterprises or sources of income but no source of income equal as much as 50% of the total income from that source on such farm farmers depends on several sources of incomes. It is also called as general farming. Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts in a particular country or socio-economic context. The main functions of money are distinguished as: a medium of exchange, a unit of account, a store of value and sometimes, a standard of deferred payment. Any item or verifiable record that fulfills these functions can be considered as money. Fractional Money It is a hybrid type of money which is partly backed by a commodity and has a fiat money transaction purpose. If the commodity loses its value then Fractional money converts into Fiat money. Representative money It represents a claim on commodity and it can be redeemed for that commodity at a bank. It is a token or paper money that can be exchanged for a fixed quantity of a commodity. Its value depends on the commodity it backs. Coins Metals of particular weight are stamped into coins. There are various precious metals like gold, silver, bronze, copper whose coins are already used in human history. The minting of coins is controlled by the state. Paper Money Paper money doesn‘t have any intrinsic value, as a fiat money, it is approved by government order to be treated as legal tender through which value exchange can happen. Governments print the paper money according to the requirements which are tightly controlled as it can affect the economy of the country. Commodity Money Commodity money is the simplest and most likely also the oldest type of money. It builds on scarce natural resources that act as a medium of exchange, store of value, and unit of account. Commodity money is closely related to (and originates from) a barter system, where goods and services are directly exchanged for other goods and services. Commodity money facilitates this process, because it acts as a generally accepted medium of exchange. The important thing to note about commodity money is that its value is defined by the intrinsic value of the commodity itself. In other words, the commodity itself becomes the money. Examples of commodity money include gold coins, beads, shells, spices, etc. Fiat Money Fiat money gets its value from a government order (i.e. fiat). That means, the government declares fiat money to be legal tender, which requires all people and firms within the country to accept it as a means of payment. If they fail to do so, they may be fined or even put in prison. Unlike commodity money, fiat money is not backed by any physical commodity. By definition, its intrinsic value is significantly lower than its face value. Hence, the value of fiat money is derived from the relationship between supply and demand. In fact, most modern economies are based on a fiat money system. Examples of fiat money include coins and bills. Fiduciary Money Today‘s monetary system is highly fiduciary. Whenever any bank assures the customers to pay in different types of money and when the customer can sell the promise or transfer it to somebody else, it is called the fiduciary money. Fiduciary money is generally paid in gold, silver or paper money. There are cheques and banknotes,
- 77. which are theexamples of fiduciary money because both are some kind of token which are used as money and carry the same value. What is 'Money Market' The money market is where financial instruments with high liquidity and very short maturities are traded. It is used by participants as a means for borrowing and lending in the short term, with maturities that usually range from overnight to just under a year. Among the most common money market instruments are eurodollar deposits, negotiablecertificates of deposit (CDs), bankers acceptances, U.S. Treasury bills, commercial paper, municipal notes, federal funds and repurchase agreements (repos). What are 'Capital Markets' "Capital Markets" refers to activities that gather funds from some entities and make them available to other entities needing funds. The core function of such a market is to improve the efficiency of transactions so that each individual entity doesn't need to do search and analysis, create legal agreements, and complete funds transfer. What is the 'Financial Market' The financial market is a broad term describing any marketplace where trading of securities including equities, bonds, currencies and derivatives occur. Some financial markets are small with little activity, while some financial markets like the New York Stock Exchange (NYSE) trade trillions of dollars of securities daily. What is a 'Cash Market' A cash market is a marketplace for the immediate settlement of transactions involving commodities and securities. In a cash market, the exchange of goods and money between the seller and the buyer takes place in the present, as opposed to the futures market where such an exchange takes place on a specified future date. This type of market is also known as the spot market, since transactions are settled on the spot. What is 'Monetary Policy' Monetary policy consists of the actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates. Monetary policy is maintained through actions such as modifying the interest rate, buying or selling government bonds, and changing the amount of money banks are required to keep in the vault (bank reserves). The Federal Reserve is in charge of monetary policy in the United States. What is 'Fiscal Policy' Fiscal policy refers to the use of government spending and tax policies to influence macroeconomic conditions, including aggregate demand, employment, inflation and economic growth. What is the 'Great Depression'? The Great Depression was the greatest and longest economic recession in modern world history. It began with the U.S. stock market crash of 1929 and did not completely end until 1946 after World War II. Economists and historians often cite the Great Depression as the most catastrophic economic event of the 20th century. What is the 'Velocity of Money' The velocity of money is the rate at which money is exchanged from one transaction to another. It also refers to how much a unit of currency is used in a given period of time. Simply put, it's the rate at which people spend money. The velocity of money is usually measured as a ratio of gross national product (GNP) to a country's total
- 78. supply of money.Velocity is important for measuring the rate at which money in circulation is used for purchasing goods and services, as this helps investors gauge how robust the economy is, and is a key input in the determination of an economy's inflation calculation. What is the 'Multiplier Effect' The multiplier effect is the expansion of a country's money supply that results from banks being able to lend. The size of the multiplier effect depends on the percentage of deposits that banks are required to hold as reserves. In other words, it is the money used to create more money and is calculated by dividing total bank deposits by the reserve requirement. What is the 'Quantity Theory of Money' The quantity theory of money is a theory that variations in price relate to variations in the money supply. The most common version, sometimes called the "neo-quantity theory" or Fisherian theory, suggests there a mechanical and fixed proportional relationship between changes in the money supply and the general price level. This popular, albeit controversial, formulation of the quantity theory of money is based upon an equation by American economist Irving Fisher. What is the 'Reserve Ratio' The reserve ratio is the portion of reservable liabilities that depository institutions must hold onto, rather than lend out or invest. This is a requirement determined by the country's central bank, which in the United States is the Federal Reserve. As a simplistic example, assume the Federal Reserve determined the reserve ratio to be 11%. This means if a bank has deposits of $1 billion, it is required to have $110 million on reserve. What is the 'Money Supply' The money supply is the entire stock of currency and other liquid instruments circulating in a country's economy as of a particular time. The money supply can include cash, coins and balances held in checking and savings accounts. Economists analyze the money supply and develop policies revolving around it through controlling interest rates and increasing or decreasing the amount of money flowing in the economy. What are 'Cash Reserves ' Cash reserves can refer to the money a business or individual keeps on hand to meet short-term and emergency funding needs. Cash reserves can also refer to a type of short-term highly liquid investment that earns a low rate of return, such as investment company Fidelity's mutual fund called Fidelity Cash Reserves; this is where some individuals keep money that they want to have quick access to. What is a 'Bank Reserve' A bank reserve is the currency deposit that is not lent out to the bank's clients. A small fraction of the total deposits is held internally by the bank in cash vaults or deposited with the central bank. Minimum reserve requirements are established by central banks in order to ensure that the financial institutions will be able to provide clients with cash upon request. What is 'Interest Rate' Interest rate is the amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest rates are typically noted on an annual basis, known as the annual percentage rate (APR). The assets borrowed could include cash, consumer goods, and large assets such as a vehicle or building.
- 79. What are 'ExcessReserves' Excess reserves are capital reserves held by a bank or financial institution in excess of what is required by regulators, creditors or internal controls. For commercial banks, excess reserves are measured against standard reserve requirement amounts set by central banking authorities. These required reserve ratios set the minimum liquid deposits (such as cash) that must be in reserve at a bank; more is considered excess. In monetary economics, a money multiplier is one of various closely related ratios of commercial bank money to central bank money under a fractional-reserve bankingsystem.[1] Most often, it measures an estimate of the maximum amount of commercial bank money that can be created, given a certain amount of central bank money. That is, in afractional-reserve banking system, the total amount of loans that commercial banks are allowed to extend (the commercial bank money that they can legally create) is equal to an amount which is a multiple of the amount of reserves. This multiple is the reciprocal of the reserve ratio, and it is an economic multiplier. What is 'Human Capital' Human capital is a quantification of the economic value of a worker's skill set. This measure builds on the basic production input of labor measure where all labor is thought to be equal. The concept of human capital recognizes that not all labor is equal and that the quality of employees can be improved by investing in them; the education, experience and abilities of employees have economic value for employers and for the economy as a whole. Definition of balanced growth: Balanced growth refers to a specific type of economic growth that is sustainable in the long term. It is sustainable in terms of low inflation, the environment and balanced between different sectors of the economy such as exports and retail spending. Balanced growth is the opposite of volatile boom and bust economic cycles. ―Unbalanced growth is a better development strategy to concentrate available resources on types of investment, which help to make the economic system more elastic, more capable of expansion under the stimulus of expanded market and expanding demand‖-H.W.Singer. Urban economics is broadly the economic study of urban areas; as such, it involves using the tools of economics to analyze urban issues such as crime, education, public transit, housing, and local government finance. More narrowly, it is a branch ofmicroeconomics that studies urban spatial structure and the location of households and firms (Quigley 2008). International economics is concerned with the effects upon economic activity from international differences in productive resources and consumer preferences and the international institutions that affect them. It seeks to explain the patterns and consequences of transactions and interactions between the inhabitants of different countries, including trade, investment and migration. International trade studies goods-and-services flows across international boundaries from supply-and- demand factors,economic integration, international factor movements, and policy variables such as tariff rates and trade quotas. International finance studies the flow of capital across international financial markets, and the effects of these movements onexchange rates. International monetary economics and international macroeconomics study flows of money across countries and the resulting effects on their economies as a whole.
- 80. International politicaleconomy, a sub-category of international relations, studies issues and impacts from for example international conflicts, international negotiations, and international sanctions; national security and economic nationalism; and international agreements and observance What is a 'Trade' Trade is a basic economic concept involving the buying and selling of goods and services, with compensation paid by a buyer to a seller, or the exchange of goods or services between parties. The most common medium of exchange for these transactions is money, but trade may also be executed with the exchange of goods or services between both parties, referred to as a barter, or payment with virtual currency, the most popular of which is bitcoin. In financial markets, trading refers to the buying and selling of securities, such as the purchase of stock on the floor of the New York Stock Exchange (NYSE). What Is International Trade? International trade is the exchange of goods and services between countries. This type of trade gives rise to a world economy, in which prices, or supply and demand, affect and are affected by global events. Political change in Asia, for example, could result in an increase in the cost of labor, thereby increasing the manufacturing costs for an American sneaker company based in Malaysia, which would then result in an increase in the price that you have to pay to buy the tennis shoes at your local mall. A decrease in the cost of labor, on the other hand, would result in you having to pay less for your new shoes. What are 'Terms of Trade - TOT'? Terms of trade represent the ratio between a country's export prices and its import prices. The ratio is calculated by dividing the price of the exports by the price of the imports and multiplying the result by 100. When a country‘s TOT is less than 100%, more capital is leaving the country than is entering the country. When the TOT is greater than 100%, the country is accumulating more capital from exports than it is spending on imports. What is 'Absolute Advantage'? Absolute advantage is the ability of a country, individual, company or region to produce a good or service at a lower cost per unit than another entity that produces the same good or service. Entities with absolute advantages can produce a product or service using a smaller number of inputs or a more efficient process than another entity producing the same product or service What is 'Comparative Advantage' Comparative advantage is an economic term that refers to an economy's ability to produce goods and services at a lower opportunity cost than trade partners. A comparative advantage gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins.The law of comparative advantage is popularly attributed to English political economist David Ricardo and his book ―Principles of Political Economy and Taxation‖ in 1817, although it is likely that Ricardo's mentor James Mill originated the analysis. What is 'Specialization' Specialization is a method of production whereby an entity focuses on the production of a limited scope of goods to gain a greater degree of efficiency. Many countries, for example, specialize in producing the goods and services that are native to their part of the world, and they trade for other goods and services. This specialization is, therefore, the basis of global trade, as few countries have enough production capacity to be completely self- sustaining.
- 81. What is a'Free Trade Area' Free trade areas are regions in which a group of countries have signed a free trade agreement, and invoke little or no price control in the form of tariffs or quotas between each other. Free trade areas allow the agreeing nations to focus on their competitive advantage and to freely trade for the goods they lack the experience at making, thus increasing the efficiency and profitability of each country. What is 'Free Trade'? Free trade is a policy to eliminate discrimination against imports and exports. Buyers and sellers from different economies may voluntarily trade without a government applying tariffs, quotas, subsidies or prohibitions on goods and services. Free trade is the opposite of trade protectionism or economic isolationism. What is 'Trade Liberalization'? Trade liberalization is the removal or reduction of restrictions or barriers on the free exchange of goods between nations. This includes the removal or reduction of tariff obstacles, such as duties and surcharges, and nontariff obstacles, such as licensing rules, quotas and other requirements. Economists often view the easing or eradication of these restrictions as promoting free trade. What is a 'Barter'? Barter is an act of trading goods or services between two or more parties without the use of money (or a monetary medium such as a credit card). In essence, bartering involves the provision of one good or service by one party in return for another good or service from another party. A simple example of a barter arrangement is a carpenter who builds a fence for a farmer. Instead of the farmer paying the builder $1,000 in cash for labor and materials, the farmer could instead recompense the carpenter with $1,000 worth of crops or foodstuffs. What is a 'Trade Deficit'? A trade deficit is an economic measure of international trade in which a country's imports exceeds its exports. A trade deficit represents an outflow of domestic currency to foreign markets. It is also referred to as a negative balance of trade (BOT). Trade Deficit = Total Value of Imports – Total Value of Exports What is a 'Trade Surplus' A trade surplus is an economic measure of a positive balance of trade, where a country's exports exceed its imports. Trade Balance = Total Value of Exports - Total Value of Imports A trade surplus occurs when the result of the above calculation is positive. A trade surplus represents a net inflow of domestic currency from foreign markets. It is the opposite of a trade deficit, which represents a net outflow, and occurs when the result of the above calculation is negative. What is a 'Medium Of Exchange'? A medium of exchange is an intermediary instrument used to facilitate the sale, purchase or trade of goods between parties. For an instrument to function as a medium of exchange, it must represent a standard of value accepted by all parties. In modern economies, the medium of exchange is currency. Definition of 'Trade War' A trade war is a side effect of protectionism that occurs when one country (Country A) raises tariffs on another country‘s (Country B) imports in retaliation for Country B raising tariffs on Country A's imports. A tariff is a tax imposed on imported goods and services.
- 82. Trade wars cancommence if one country perceives another country's trading practices to be unfair or when domestic trade unions pressure politicians to make imported goods less attractive to consumers. Trade wars are also a result of a misunderstanding of the widespread benefits of free trade. What is 'Protectionism' Protectionism refers to government actions and policies that restrict or restrain international trade, often with the intent of protecting local businesses and jobs from foreign competition. What is a 'Levy' A levy is the legal seizure of property to satisfy an outstanding debt. In the U.S., the Internal Revenue Service (IRS) has the authority to levy an individual's property, such as a car, boat, house. Property belonging to the individual that is held by someone else, including wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, commissions or the cash loan value of a life insurance policy can also be levied. What is a 'Tariff' A tariff is a tax imposed on imported goods and services. What is a 'Nontariff Barrier'? A nontariff barrier is a way to restrict trade using trade barriers in a form other than a tariff. Nontariff barriers include quotas, embargoes, sanctions, levies and other restrictions. Large, developed countries frequently use nontariff barriers to control the amount of trade it conducts with another economy for selfish or altruistic purposes. What is 'Barriers to Entry' Barriers to entry are the economic term describing the existence of high startup costs or other obstacles that prevent new competitors from easily entering an industry or area of business. Barriers to entry benefit existing firms because they protect their revenues and profits. Common barriers to entry include special tax benefits to existing firms, patents, strong brand identity or customer loyalty, and high customer switching costs. What are 'Barriers to Exit' Barriers to exit are obstacles or impediments that prevent a company from exiting a market in which it is considering a cessation of operations or from which it wishes to separate. Typical barriers to exit include highly specialized assets, which may be difficult to sell or relocate, huge exit costs, such as asset write-offs and closure costs, and inter-related businesses, making it infeasible to sell a part of it. Another common barrier to exit is the loss of customer goodwill. What is a 'Double Barrier Option' A double barrier option is an option category with both upper and lower trigger prices placed on the underlying asset. If the price of the underlying touches or closes beyond either trigger level, called the barriers, then the option either becomes valid or invalid, depending in the specific type. A knock-in barrier option becomes valid when the underlying exceeds either barrier. It then acts as any other options giving the holder the right but not the obligation to buy the underlying asset at a specific price at or by a specific date. A knock-out barrier option becomes invalid, or ceases to exist, when the underlying exceeds either barrier.
- 83. In contrast, singlebarrier options have only an upper or lower barrier. So a move in the opposite direction does not trigger a knock-in or knock out event. Barrier options can be puts or calls. Another name for double barrier options is double one-touch options. What is a 'Customs Barrier' A customs barrier is any implementation of fees, rules or regulations designed with the intention to limit international trade. What is 'Dumping'? Dumping is a term used in the context of international trade. It's when a country or company exports a product at a price that is lower in the foreign importing market than the price in the exporter's domestic market. Because dumping typically involves substantial export volumes of a product, it often endangers the financial viability of the product's manufacturers or producers in the importing nation. What is 'Anti-Dumping Duty' An anti-dumping duty is a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value. Dumping is a process where a company exports a product at a price lower than the price it normally charges in its own home market. To protect local businesses and markets, many countries impose stiff duties on products they believe are being dumped in their national market. What is a 'Subsidy' A subsidy is a benefit given to an individual, business or institution, usually by the government. It is usually in the form of a cash payment or a tax reduction. The subsidy is typically given to remove some type of burden, and it is often considered to be in the overall interest of the public, given to promote a social good or an economic policy. What is a 'Quota'? A 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. Countries use quotas in international trade to help regulate the volume of trade between them and other countries. Countries sometimes impose them on specific goods to reduce imports and increase domestic production. In theory, quotas boost domestic production by restricting foreign competition. Definition of 'Duty' A duty is either a form of taxation or the responsibilities that are held by an individual. A duty can be a tax levied on certain goods, services or transactions. Duties are enforceable by law and are imposed on commodities or financial transactions instead of individuals. Duties can also (separately) refer to the obligation of a person in authority such as a fiduciary to fulfill the responsibilities of his or her position. Import Duty: Import duty is a tax collected on imports and some exports by a country's customs authorities. It is usually based on the imported good's value. Depending on the context, import duty may also be referred to as customs duty, tariff, import tax or import tariff. What is 'Duty Free' Duty-free refers to the act of being able to purchase an item in particular circumstances without paying import, sales, value-added or other taxes. Duty-free stores are an enticing perk of international travel. These retail
- 84. businesses sell merchandisewhich is exempt from duties and taxes with the understanding they will be taken out of the country for use. What is 'Anti-Dumping Duty' An anti-dumping duty is a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value. Dumping is a process where a company exports a product at a price lower than the price it normally charges in its own home market. To protect local businesses and markets, many countries impose stiff duties on products they believe are being dumped in their national market. What Is 'Delivered Duty Paid - DDP'? Delivered duty paid is a delivery agreement whereby the seller assumes all of the responsibility, risk and cost associated with transporting goods until the buyer receives or transfers them at the destination port. This includes paying for shipping costs, export and import duties, insurance and any other expenses incurred during shipping to an agreed-upon location in the buyer's country. What is a 'Tariff War' A tariff war is an economic battle between two countries in which Country A raises tax rates on Country B's exports, and Country B then raises taxes on Country A's exports in retaliation. The increased tax rate is designed to hurt the other country economically, since tariffs discourage people from buying products from outside sources by raising the total cost of those products. What is the 'Balance of Payments (BOP)' The balance of payments is a statement of all transactions made between entities in one country and the rest of the world over a defined period of time, such as a quarter or a year. What is an 'Exchange Rate' An exchange rate is the price of a nation‘s currency in terms of another currency. Thus, an exchange rate has two components, the domestic currency and a foreign currency, and can be quoted either directly or indirectly. In a direct quotation, the price of a unit of foreign currency is expressed in terms of the domestic currency. In an indirect quotation, the price of a unit of domestic currency is expressed in terms of the foreign currency. Exchange rates are quoted in values against the US dollar. However, exchange rates can also be quoted against another nations currency, which are known as a cross currency, or cross rate. What is a 'Floating Exchange Rate' A floating exchange rate is a regime where the currency price is set by the forex market based on supply and demand compared with other currencies. This is in contrast to a fixed exchange rate, in which the government entirely or predominantly determines the rate. What is a 'Fixed Exchange Rate'? A fixed exchange rate is a regime applied by a country whereby the government or central bank ties the official exchange rate to another country's currency or the price of gold. The purpose of a fixed exchange rate system is to keep a currency's value within a narrow band. What is the 'Infant-Industry Theory' The infant-industry theory is the supposition that emerging domestic industries need protection against international competition until they become mature and stable. In economics, an infant industry is one that is
- 85. new and inits early stages of development, and not yet capable of competing against established industry competitors. In economics, an infant industry is a new industry,[1] which in its early stages experiences relative difficulty or is absolutely incapable in competing with established competitorsabroad. Infant Industries - Start-up industries in a country may not be able to effectively compete against foreign producers because of their small size. An argument can be made that these industries should be protected until suitable economies of scale can be achieved. If the economies of scale are such that the domestic industry achieves a comparative advantage over foreign companies, the temporary protection will help to achieve better economic efficiency Trade creation is an economic term related to international economics in which trade flows are redirected due to the formation of afree trade area or a customs union. The issue was firstly brought into discussion by Jacob Viner (1950), together with the trade diversion effect. Trade diversion is an economic term related to international economics in which trade is diverted from a more efficient exporter towards a less efficient one by the formation of a free trade agreement or a customs union. Total cost of good becomes cheaper when trading within the agreement because of the low tariff. This is as compared to trading with countries outside the agreement with lower cost goods but higher tariff. The related term Trade creation is when the formation of a trade agreement between countries decreases of price of the goods for more consumers, and therefore increases overall trade. In this case the more efficient producer with the agreement increases trade A customs union was defined by the General Agreement on Tariffs and Trade as a type of trade bloc which is composed of a free trade area with a common external tariff.[1] The participant countries set up common external trade policy, but in some cases they use different import quotas. Commoncompetition policy is also helpful to avoid competition deficiency.[2] Purposes for establishing a customs union normally include increasing economic efficiency and establishing closer political and cultural ties between the member countries. A common market is a free trade area with relatively free movement of capital and services. An economic union is a type of trade bloc which is composed of a common market with a customs union. The participant countries have both common policies on product regulation, freedom of movement of goods, services and the factors of production (capital and labour) and a common external trade policy. When an economic union involves unifying currency it becomes an economic and monetary union. Purposes for establishing an economic union normally include increasing economic efficiency and establishing closer political and cultural ties between the member countries. Industrial Economics is the study of firms, industries, and markets. It looks at firms of all sizes – from local corner shops to multinational giants such as WalMart or Tesco. And it considers a whole range of industries, such as electricity generation, car production, and restaurants. What is an 'Industry' An industry is a group of companies that are related based on their primary business activities. In modern economies, there are dozens of industry classifications, which are typically grouped into larger categories called sectors. Individual companies are generally classified into an industry based on their largest sources of revenue. For example, while an automobile manufacturer might have a financing division that contributes 10% to the
- 86. firm's overall revenues,the company would be classified in the automaker industry by most classification systems. What is a 'Firm' A firm is a business organization, such as a corporation, limited liability company or partnership, that sells goods or services to make a profit. While most firms have just one location, a single firm can consist of one or more establishments, as long as they fall under the same ownership and utilize the same Employer Identification Number (EIN). The title "firm" is typically associated with business organizations that practice law, but the term can be used for a wide variety of business operation units, such as accounting. "Firm" is often used interchangeably with "business" or "enterprise." Optimum firm is that firm which fully utilizes its scale of operation and produces optimum output with the minimum cost per unit production. What is a 'Sole Proprietorship' A sole proprietorship, also known as a sole trader or a proprietorship, is an unincorporated business with a single owner who pays personal income tax on profits earned from the business. With little government regulation, a sole proprietorship is the simplest business to set up or take apart, making sole proprietorships popular among individual self-contractors, consultants or small business owners. Many sole proprietors do business under their own names because creating a separate business or trade name isn't necessary. Industrial concentration means sellers concentration. In other words, in a market some big firms have dominance over production and sales. The limit of this industrial concentration depends upon two main factors, firstly number of active firms in the given market, secondly, quantity of demand fulfilled by a firm out of the total market demand. If in a market number of firms is limited, the size of firms will be relatively big and a big firm will have the control over a large portion of total supply. In economics, market concentration is a function of the number of firms and their respective shares of the total production (alternatively, total capacity or total reserves) in amarket. Market concentration is related to industrial concentration, which concerns the distribution of production within an industry, as opposed to a market. In industrial organization, market concentration may be used as a measure of competition, theorized to be positively related to the rate of profit in the industry, for example in the work of Joe S. Bain. What is 'Vertical Integration' Vertical integration is a strategy where a firm acquires business operations within the same production vertical. It can be forward or backward in nature. Vertical integration can help companies reduce costs and improve efficiencies by decreasing transportation expenses and reducing turnaround time, among other advantages. However, sometimes it is more effective for a company to rely on the established expertise and economies of scale of other vendors rather than trying to become vertically integrated. What is 'Horizontal Integration' Horizontal integration is the acquisition of a business operating at the same level of the value chain in a similar or different industry. This is in contrast to vertical integration, where firms expand into upstream or downstream activities, which are at different stages of production.
- 87. What is 'ForwardIntegration' Forward integration is a business strategy that involves a form of vertical integration whereby business activities are expanded to include control of the direct distribution or supply of a company's products. This type of vertical integration is conducted by a company moving down the supply chain. A good example of forward integration is when a farmer sells his crops at a local grocery store rather than to a distribution center that controls grocery store placement. What is 'Backward Integration' Backward integration is a form of vertical integration that involves the purchase of, or merger with, suppliers up the supply chain. Companies pursue backward integration when it is expected to result in improved efficiency and cost savings. For example, this type of integration might cut transportation costs, improve profit margins and make the firm more competitive. What is a 'Merger' A merger is an agreement that unites two existing companies into one new company. There are several types of mergers and also several reasons why companies complete mergers. Mergers and acquisitions are commonly done to expand a company‘s reach, expand into new segments, or gain market share. All of these are done to please shareholders and create value. What is a 'Vertical Merger' A vertical merger is the merger of two or more companies involved at different stages in the supply chain process for a common good or service. Most often, the merger is purposed to increase synergies, gain more control of the supply chain process, and increase business. Also, it often results in reduced costs and increased productivity and efficiency. What is a 'Horizontal Merger' A horizontal merger is a merger or business consolidation that occurs between firms that operate in the same space, as competition tends to be higher and the synergies and potential gains in market share are much greater for merging firms in such an industry. This type of merger occurs frequently because of larger companies attempting to create more efficient economies of scale, such as the amalgamation of Daimler-Benz and Chrysler. Conversely, a vertical merger takes place when firms from different parts of the supply chain consolidate to make the production process more efficient or cost effective. What is a 'Congeneric Merger' A congeneric merger is a type of merger where two companies are in the same or related industries or markets but do not offer the same products. In a congeneric merger, the companies may share similar distribution channels, providing synergies for the merger. The acquirer and the target may have overlapping technology or production systems, making for easy integration of the two entities. The acquirer may see the target as an opportunity to expand their product line or eat up new market share. What is a 'Conglomerate Merger' A conglomerate merger is a merger between firms that are involved in totally unrelated business activities. There are two types of conglomerate mergers: pure and mixed. Pure conglomerate mergers involve firms with nothing in common, while mixed conglomerate mergers involve firms that are looking for product extensions or market extensions.
- 88. What are 'MergerSecurities' Merger securities are non-cash assets paid to the shareholders of a corporation that is in the process of being acquired or is the target of a merger. These securities generally consist of bonds, options, preferred stock and warrants, among others. What is a 'Conglomerate' A conglomerate is a corporation that is made up of a number of different, seemingly unrelated businesses. In a conglomerate, one company owns a controlling stake in a number of smaller companies, which conduct business separately. Each of a conglomerate's subsidiary businesses runs independently of the other business divisions, but the subsidiaries' management reports to senior management at the parent company. The largest conglomerates diversify business risk by participating in a number of different markets, although some conglomerates elect to participate in a single industry – for example, mining. What is 'Amalgamation' Amalgamation is the combination of one or more companies into a new entity. An amalgamation is distinct from a merger because neither of the combining companies survives as a legal entity; a completely new entity is formed to house the combined assets and liabilities of both companies. This sense of the term amalgamation has generally fallen out of popular use, and the terms "merger" or "consolidation " are often used instead. What is 'Value Chain' A value chain is a high-level model developed by Michael Porter used to describe the process by which businesses receive raw materials, add value to the raw materials through various processes to create a finished product, and then sell the finished product to customers. Companies conduct value-chain analysis by looking at every production step required to create a product and identifying ways to increase the efficiency of the chain. The overall goal is to deliver maximum value for the least possible total cost and create a competitive advantage. What is the 'Supply Chain' A supply chain is a network between a company and its suppliers to produce and distribute a specific product, and the supply chain represents the steps it takes to get the product or service to the customer. Supply chain management is a crucial process because an optimized supply chain results in lower costs and a faster production cycle. What is 'Supply Chain Management (SCM)' Supply chain management is the management of the flow of goods and services and includes all processes that transform raw materials into final products. It involves the active streamlining of a business's supply-side activities to maximize customer value and gain a competitive advantage in the marketplace. SCM represents an effort by suppliers to develop and implement supply chains that are as efficient and economical as possible. Supply chains cover everything from production to product development to the information systems needed to direct these undertakings. What is 'Diversification' Diversification is a risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio constructed of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.
- 89. What is a'Portfolio' A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non publicly tradable securities, like real estate, art, and private investments. Portfolios are held directly by investors and/or managed by financial professionals and money managers. Investors should construct an investment portfolio in accordance with their risk tolerance and their investing objectives. Investors can also have multiple portfolios for various purposes. It all depends on one's objectives as an investor. Definition of 'Risk Management' In the financial world, risk management is the process of identification, analysis and acceptance or mitigation of uncertainty in investment decisions. Essentially, risk management occurs when an investor or fund manager analyzes and attempts to quantify the potential for losses in an investment and then takes the appropriate action (or inaction) given his investment objectives and risk tolerance. In international economics, international factor movements are movements of labor, capital, and other factors of production between countries. International factor movements occur in three ways: immigration/emigration, capital transfers through international borrowing and lending, and foreign direct investment.[1] International factor movements also raise political and social issues not present in trade in goods and services. Nations frequently restrict immigration, capital flows, and foreign direct investment. Public policy is the principled guide to action taken by the administrative executive branches of the state with regard to a class of issues, in a manner consistent with law and institutional customs. What is 'Input-Output Analysis' Input-output analysis ("I-O") is a form of macroeconomic analysis based on the interdependencies between economic sectors or industries. This method is commonly used for estimating the impacts of positive or negative economic shocks and analyzing the ripple effects throughout an economy. This type of economic analysis was originally developed by Wassily Leontief (1905–1999), who later won the Nobel Memorial Prize in Economic Sciences for his work in this area. Innovation can be defined simply as a "new idea, device or method". However, innovation is often also viewed as the application of better solutions that meet new requirements, unarticulated needs, or existing market needs. The technological innovation system is a concept developed within the scientific field of innovation studies which serves to explain the nature and rate of technological change.[1] A Technological Innovation System can be defined as ‗a dynamic network of agents interacting in a specific economic/industrial area under a particular institutional infrastructure and involved in the generation, diffusion, and utilization of technology‘ What is 'Efficiency'? Efficiency signifies a level of performance that describes using the least amount of input to achieve the highest amount of output. Efficiency refers to the use of all inputs in producing any given output, including personal time and energy. It is a measurable concept that can be determined using the ratio of useful output to total input. It minimizes the waste of resources such as physical materials, energy and time while accomplishing the desired output. What is 'Economic Efficiency' Economic efficiency implies an economic state in which every resource is optimally allocated to serve each individual or entity in the best way while minimizing waste and inefficiency. When an economy is economically
- 90. efficient, any changesmade to assist one entity would harm another. In terms of production, goods are produced at their lowest possible cost, as are the variable inputs of production. What is 'Production Efficiency' Production efficiency is an economic level at which the economy can no longer produce additional amounts of a good without lowering the production level of another product. This happens when an economy is operating along its production possibility frontier. Efficient production is achieved when a product is created at its lowest average total cost; production efficiency measures whether the economy is producing as much as possible without wasting precious resources What is 'Market Efficiency' Market efficiency refers to the degree to which market prices reflect all available, relevant information. If markets are efficient, than all information is already incorporated into prices, and so there is no way to "beat" the market because there are no under- or overvalued securities available. Market efficiency was developed in 1970 by economist Eugene Fama, whose theory of efficient market hypothesis (EMH) stated it is not possible for an investor to outperform the market, and that market anomalies should not exist because they will immediately be arbitraged away. Fama later won the Nobel Prize for his efforts. Investors who agree with this theory tend to buy index funds that track overall market performance and are proponents of passive portfolio management. Breaking down 'Operational Efficiency' Operational efficiency in the investment markets is typically centered around transaction costs associated with investments. Operational efficiency in the investment markets can be compared to general business practices for operational efficiency in production. Operationally efficient transactions are those that are exchanged with the highest margin, meaning an investor seeks to pay the lowest fee to earn the highest profit. Similarly, companies seek to earn the highest gross margin profit from their products by manufacturing goods at the lowest cost. In nearly all cases, operational efficiency can be improved by economies of scale. In the investment markets this can translate to buying more shares of an investment at a fixed trading cost to reduce the fee per share. Sustainable development is the organizing principle for meeting human development goals while at the same time sustaining the ability of natural systems to provide the natural resources and ecosystem services upon which the economy and society depend. The desired result is a state of society where living conditions and resource use continue to meet human needs without undermining the integrity and stability of the natural system. Sustainable development can be classified as development that meet the needs of the present without compromising the ability of future generations. Livestock are domesticated animals raised in an agricultural setting to produce labor and commodities such as meat, eggs, milk, fur,leather, and wool. The term is sometimes used to refer solely to those that are bred for consumption, while other times it refers only to farmed ruminants, such as cattle and goats. In the various fields of healthcare, a population study is a study of a group of individuals taken from the general population who share a common characteristic, such as age,sex, or health condition. This group may be studied for different reasons, such as their response to a drug or risk of getting a disease. Demography (from prefix demo- from Ancient Greek δῆμος dēmos meaning "the people", and -graphy from γράφω graphō, implies "writing, description or measurement"[1] ) is the statistical study of populations, especially human beings. As a very general science, it can analyze any kind of dynamic living population, i.e., one that changes over time or space (see population dynamics). Demography encompasses the study of the size, structure, and distribution of these populations, and spatial or temporal changes in them in response
- 91. to birth, migration,aging, and death. Based on the demographic research of the earth, earth's population up to the year 2050 and 2100 can be estimated by demographers. Demographics are quantifiable characteristics of a given population. Stillbirth is typically defined as fetal death at or after 20 to 28 weeks of pregnancy.[1][2] It results in a baby born without signs of life.[2] A stillbirth can result in the feeling of guilt in the mother.[7] The term is in contrast to miscarriage which is an early pregnancy loss and live birth where the baby is born alive, even if it dies shortly after. In human reproduction, a live birth occurs when a fetus, whatever its gestational age, exits the maternal body and subsequently shows any sign of life, such as voluntary movement, heartbeat, or pulsation of the umbilical cord, for however brief a time and regardless of whether the umbilical cord or placenta are intact Sterility is the physiological inability to effect sexual reproduction in a living thing, members of whose kind have been produced sexually. Sterility has a wide range of causes. It may be an inherited trait, as in the mule; or it may be acquired from the environment, for example through physical injury or disease, or by exposure to radiation. Birth control, also known as contraception and fertility control, is a method or device used to prevent pregnancy.[1] Birth control has been used since ancient times, but effective and safe methods of birth control only became available in the 20th century.[2] Planning, making available, and using birth control is called family planning.[3][4] Some cultures limit or discourage access to birth control because they consider it to be morally, religiously, or politically undesirable. In human demography and population biology, fecundity is the potential for reproduction of an organism or population, measured by the number of gametes (eggs), seed set, or asexual propagules. Fecundity is similar to fertility,[1][2] the natural capability to produce offspring. A lack of fertility is infertility while a lack of fecundity would be called sterility. Fertility is the natural capability to produce offspring. As a measure, fertility rate is the number of offspring born per mating pair, individual or population. Fertility differs fromfecundity, which is defined as the potential for reproduction (influenced by gamete production, fertilization and carrying a pregnancy to term)[citation needed] . A lack of fertility isinfertility while a lack of fecundity would be called sterility. Mortality is the state of being mortal, or susceptible to death; the opposite of immortality. In mathematics, a ratio is a relationship between two numbers indicating how many times the first number contains the second.[1] For example, if a bowl of fruit contains eight oranges and six lemons, then the ratio of oranges to lemons is eight to six (that is, 8:6, which is equivalent to the ratio 4:3). Similarly, the ratio of lemons to oranges is 6:8 (or 3:4) and the ratio of oranges to the total amount of fruit is 8:14 (or 4:7). A population pyramid, also called an "age-sex pyramid", is a graphical illustration that shows the distribution of various age groups in a population (typically that of a country or region of the world), which forms the shape of a pyramid when the population is growing.[1] This tool can be used to visualize and age of a particular population.[2] It is also used in ecology to determine the overall age distribution of a population; an indication of the reproductive capabilities and likelihood of the continuation of a species.
- 92. Economic planning isa mechanism for the allocation of resources between and within organizations which is held in contrast to themarket mechanism. As an allocation mechanism for socialism, economic planning substitutes factor markets for a direct allocation of resources within a single or interconnected group of socially- owned organizations The term inefficiency generally refers to an absence of efficiency. It has several meanings depending on the context in which it is used: Allocative inefficiency - Allocative inefficiency is a situation in which the distribution of resources between alternatives does not fit with consumer taste (perceptions of costs and benefits). For example, a company may have the lowest costs in "productive" terms, but the result may be inefficient in allocative terms because the "true" or social cost exceeds the price that consumers are willing to pay for an extra unit of the product. This is true, for example, if the firm produces pollution (see also external cost). Consumers would prefer that the firm and its competitors produce less of the product and charge a higher price, to internalize the external cost. Distributive Inefficiency - refers to the inefficient distribution of income and wealth within a society. Decreasing marginal utilities of wealth in theory suggests that more egalitarian distributions of wealth are more efficient than unegalitarian distributions. Distributive inefficiency is often associated with economic inequality. Economic inefficiency - refers to a situation where "we could be doing a better job," i.e., attaining our goals at lower cost. It is the opposite of economic efficiency. In the latter case, there is no way to do a better job, given the available resources and technology. Keynesian inefficiency - might be defined as incomplete use of resources (labor, capital goods, natural resources, etc.) because of inadequate aggregate demand. We are not attaining potential output, while suffering from cyclical unemployment. We could do a better job if we applied deficit spending or expansive monetary policy. Pareto inefficiency - Pareto efficiency is a situation in which one person can not be made better off without making anyone else worse off. In practice, this criterion is difficult to apply in a constantly changing world, so many emphasize Kaldor-Hicks efficiency and inefficiency: a situation is inefficient if someone can be made better off even after compensating those made worse off, regardless of whether the compensation actually occurs. Productive inefficiency - says that we could produce the given output at a lower cost—or could produce more output for given cost. For example, a company that is inefficient will have higher operating costs and will be at a competitive disadvantage (or have lower profits than other firms in the market). Resource-market inefficiency - refers to barriers that prevent full adjustment of resource markets, so that resources are either unused or misused. For example, structural unemployment results from barriers of mobility in labor markets which prevent workers from moving to places and occupations where there are job vacancies. Thus, unemployed workers can co-exist with unfilled job vacancies. X-inefficiency - refers to inefficiency in the "black box" of production, connecting inputs to outputs. This type of inefficiency says that we could be organizing people or production processes more effectively. Often problems of "morale" or "bureaucratic inertia" cause X-inefficiency. What is 'Foreign Aid'? Foreign aid is money that one country voluntarily transfers to another, which can take the form of a gift, a grant or a loan. In the United States, the term usually refers only to military and economic assistance the federal government provides to other governments. Broader definitions of aid include money transferred across borders by religious organizations, nongovernment organizations (NGOs) and foundations. Some have argued that remissions should be included, but they are rarely assumed to constitute aid.
- 93. What is 'Poverty' Povertyis a state or condition in which a person or community lacks the financial resources and essentials for a minimum standard of living. Absolute poverty: Also known as extreme poverty or abject poverty, it involves the scarcity of basic food, clean water, health, shelter, education and information. Those who belong to absolute poverty tend to struggle to live and experience a lot of child deaths from preventable diseases like malaria, cholera and water- contamination related diseases. Absolute Poverty is usually uncommon in developed countries. It was first introduced in 1990, the ―dollar a day‖ poverty line measured absolute poverty by the standards of the world's poorest countries. In October 2015, the World Bank reset it to $1.90 a day. This number is controversial; therefore each nation has its own threshold for absolute poverty line. "It is a condition so limited by malnutrition, illiteracy, disease, squalid surroundings, high infant mortality, and low life expectancy as to be beneath any reasonable definition of human decency." Said by Robert McNamara, the former president of the World Bank Relative Poverty: It is defined from the social perspective that is living standard compared to the economic standards of population living in surroundings. Hence it is a measure of income inequality. For example, a family can be considered poor if it cannot afford vacations, or cannot buy presents for children at Christmas, or cannot send its young to the university. Usually, relative poverty is measured as the percentage of the population with income less than some fixed proportion of median income. It is a widely used measure to ascertain poverty rates in wealthy developed nations. In European Union the "relative poverty measure is the most prominent and most–quoted of the EU social inclusion indicators" Situational Poverty: It is a temporary type of poverty based on occurrence of an adverse event like environmental disaster, job loss and severe health problem. People can help themselves even with a small assistance, as the poverty comes because of unfortunate event. Generational Poverty: It is handed over to individual and families from one generation to the one. This is more complicated as there is no escape because the people are trapped in its cause and unable to access the tools required to get out of it. ―Occurs in families where at least two generations have been born into poverty. Families living in this type of poverty are not equipped with the tools to move out of their situation‖ (Jensen, 2009). Rural Poverty: It occurs in rural areas with population below 50,000. It is the area where there are less job opportunities, less access to services, less support for disabilities and quality education opportunities. People are tending to live mostly on the farming and other menial work available to the surroundings. The rural poverty rate is growing and has exceeded the urban rate every year since data collection began in the 1960s. The difference between the two poverty rates has averaged about 5 percent for the last 30 years, with urban rates near 10–15 percent and rural rates near 15–20 percent (Jolliffe, 2004).
- 94. Urban Poverty: Itoccurs in the metropolitan areas with population over 50,000. These are some major challenges faced by the Urban Poor: • Limited access to health and education. • Inadequate housing and services. • Violent and unhealthy environment because of overcrowding. • Little or no social protection mechanism. Absolute Poverty: Absolute poverty refers to a situation which individuals are unable to attendant necessities of life such as food, cloth, shelter, safe drinking water, health facilities, primary education etc. In other word, it is a situation in which the level of income of the people is so low that they cannot afford must of their basic needs. 2. Relative poverty: Relative poverty is the situation in which a person has enough income to sustain the life but the income and living standard is lower compared to rest of the community. It is also the condition of less income in a country compare to the worldwide income average income. Structural transformation is defined as the transition of an economy from low productivity and labour intensive economic activities to higher productivity and skill intensive activities. The driving force behind structural transformation is the change of productivity in the modern sector, which is dominated by manufacturing and services. In sociology and economics, Social dualism is a theory developed by economist Julius Herman Boeke which characterizes a society in the economic sense by the social spirit, the organisational forms and the technique dominating it.[1] According to Boeke, "These three aspects are interdependent and in this connection typify a society, in this way that a prevailing social spirit and the prevailing forms of organisation and of technique give the society its style, its appearance, so that in their interrelation they may be called the social system, the social style or the social atmosphere of that society Types of dualism: I. Social dualism: Social dualism is a dualism found in society. It is developed by Booke(1954). He has expressed the dualism in the sense of eastern developing countries and it exists in the form of: • Traditional society system Vs Modern social system. • Traditional society Vs Modern society. • Traditional institutions Vs Modern social institutions. II. Economic dualism: Economic dualism means existence of two types of economies in the national economic system; for example • Rural Vs Urban • Traditional technology Vs Modern technology. • Privatization Vs Nationalization. III. Environmental dualism: This kind of dualism is common in developing countries like Nepal. This is found as the following perspectives: • Rural Vs Urban area. • Ecological Vs Diversity. • Regional Vs Diversity. • Bio-climatic Vs Diversity.
- 95. IV. Political dualism:The political dualism is Nepal‘s 1st identity, may be. This is found in diverse forms like: • Unitary state Vs Federal state. • Monarchy Vs Republic. • Regressive force Vs Progressive force. • China Vs India: Who is our friend? J.H. Boeke is a Dutch Economist who studied Indonesian Economy and presented his theory of social dualism.He maintains that there are three characteristics of a society in the economic sense. They are as: (i) Social Spirit (ii) Organizational Form (iii) Techniques Dominating Them. Their inter-relationship and interdependence is called the social system or social style. A society is homogeneous if there is only one social system in the society. But the society which has two or more social systems is known asdual or plural society. Professor Higgins has developed the theory of Technological Dualism. By this we mean: "The use of different production functions in the advance sector and in the traditional sectors of UDCs". The existence of such dualism has increased the problem of structural or technological unemployment in the industrial sector and disguised unemployment in the rural sector. Higgins theory of technological dualism incorporates the factor proportion problem as discussed by K.S. Eckaus, which is related to limited productive employment opportunities found in the two sectors of a UDCs because of market imperfections, different factor endowments and different production functions. What is 'Globalization'? Globalization represents the global integration of international trade, investment, information technology and cultures. Government policies designed to open economies domestically and internationally to boost development in poorer countries and raise standards of living for their people are what drive globalization. However, these policies have created an international free market that has mainly benefited multinational corporations in the Western world to the detriment of smaller businesses, cultures and common people. Transshipment or transhipment is the shipment of goods or containers to an intermediate destination, then to yet another destination. One possible reason for transshipment is to change the means of transport during the journey (e.g., from ship transport to road transport), known as transloading. Another reason is to combine small shipments into a large shipment (consolidation), dividing the large shipment at the other end (deconsolidation). Transshipment usually takes place in transport hubs. Much international transshipment also takes place in designated customs areas, thus avoiding the need for customs checks or duties, otherwise a major hindrance for efficient transport. Transit 1. the act or fact of passing across or through; passage from one place to another. 2. conveyance or transportation from one place to another, as of persons or goods, especially, local public transportation: What is 'Marketing' Marketing refers to the activities of a company associated with buying and selling a product or service. It includes advertising, selling and delivering products to people. People who work in companies' marketing departments try to get the attention of target audiences using slogans, packaging design, celebrity endorsements and general media exposure. A need is something that is necessary for an organism to live a healthy life. Needs are distinguished
- 96. from wants inthat, in the case of a need, a deficiency causes a clear adverse outcome: a dysfunction or death. In other words, a need is something required for a safe, stable and healthy life (e.g. food, water, shelter) while a want is a desire, wish or aspiration. When needs or wants are backed by purchasing power, they have the potential to become economic demands. The idea of want can be examined from many perspectives. In secular societies want might be considered similar to the emotion desire, which can be studied scientifically through the disciplines of psychology or sociology. Want might also be examined in economics as a necessary ingredient in sustaining and perpetuating capitalist societies that are organised around principles like consumerism. Alternatively want can be studied in a non-secular, spiritual, moralistic or religious way, particularly by Buddhism but also Christianity, Islam and Judaism. What is 'Demand' Demand is an economic principle referring to a consumer's desire and willingness to pay a price for a specific good or service. Holding all other factors constant, an increase in the price of a good or service will decrease demand, and vice versa. Think of demand as your willingness to go out and buy a certain product. For example, market demand is the total of what everybody in the market wants. What is a 'Transaction' A transaction is an agreement between a buyer and a seller to exchange goods, services or financial instruments. In accounting, the events that affect the finances of a business must be recorded on the books, and an accounting transaction will be recorded differently if the company uses accrual accounting rather than cash accounting. Accrual accounting records transactions when revenues or expenses are realized or incurred, while cash accounting records transactions when the business actually spends or receives money. What is a 'Target Market' A target market is the market a company wants to sell its products and services to, and it includes a targeted set of customers for whom it directs its marketing efforts. Identifying the target market is an essential step in the development of a marketing plan. A target market can be separated from the market as a whole by geography, buying power, demographics and psychographics. What is a 'Market Segment' A market segment is a group of people who share one or more common characteristics, lumped together for marketing purposes. Each market segment is unique, and marketers use various criteria to create a target market for their product or service. Marketing professionals approach each segment differently, after fully understanding the needs, lifestyles, demographics and personality of the target consumer. What is 'Market Segmentation' Market segmentation is a marketing term referring to the aggregating of prospective buyers into groups, or segments, that have common needs and respond similarly to a marketing action. Market segmentation enables companies to target different categories of consumers who perceive the full value of certain products and services differently from one another. Product Mix in Marketing Product mix, also known as product assortment, is the total number of product lines that a company offers to its customers. The product lines may range from one to many and the company may have many products under the same product line as well. All of these product lines when grouped together form the product mix of the company.
- 97. The product mixis a subset of the marketing mix and is an important part of thebusiness model of a company. The product mix has the following dimensions Width The width of the mix refers to the number of product lines the company has to offer. For e.g., If a company produce only soft drinks and juices, this means its mix is two products wide. Coca-Cola deals in juices, soft drinks, and mineral water and hence the product mix of Coca-Cola is three products wide. Length Length of the product mix refers to the total number of products in the mix. That is if a company has 5 product lines and 10 products each under those product lines, the length of the mix will be 50 [5 x 10]. Depth The depth of the product mix refers to the total number of products within a product line. There can be variations in the products of the same product line. For e.g. Colgate has different variants under the same product line like Colgate advanced, Colgate active salt, etc. Consistency Product mix consistency refers to how closely products are linked to each other. Less the variation among products more is the consistency. For example, a company dealing in just dairy products has more consistency than a company dealing in all types of electronics. Marketing Mix Definition Marketing mix is the set of tactics a business use to promote and sell its products in the market. These tactics range from developing the product, deciding its price and places where it will be sold, to deciding its communication and promotional strategies. The tactics are further divided into 4Ps – Product, Price, Place, and Promotion. However, nowadays, the marketing mix constitutes several other Pslike Process, People and physical evidence as vital mix elements. Product mix Product is an item produced or procured by the business to satisfy the needs of the customer. It is the actual item which is held for sale in the market. The product can be tangible or intangible (it can be a good or a service). It is not necessary that the business produce the product. It can also procure it from somewhere else. What is a 'Product Line' A product line is a group of related products under a single brand sold by the same company. Companies sell multiple product lines under their various brands. Companies often expand their offerings by adding to existing product lines, because consumers are more likely to purchase products from brands with which they are already familiar. What is a 'Brand' A brand is an identifying symbol, mark, logo, name, word and/or sentence that companies use to distinguish their product from others. A combination of one or more of those elements can be utilized to create a brand identity. Legal protection given to a brand name is called a trademark. What is a 'Brand Extension' Brand extension, also known as brand stretching, leverages the reputation and popularity of the well-known brand to increase demand for new products. Brand extension is the use of a well-established brand name for a new product or new product category. Packaging is the science, art and technology of enclosing or protecting products for distribution, storage, sale, and use. Packaging also refers to the process of designing, evaluating, and producing packages. Packaging can
- 98. be described asa coordinated system of preparing goods for transport, warehousing, logistics, sale, and end use. Packaging contains, protects, preserves, transports, informs, and sells.[1] In many countries it is fully integrated into government, business, institutional, industrial, and personal use. Package labeling (American English) or labelling (British English) is any written, electronic, or graphic communication on the package or on a separate but associated label. Distribution (or place) is one of the four elements of the marketing mix. Distribution is the process of making a product or service available for the consumer or business user that needs it. This can be done directly by the producer or service provider, or using indirect channels with distributors or intermediaries. The other three elements of the marketing mix are product, pricing, andpromotion. Typical intermediaries involved in distribution include: Wholesaler: A merchant intermediary who sells chiefly to retailers, other merchants, or industrial, institutional, and commercial users mainly for resale or business use. Wholesalers typically sell in large quantities. (Wholesalers, by definition, do not deal directly with the public).[9] Retailer: A merchant intermediary who sells direct to the public. There are many different types of retail outlet - from hypermarts and supermarkets to small, independent stores. Agent: An intermediary who is authorised to act for a principal in order to facilitate exchange. Unlike merchant wholesalers and retailers, agents do not take title to goods, but simply put buyers and sellers together. Agents are typically paid via commissions by the principal. For example, travel agents are paid a commission of around 15% for each booking made with an airline or hotel operator. Jobber: A jobber is a special type of wholesaler, typically one who operates on a small scale and sells only to retailers or institutions. For example, rack jobbers are small independent wholesalers who operate from a truck, supplying convenience stores with snack foods and drinks on a regular basis In marketing, promotion refers to any type of marketing communication used to inform or persuade target audiences of the relative merits of a product, service, brand or issue. The aim of promotion is to increase awareness, create interest, generate sales or createbrand loyalty. It is one of the basic elements of the market mix, which includes the four P's: price, product, promotion, and place. A vision statement is a declaration of an organization's objectives, intended to guide its internal decision- making.[1] A vision statement is not limited to business organizations and may also be used by non-profit or governmental entities A mission statement is a short statement of an organization's purpose, identifying the goal of its operations: what kind of product or service it provides, its primary customers ormarket, and its geographical region of operation.[1][2] It may include a short statement of such fundamental matters as the organization's values or philosophies, a business's main competitive advantages, or a desired future state—the "vision". Pricing is the process whereby a business sets the price at which it will sell its products and services, and may be part of the business's marketing plan. In setting prices, the business will take into account the price at which it could acquire the goods, themanufacturing cost, the market place, competition, market condition, brand, and quality of product. What is a 'Distribution Channel' A distribution channel is a chain of businesses or intermediaries through which a good or service passes until it reaches the end consumer. It can include wholesalers, retailers, distributors and even the internet. Channels are
- 99. broken into directand indirect forms: A direct channel allows the consumer to buy the good from the manufacturer, and an indirect channel allows the consumer to buy the good from a wholesaler or retailer. Physical distribution is the group of activities associated with the supply of finished product from the production line to the consumers. The physical distribution considers many sales distribution channels, such as wholesale and retail, and includes critical decision areas like customer service, inventory, materials, packaging, order processing, and transportation and logistics. You often will hear these processes be referred to as distribution, which is used to describe the marketing and movement of products. In marketing, the promotional mix describes a blend of promotional variables chosen by marketers to help a firm reach its goals. It has been identified as a subset of the marketing mix.[1] It is believed that there is an optimal way of allocating budgets for the different elements within the promotional mix to achieve best marketing results, and the challenge for marketers is to find the right mix of them. Definition of 'Promotional Budget' A promotional budget is a specified amount of money set aside to promote the products or beliefs of a business or organization. Promotional budgets are created to anticipate the essential costs associated with growing a business or maintaining a brand name. The budget is often set according to a percentage of sales or profits in order to maintain an expected growth rate. Cooperative Marketing Cooperative marketing can be defined as an agreement between two companies to promote or sell each other‘s product while selling their own. The products can either be complementary or might have different seasonal cycles. To explain in simpler terms, if you and your neighbour sell different products from a common premise it will be called as cooperative marketing. The arrangements in cooperative marketing are usually free from any legal bindings and are informal. Applied Economics Applied economics is a field that applies of economic theories and principles to real-world situations with the desired aim of predicting potential outcomes. The use of applied economics is designed to analytically review potential outcomes without the "noise" associated with explanations that are not backed by numbers. Applied economics can involve the use of econometrics and case studies. Social Security Social Security is an important part of the Old-Age, Survivors, and Disability Insurance program and run by the Social Security Administration. This is a social welfare and insurance plan managed by the U.S. federal government that pays benefits to retirees, workers who become disabled and survivors of deceased workers. Social Security's benefits include retirement income, disability income, Medicare and Medicaid, and death and survivorship benefits. Social Security is one of the largest government programs in the world, paying out hundreds of billions of dollars per year. Retirement benefits may begin as early as age 62 at a discounted rate, and the amount you receive in retirement increases from the 62 through 70. You do not have to take benefits at 70 years old, but there is no monetary benefit to waiting beyond that age Social Security bases the amount of income one receives on " average indexed monthly earnings" during the 35 years in which you earned the most. Spouses are also eligible to receive Social Security benefits, even if they have limited or non-existent work histories. A divorced spouse can also receive spousal benefits, if the marriage lasted 10 years or longer.
- 100. What is 'IncomeInequality'? Income inequality is the unequal distribution of household or individual income across the various participants in an economy. It is often presented as the percentage of income related to a percentage of the population. For example, a statistic may indicate that 70% of a country's income is controlled by 20% of that country's residents. What is 'Econometrics' Econometrics is the quantitative application of statistical and mathematical models using data to develop theories or test existing hypotheses in economics, and for forecasting future trends from historical data. It subjects real-world data to statistical trials and then compares and contrasts the results against the theory or theories being tested. Depending on if you are interested in testing an existing theory or using existing data to develop a new hypothesis based on those observations, econometrics can be subdivided into two major categories: theoretical and applied. Those who routinely engage in this practice are commonly known as econometricians. What is 'Forecasting' Forecasting is a technique that uses historical data as inputs to make informed estimates that are predictive in determining the direction of future trends. Businesses utilize forecasting to determine how to allocate their budgets or plan for anticipated expenses for an upcoming period of time. This is typically based on the projected demand for the goods and services offered. Definition of 'Robust' Robust is a characteristic describing a model's, test's or system's ability to effectively perform while its variables or assumptions are altered, in order for a robust concept to operate without failure under a variety of conditions. For statistics, a test is claimed as robust if it still provides insight to a problem despite having its assumptions altered or violated. In economics, robustness is attributed to financial markets that continue to perform despite alterations in market conditions. In general, being robust means a system can handle variability and remain effective. What is an 'Error Term' An error term is a variable in a statistical or mathematical model, which is created when the model does not fully represent the actual relationship between the independent variables and the dependent variables. As a result of this incomplete relationship, the error term is the amount at which the equation may differ during empirical analysis. The error term is also known as the residual, disturbance, or remainder term. What is 'Residual Value' The residual value is the estimated value of a fixed asset at the end of its lease or at the end of its useful life. The lessor uses residual value as one of its primary methods for determining how much the lessee pays in lease payments. As a general rule, the longer the useful life or lease period of an asset, the lower its residual value. What is 'Cross-Sectional Analysis' Cross-sectional analysis is a type of analysis that an investor, analyst or portfolio manager may conduct on a company in relation to that company's industry or industry peers. The analysis compares one company against the industry in which it operates, or directly against certain competitors in the same industry, in an attempt to assess performance and investment opportunities.
- 101. What is 'MultipleLinear Regression - MLR' Multiple linear regression (MLR) is a statistical technique that uses several explanatory variables to predict the outcome of a response variable. The goal of multiple linear regression (MLR) is to model the relationship between the explanatory and response variables. The model for MLR, given n observations, is: yi = B0 + B1xi1 + B2xi2 + ... + Bpxip + E where i = 1,2, ..., n What is a 'Linear Relationship' Linear relationship is a statistical term used to describe the relationship between a variable and a constant. Linear relationships can be expressed either in a graphical format where the variable and the constant are connected via a straight line or in a mathematical format where the independent variable is multiplied by the slope coefficient, added by a constant, which determines the dependent variable. Statistical bias is a feature of a statistical technique or of its results whereby the expected value of the results differs from the true underlying quantitative parameter being estimated. Selection bias involves individuals being more likely to be selected for study than others, biasing the sample. This can also be termed Berksonian bias. Spectrum bias arises from evaluating diagnostic tests on biased patient samples, leading to an overestimate of the sensitivity and specificity of the test. The bias of an estimator is the difference between an estimator's expected value and the true value of the parameter being estimated. Omitted-variable bias is the bias that appears in estimates of parameters in a regression analysis when the assumed specification omits an independent variable that should be in the model. In statistics, omitted-variable bias (OVB) occurs when a statistical model incorrectly leaves out one or more relevant variables. The bias results in the model attributing the effect of the missing variables to the estimated effects of the included variables. More specifically, OVB is the bias that appears in the estimates of parameters in a regression analysis, when the assumed specification is incorrect in that it omits an independent variable that is correlated with both the dependent variable and one or more of the included independent variables. In statistics, simple linear regression is a linear regression model with a single explanatory variable. That is, it concerns two-dimensional sample points with one independent variable and one dependent variable (conventionally, the x and y coordinates in a Cartesian coordinate system) and finds a linear function (a non-vertical straight line) that, as accurately as possible, predicts the dependent variable values as a function of the independent variables. The adjective simple refers to the fact that the outcome variable is related to a single predictor. In a variety of contexts, exogeny or exogeneity (from Greek exo, meaning 'outside', and gignomai, meaning 'to produce') is the fact of an action or object originating externally. It contrasts with endogeny or endogeneity, the fact of being influenced within a system. In an economic model, an exogenous change is one that comes from outside the model and is unexplained by the model. For example, in the simple supply and demandmodel, a change in consumer tastes or preferences is unexplained by the model and also leads to endogenous changes in demand that lead to changes in the equilibriumprice. Similarly, a change in the consumer's income is given outside the model but affects demand. Put another way, an exogenous change involves an alteration of a variable that is autonomous, i.e., unaffected by the workings of the model.
- 102. In linearregression, an exogenous variable is independent of the random error term in the linear model. In statistics, maximum likelihood estimation (MLE) is a method of estimating the parameters of a statistical model, given observations. MLE attempts to find the parameter values that maximize the likelihood function, given the observations. The resulting estimate is called a maximum likelihood estimate, which is also abbreviated as MLE. Research methodology The process used to collect information and data for the purpose of making business decisions. The methodology may include publication research, interviews, surveys and other research techniques, and could include both present and historical information. A research design according to Andrew B kirumbi (2018) is the set of methods and procedures used in collecting and analyzing measures of the variables specified in the research problem research. The design of a study defines the study type (descriptive, correlation, semi-experimental, experimental, review, meta-analytic) and sub-type (e.g., descriptive-longitudinal case study), research problem, hypotheses, independent and dependent variables, experimental design, and, if applicable, data collection methods and a statistical analysis plan. A research design is a framework that has been created to find answers to research questions. There are four types of research designs which are: Exploratory Research: Just as the word implies, it explores, that is to find out about something by answering the question in ―what‖ or ―How‖ manner. Descriptive Research: This is a more in-depth research, that answered the question what and how. Explanatory Research: This seeks to explain the subject matter being researched and tries to answer the question what, how and why. Evaluation Research: This is quite extensive as it measures the effectiveness of a program. Quantitative (Fixed) Research Design Quantitative research is a formal, objective, systematic process in which numerical data are used to obtain information about the world. This research method is used to: describe variables examine relationships among variables determine cause-and-effect interactions between variables Quantitative research is more frequently applied in social sciences such as psychology, economics, sociology, and political science, as compared to in anthropology and history. Qualitative research is an inquiry process of understanding based on distinct methodological traditions of inquiry that explore a social or human problem. The researcher builds a complex, holistic picture, analyzes words, reports, detailed views of informants, and conducts the study in a natural setting. Mixed Research Design Mixed research design refers to a research design which encompasses the methods of both qualitative and quantitative research methods or models.
- 103. Descriptive Research Descriptive researchor statistical research takes into account the features of a population sample under study. Though this kind of research is conducted on a systematic pattern by following logic and exactness yet it normally does not explains the causative factors of a condition. Typically, descriptive research studies includes all those subject matters which can be samples, categorized and then studied but it fails to consider the origins and impacts of a condition. A census is the procedure of systematically acquiring and recording information about the members of a given population. The term is used mostly in connection with national population and housing censuses; other common censuses include agriculture, business, and traffic censuses. The United Nations defines the essential features of population and housing censuses as "individual enumeration, universality within a defined territory, simultaneity and defined periodicity", and recommends that population censuses be taken at least every 10 years. United Nations recommendations also cover census topics to be collected, official definitions, classifications and other useful information to co-ordinate international practice A survey is a data collection activity involving a sample of the population. A census collects information about every member of the population. You might say a census is a 100 percent sample survey. Surveys are less expensive to conduct than censuses because the survey doesn‘t attempt to collect data from 100 percent of the people. Because of that, they might be taken more frequently and can provide information updates between censuses. Or, they can be used to collect more and different information than is collected in a census. What are 'Environmental Economics ' Environmental economics is an area of economics that studies the financial impact of environmental policies. Environmental economists perform studies to determine the theoretical or empirical effects of environmental policies on the economy. This field of economics helps users design appropriate environmental policies and analyze the effects and merits of existing or proposed policies. What is a 'Green collar' A green collar worker is an employee of the environmental sector who focuses on sustainability and conservation. This can range from renewable energy and energy efficiency, to policy, design, education and technological development. What is a 'White Collar' A white collar worker is known for earning high average salaries and not performing manual labor at their jobs. White collar workers historically have been the "shirt and tie" set, defined by office jobs and not "getting their hands dirty" (or their white collar dress shirts). This class of worker stands in contrast to blue collar workers, who traditionally wore blue shirts and worked in plants, mills and factories. What is a 'Blue Collar' The term "blue collar" refers to a type of employment. Blue-collar jobs are typically classified as involving manual labor and compensation by an hourly wage. Some fields that fall into this category include construction, manufacturing, maintenance and mining. Those who have this sort of job are characterized as members of the working class.
- 104. In economics, aprice mechanism is the manner in which the prices of goods or services affect the supply and demand of goods and services, principally by the price elasticity of demand. A price mechanism affects both buyers and sellers who negotiate prices.[1] A price mechanism, part of a market mechanism, comprises various ways to match up buyers and sellers. Price mechanism is a mechanism where price plays a key role in directing the activities of producers, consumers, resource suppliers. An example of a price mechanism uses announced bid and ask prices. Generally speaking, when two parties wish to engage in trade, the purchaser will announce a price he is willing to pay (the bid price) and seller will announce a price he is willing to accept (the ask price). What is the 'Circular Flow Of Income' The circular flow of income is a neoclassical economic model depicting how money flows through the economy. In its simplest version, the economy is modeled as consisting only of households and firms. Money flows to workers in the form of wages, and money flows back to firms in exchange for products. This simplistic model suggests the old economic adage that supply creates its own demand. Environmental damage or degradation is the deterioration of the environment through depletion of resources such as air, water and soil; the destruction of ecosystems and the extinction of wildlife. It is defined as any change or disturbance to the environment perceived to be deleterious or undesirable. Environmental pollution is definitely a serious threat for the entire world in this age of development and industrialization. The pollution levels in developed cities are rising at an alarming pace. Environmental protection is the need of the hour, and countries across the world are working on developing technologies, and imposing certain restrictions to reduce or control this grave problem. There have been many summits at the international level between executives and ministers of different nations, to discuss and plan strategies for reducing of all kinds of pollution. Air Pollution The disturbances caused to the composition of the air due to contamination of the atmosphere by human activities is known as air pollution. Release of poisonous gases in the atmosphere because of vehicles, construction activities, volcanic eruptions, smoke from industries, etc., are major causes of air pollution. It can cause serious health problems, and hence, it is becomes important to have strict rules and regulations to control the contamination of air. Mass education about the ill effects of air pollution can help to reduce it. Water Pollution The degradation and contamination of water by harmful chemicals and waste matter is termed as water pollution. Chemical factories and manufacturing plants have caused excessive dumping of chemical waste into water bodies, rendering the water useless for human needs. Consumption of such water can be harmful for the public health. Though there are laws regarding water pollution, much needs to be done in this regard, to maintain environmental balance and beauty. Noise pollution Any kind of undesirable and loud noise, which can be disturbing for human beings, as well as for other animals, and causes health hazards, is known as noise pollution. This problem is caused mainly due to the noise of airplanes, automobiles, machinery, construction activities, crowds, etc. This can be especially dangerous for patients in critical conditions. Declaring silence zones at appropriate places, and proper implementation of the rules can help to lower the adverse effects of noise pollution greatly. Soil Pollution Contamination of the soil or land because of improper or incorrect agricultural techniques, dumping of chemical
- 105. wastes by factoriesand industries, etc., are some of the sources of soil pollution. Deforestation in huge amounts is also equally responsible for soil pollution. Certain mining activities are also believed to cause this problem. More Types of Pollution Radioactive Pollution:It is mainly caused by the improper handling of nuclear waste, accidents in nuclear power plants and uranium mining. Marine Pollution:It results due to contamination of the marine water bodies, and causes a drastic and long-term impact on the marine flora and fauna, as well as on humans. Main sources of this problem are due to excessive use of pesticides for agricultural purposes, crude oil leakage, factory sewage, etc. Thermal Pollution:It is characterized by excessive heat, and is mainly the result of deforestation and power plants. Personal Pollution:This means the harmful effects of a bad and improper lifestyle on the human body, which can lead to diseases and disorders. Smoking, drinking, and irregular eating habits are the main causes of personal pollution. To safeguard our environment, we must begin at a smaller and fundamental level for curbing pollution. Only then will it make a difference to our planet, resulting in a significant reduction of environmental pollution. What is a 'Pigovian Tax' A Pigovian (Pigouvian) tax is a liquid waste, or effluent, fee which is assessed against private individuals or businesses for engaging in activities that create adverse side effects. Adverse side effects are those costs which are not included as a part of the product's market price. Pigovian taxes were named after English economist Arthur C. Pigou, a significant contributor to early externality theory in the Cambridge tradition. What is 'Coase Theorem ' Coase theorem is a legal and economic theory that affirms that where there are complete competitive markets with no transactions costs, an efficient set of inputs and outputs to and from production-optimal distribution are selected, regardless of how property rights are divided. Further, the Coase theorem asserts that when property rights are involved, parties naturally gravitate toward the most efficient and mutually beneficial outcome. What are 'Property Rights' Property rights refer to the theoretical and legal ownership of specific property by individuals and the ability to determine how such property is used. In many countries, including the United States, individuals generally exercise private property rights – the rights of private persons to accumulate, hold, delegate, rent or sell their property. In economics, property rights form the basis for all market exchange, and the allocation of property rights in a society affects the efficiency of resource use. Islamic economics is a term used to refer to Islamic commercial jurisprudence. Economic inequality is the difference found in various measures of economic well-being among individuals in a group, among groups in a population, or among countries. Economic inequality sometimes refers to income inequality, wealth inequality, or the wealth gap. Economists generally focus on economic disparity in three metrics: wealth,income, and consumption.[1] The issue of economic inequality is relevant to notions of equity, equality of outcome, and equality of opportunity. FIqh (religious law) has developed several traditional concepts having to do with economics. These included: Zakat—the "charitable taxing of certain assets, such as currency, gold, or harvest, with an eye to allocating these taxes to eight expenditures that are also explicitly defined in the Quran, such as aid to those in need."
- 106. Gharar—"uncertainty". Thepresence of any element of excessive uncertainty, in a contract is prohibited. Riba—"referred to as usury (modern Islamic economists reached consensus that Riba is any kind of interest, rather than just usury)" Another source lists "general rules" include prohibition of Riba, Gharar, and also Qimar (gambling) and the encouragement of Taa‘won (mutual cooperation) "the overriding doctrine of fairness in commercial dealings is established." These concepts, like others in Islamic law, came from study of the Quran and ahadith—or as one observer put it, were constructed on the basis of isolated prescriptions, anecdotes, examples, words of the Prophet, all gathered together and systematized by commentators according to an inductive, casuistic method. Islamic taxes are taxes sanctioned by Islamic law. They are based on both "the legal status of taxable land" and on "the communal or religious status of the taxpayer". Islamic taxes include zakat - one of the five pillars of Islam. Only imposed on Muslims, it is generally described as a 2.5% tax on savings to be donated to the Muslim poor and needy.[1][2] It was a tax collected by the Islamic state. jizya - a per capita yearly tax historically levied by Islamic states on certain non-Muslim subjects—dhimmis— permanently residing in Muslim lands under Islamic law, the tax excluded the poor, women, children and the elderly.[1][3][4][5] (see below) kharaj - a land tax at first imposed only on non-Muslims but which was later imposed on Muslims as well.[1] ushr - a 10% tax on the harvests of irrigated land and 10% tax on harvest from rain-watered land and 5% on Land dependent on well water.[2] The term has also been used for a 10% tax on merchandise imported from states that taxed the Muslims on their products.[6] Caliph `Umar ibn Al-Khattāb was the first Muslim ruler to levy ushr Project planning is part of project management, which relates to the use of schedules such as Gantt charts to plan and subsequently report progress within the project environment. In project management, a schedule is a listing of a project's milestones, activities, and deliverables, usually with intended start and finish dates. Those items are often estimatedby other information included in the project schedule of resource allocation, budget, task duration, and linkages of dependencies and scheduled events. A schedule is commonly used in the project planning and project portfolio management parts of project management. Elements on a schedule may be closely related to the work breakdown structure(WBS) terminal elements, the Statement of work, or a Contract Data Requirements List. Definition of 'Risk Management' In the financial world, risk management is the process of identification, analysis and acceptance or mitigation of uncertainty in investment decisions. Essentially, risk management occurs when an investor or fund manager analyzes and attempts to quantify the potential for losses in an investment and then takes the appropriate action (or inaction) given his investment objectives and risk tolerance. Broadly speaking, a risk assessment is the combination effort of 1. identifying and analyzing potential (future) events that may negatively impact individuals, assets, and/or the environment (i.e., risk analysis); and 2. making judgements "on the tolerability of the risk on the basis of a risk analysis" while considering influencing factors (i.e., risk evaluation).[1][2] Put in simpler terms, a risk assessment analyzes what can go wrong, how likely it is to happen, what the potential consequences are, and how tolerable the identified risk is.[1] As part of this process, the resulting determination of risk may be expressed in a quantitative or qualitative fashion. The risk assessment
- 107. plays an inherentpart of an overall risk management strategy, which attempts to, after a risk assessment, "introduce control measures to eliminate or reduce" any potential risk-related consequences. What is 'Risk-Seeking' Risk-seeking is an acceptance of greater volatility and uncertainty in investments or trading in exchange for anticipated higher returns. Risk seekers are more interested in capital gains from speculative assets than capital preservation from lower risk assets. What is 'Accepting Risk' Accepting risk occurs when a business acknowledges that the potential loss from a risk is not great enough to warrant spending money to avoid it. Also known as "risk retention," it is an aspect of risk management commonly found in the business or investment fields. It posits that small risks — ones that that do not have the ability to be catastrophic or otherwise too expensive — are worth accepting with the acknowledgement that any problems will be dealt with if and when they arise. Such a trade-off is a valuable tool in the process of prioritization and budgeting. What is 'Risk Averse' Risk averse is the description of an investor who, when faced with two investments with a similar expected return, prefers the one with the lower risk. What is 'Risk Neutral' Risk neutral is a mindset where an investor is indifferent to risk when making an investment decision. The risk- neutral investor places himself in the middle of the risk spectrum, represented by risk-seeking investors at one end and risk-averse investors at the other. Risk-neutral measures have extensive application in the pricing of derivatives. What is 'Financial Economics' Financial economics is a branch of economics that analyzes the use and distribution of resources in markets in which decisions are made under uncertainty. Financial decisions must often take into account future events, whether those be related to individual stocks, portfolios or the market as a whole. What is a 'Dividend' A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, paid to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property. What is a 'Common Shareholder' A common shareholder is an individual, business or institution that holds common shares in a company, giving the holder an ownership stake in the company. This will also give the holder the right to vote on corporate issues such as board elections and corporate policy, along with the right to any common dividend payments. What is a 'Debtor' A debtor is a company or individual who owes money. If the debt is in the form of a loan from a financial institution, the debtor is referred to as a borrower, and if the debt is in the form of securities, such as bonds, the debtor is referred to as an issuer. Legally, someone who files a voluntary petition to declare bankruptcy is also considered a debtor.
- 108. What is an'Issuer' An issuer is a legal entity that develops, registers and sells securities to finance its operations. Issuers may be corporations, investment trusts, or domestic or foreign governments. Issuers are legally responsible for the obligations of the issue and for reporting financial conditions, material developments and any other operational activities as required by the regulations of their jurisdictions. Definition of 'Bond Insurance' Bond insurance is a type of insurance policy that a bond issuer purchases that guarantees the repayment of the principal and all associated interest payments to the bondholders in the event of default. Bond issuers buy insurance to enhance their credit rating in order to reduce the amount of interest that it needs to pay. Bond insurance is also known as financial guaranty insurance. What is the 'Securities And Exchange Commission - SEC' The U.S. Securities and Exchange Commission (SEC) is an independent federal government agency responsible for protecting investors, maintaining fair and orderly functioning of securities markets and facilitating capital formation. It was created by Congress in 1934 as the first federal regulator of securities markets. The SEC promotes full public disclosure, protects investors against fraudulent and manipulative practices in the market, and monitors corporate takeover actions in the United States. Generally, issues of securities offered in interstate commerce, through the mail or on the Internet, must be registered with the SEC before they can be sold to investors. Financial services firms, such as broker-dealers, advisory firms and asset managers, as well as their professional representatives, must also register with the SEC to conduct business. Definition of 'Consumer Debt' Consumer debt consists of debts that are owed as a result of purchasing goods that are consumable and/or do not appreciate. Consumer debt is often used alongside household debt as both are often connected with credit cards, mortgages, auto loans, and payday loans. It should be noted, however, that home mortgages are personal investments. A key difference between consumer debt and other forms of debt (e.g. corporate secured debt) is that consumer debt is typically used for consumption and not investment or doing business. It is the amount owed by individual consumers, in contrast with that of businesses or governments. Definition of 'Creditor' A creditor is an entity (person or institution) that extends credit by giving another entity permission to borrow money intended to be repaid in the future. A business who provides supplies or services to a company or an individual and does not demand payment immediately is also considered a creditor, based on the fact that the client owes the business money for services already rendered. Creditors can be classified as either personal or real. People who loan money to friends or family are personal creditors. Real creditors such as banks or finance companies have legal contracts with the borrower, sometimes granting the lender the right to claim any of the debtor's real assets (e.g., real estate or cars) if he fails to pay back the loan. What is 'Repayment'? Repayment is the act of paying back money previously borrowed from a lender. Repayment is typically executed through periodic payments that include part principal plus interest. Failure to keep up with debt repayments can force an individual to declare bankruptcy, which will negative affect their credit rating.
- 109. What is a'Credit Rating' A credit rating is an assessment of the creditworthiness of a borrower in general terms or with respect to a particular debt or financial obligation. A credit rating can be assigned to any entity that seeks to borrow money — an individual, corporation, state or provincial authority, or sovereign government. Credit assessment and evaluation for companies and governments is generally done by a credit rating agency such as Standard & Poor‘s (S&P), Moody‘s, or Fitch. These rating agencies are paid by the entity that is seeking a credit rating for itself or for one of its debt issues. What is 'Debt' Debt is an amount of money borrowed by one party from another. Debt is used by many corporations and individuals as a method of making large purchases that they could not afford under normal circumstances. A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with interest. What is 'Liquidation' Liquidation in finance and economics is the process of bringing a business to an end and distributing its assets to claimants. It is an event that usually occurs when a company is insolvent, meaning it cannot pay its obligations when they come due. As company operations end, the remaining assets are used to pay creditors and shareholders, based on the priority of their claims. What is a 'Preferred Stock' A preferred stock is a class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares generally have a dividend that must be paid out before dividends to common shareholders, and the shares usually do not carry voting rights. Preferred stock combines features of debt, in that it pays fixed dividends, and equity, in that it has the potential to appreciate in price. The details of each preferred stock depend on the issue. What is a 'Common Stock' Common stock is a security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy. Common stockholders are on the bottom of the priority ladder for ownership structure; in the event of liquidation, common shareholders have rights to a company's assets only after bondholders, preferred shareholders and other debtholders are paid in full. What are 'Shares' Shares are units of ownership interest in a corporation or financial asset that provide for an equal distribution in any profits, if any are declared, in the form of dividends. The two main types of shares are common shares and preferred shares. Physical paper stock certificates have been replaced with electronic recording of stock shares, just as mutual fund shares are recorded electronically. What is a 'Portfolio' A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non publicly tradable securities, like real estate, art, and private investments. Portfolios are held directly by investors and/or managed by financial professionals and money managers. Investors should construct an investment portfolio in accordance with their risk tolerance and their investing objectives. Investors can also have multiple portfolios for various purposes. It all depends on one's objectives as an investor.
- 110. What is an'Initial Public Offering - IPO' An initial public offering is when a private company or corporation raises investment capital by offering its stock to the public for the first time. Growing companies seeking capital to expand are those that generally use initial public offerings, but large, privately owned companies or corporations looking to become publicly traded can also do them. In an initial public offering, the issuer, or company raising capital, brings in an underwriting firm or investment bank, to help determine the best type of security to issue, offering price, amount of shares and timeframe for the market offering. A cheque, or check (American English; see spelling differences), is a document that orders a bank to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The person writing the cheque, known as the drawer, has a transaction banking account (often called a current, cheque, chequing or checking account) where their money is held. The drawer writes the various details including the monetary amount, date, and a payee on the cheque, and signs it, ordering their bank, known as the drawee, to pay that person or company the amount of money stated. The four main items on a cheque are Drawer, the person or entity who makes the cheque Payee, the recipient of the money Drawee, the bank or other financial institution where the cheque can be presented for payment Amount, the currency amount 1) Bearer Cheque Bearer cheques are the cheques which withdrawn to the cheque's owner.These types of cheques normally used for a cash transaction. 2) Order Cheque Order cheques are the cheques which are withdrawn for the payee(the cheque withdrawn for whose person).Before withdrawn to that payee, banks cross check the identity of the payee.
- 111. 3) Crossed Cheque Onthat type of cheques two parallel line made on the upper part of the cheques, then that cheques formed to crossed cheques.This type of cheques payment does not formed in cash while the payment of that type pf cheques transferred to the payee account and the normal person's account who recommend by the holder on the cheque. 4) Account Payee Cheque When two parallel lines along with a crossed made on the cheque and the word 'ACCOUNT PAYEE' written between these lines, then that types of cheques are called account payee cheque.The payment of the account payee cheque taken place on the person, firm or company on which name the cheque issue. 5) Company Crossed Cheque When two parallel lines along with a cross made on the cheque and the word 'COMPANY' written between these lines, then that types of cheques are called company crossed cheques.Then the type of withdrawn does not take in cash while the person on which the cheque issue, transferred on its account.Normally crossed cheque and company crossed cheque are same.
- 112. 6) Stale Cheque Ifany cheque issued by a holder does not get withdrawn from the bank till three months, then that type of cheques are called stale cheque. 7) Post Dated Cheque If any cheque issued by a holder to the payee for the upcoming withdrawn date, then that type of cheques are called post-dated cheque. 8) Anti Dated Cheque If any cheque issue for the upcoming withdrawn date but it withdraw before the date printed on the cheque, then that type of cheques are called anti dated cheques. 11. Traveller’s Cheques: It is an instrument issued by a bank for remittance of money from one place to another. Travelers Cheques are accepted almost everywhere and are available in many denominations. Plus, the no- expiration feature allows you to cash in leftover cheques or retain them for the next time you travel. Bankers Cheque: The banker‘s cheque is an instrument issued by the bank on behalf of customer containing an order to pay a certain sum to a specified person within the city. The validity period of the Banker‘s cheque is 3 months, however it can be re-validated subject to some legal formalities. Outstanding cheque: A cheque which has been written and therefore has been entered in the company‘s ledgers, but which has not been presented for payment and so has not been debited from the company‘s bank account
- 113. What is a'Bill of Exchange' A bill of exchange is a written order used primarily in international trade that binds one party to pay a fixed sum of money to another party on demand or at a predetermined date. Definition of 'Bank Draft' A bank draft is a payment on behalf of a payer that is guaranteed by the issuing bank. Typically, banks will review the bank draft requester's account to see if sufficient funds are available for the check to clear. Once it has been confirmed that sufficient funds are available, the bank effectively sets aside the funds from the person's account to be given out when the bank draft is used. A draft ensures the payee a secure form of payment. During a payer‘s reconciliation of his bank account, he notices a decrease in the account balance because of the money withdrawn from the account. What is a 'Promissory Note' A promissory note is a financial instrument that contains a written promise by one party (the note's issuer or maker) to pay another party (the note's payee) a definite sum of money, either on demand or at a specified future date. A promissory note typically contains all the terms pertaining to the indebtedness, such as the principal amount, interest rate, maturity date, date and place of issuance, and issuer's signature. Although financial institutions may issue them (see below), promissory notes are debt instruments that allow companies and individuals to get financing from a source other than a bank. This source can be an individual or a company willing to carry the note (and provide the financing) under the agreed-upon terms. In effect, anyone becomes a lender when he issues a promissory note. What is 'Maturity Date' The maturity date is the date on which the principal amount of a note, draft, acceptance bond or another debt instrument becomes due and is repaid to the investor and interest payments stop. It is also the termination or due date on which an installment loan must be paid in full. What is 'Term to Maturity' Term to maturity refers to the remaining life of a debt instrument. With bonds, term to maturity is the time between when the bond is issued and when it matures, known as its maturity date, at which time the issuer must redeem the bond by paying the principal or face value. Between the issue date and maturity date, the bond issuer will make coupon payments to the bondholder. What is 'Yield to Maturity (YTM)' Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. Yield to maturity is considered a long-term bond yield, but is expressed as an annual rate. In other words, it is the internal rate of return (IRR) of an investment in a bond if the investor holds the bond until maturity and if all payments are made as scheduled. Yield to maturity is also referred to as book yield or redemption yield. What is a 'Negotiable Instrument ' A negotiable instrument (e.g., check) is a signed document that promises a sum of payment to a specified person or the assignee. The payee, who is the person receiving the payment, must be named or otherwise indicated on the instrument. A negotiable instrument is a transferable, signed document that promises to pay the bearer a sum of money at a future date or on demand.
- 114. What is a'Demand Note' A demand note is a loan with no fixed term or repayment schedule. It can be recalled upon the lender's request, assuming the notice required by the provisions of the loan are met. Given its relative informality, a demand loan (or note) is common among family, friends and close business associates. However, banks can engage in demand loans for long-standing customers who have sound credit profiles. What is 'Endorsement' Endorsement is a term that has various definitions depending on the context of its use. For example, a signature authorizing the legal transfer of a negotiable instrument between parties is an endorsement. Endorsements can be an amendment to a contract or document such as a life insurance policy or a driver's license. A public declaration of support for a person, product, or service is also an endorsement. What is a 'Discount' In finance, discount refers to a situation when a bond is trading for lower than its par or face value. The discount equals the difference between the price paid for a security and the security's par value. What is 'Premium' Premium has multiple meanings in finance: (1) it's the total cost to buy an option, which gives the holder the right but not the obligation to buy or sell the underlying financial instrument at a specified strike price; (2) it's the difference between the higher price paid for a fixed-income security and the security's face amount at issue, which reflects changes in interest rates or risk profile since the issuance date; (3) the specified amount of payment required periodically by an insurer to provide coverage under a given insurance plan for a defined period of time. The premium compensates the insurer for bearing the risk of a payout should an event occur that triggers coverage. The most common types of coverage are auto, health, and homeowners insurance. What is 'Treasury Bill - T-Bill' A Treasury bill (T-Bill) is a short-term debt obligation backed by the Treasury Dept. of the U.S. government with a maturity of less than one year, sold in denominations of $1,000 up to a maximum purchase of $5 million on non-competitive bids. T-bills have various maturities and are issued at a discount from par. When an investor purchases a T-Bill, the U.S. government effectively writes investors an IOU; they do not receive regular interest payments as with a coupon bond, but a T-Bill does include interest, reflected in the amount it pays when it matures. What is a 'Zero-Coupon Bond' A zero-coupon bond is a debt security that doesn't pay interest (a coupon) but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value. Some zero-coupon bonds are issued as such, while others are bonds that have been stripped of their coupons by a financial institution and then repackaged as zero-coupon bonds. Because they offer the entire payment at maturity, zero-coupon bonds tend to fluctuate in price much more than coupon bonds. A zero-coupon bond is also known as an accrual bond. What is a 'Premium Bond' A premium bond is a bond trading above its par value; a bond trades at a premium when it offers a coupon rate higher than prevailing interest rates. This is because investors want a higher yield and will pay more for it. The additional bond premium eventually brings down the effective yield to the market prevailing rate.
- 115. What is a'Discount Bond' A discount bond is a bond that is issued for less than its par (or face) value, or a bond currently trading for less than its par value in the secondary market. Discount bonds are similar to zero-coupon bonds, which are also sold at a discount, but the difference is that the latter does not pay interest. A common example of a discount bond is a U.S. savings bond. A bond is considered a deep-discount bond if it is sold at a significantly lower price than par value, usually 20% or more. What is a 'Balance Sheet' A balance sheet reports a company's assets, liabilities and shareholders' equity at a specific point in time, and provides a basis for computing rates of return and evaluating its capital structure. It is a financial statement that provides a snapshot of what a company owns and owes, as well as the amount invested by shareholders. What is 'Depreciation' Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account for declines in value over time. Businesses depreciate long-term assets for both tax and accounting purposes. For tax purposes, businesses can deduct the cost of the tangible assets they purchase as business expenses; however, businesses must depreciate these assets in accordance with IRS rules about how and when the deduction may be taken. What is a 'Coupon Rate' A coupon rate is the yield paid by a fixed-income security; a fixed-income security's coupon rate is simply just the annual coupon payments paid by the issuer relative to the bond's face or par value. The coupon rate is the yield the bond paid on its issue date. This yield changes as the value of the bond changes, thus giving the bond's yield to maturity. What is 'Face Value' Face value is the nominal value or dollar value of a security stated by the issuer. For stocks, it is the original cost of the stock shown on the certificate. For bonds, it is the amount paid to the holder at maturity, generally $1,000. It is also known as "par value" or simply "par." What is the 'Time Value of Money - TVM' The time value of money (TVM) is the concept that money available at the present time is worth more than the identical sum in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received. TVM is also sometimes referred to as present discounted value. What is 'Present Value - PV' Present value (PV) is the current value of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate, and the higher the discount rate, the lower the present value of the future cash flows. Determining the appropriate discount rate is the key to properly valuing future cash flows, whether they be earnings or obligations. What is 'Net Present Value - NPV' Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. NPV is used in capital budgeting to analyze the profitability of a projected investment or project.
- 116. The following isthe formula for calculating NPV: In this equation: Ct = net cash inflow during the period t Co = total initial investment costs r = discount rate, and t = number of time periods What is 'Future Value - FV' Future value (FV) is the value of a current asset at a specified date in the future based on an assumed rate of growth. If, based on a guaranteed growth rate, a $10,000 investment made today will be worth $100,000 in 20 years, then the FV of the $10,000 investment is $100,000. The FV equation assumes a constant rate of growth and a single upfront payment left untouched for the duration of the investment. Definition of 'Cumulative Interest' Cumulative interest is the sum of all interest payments made on a loan over a certain time period. On an amortizing loan, cumulative interest will increase at a decreasing rate, as each subsequent periodic payment on the loan is a higher percentage of the loan‘s principal and a lower percentage of its interest. What is 'Compound Interest' Compound interest (or compounding interest) is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan. Thought to have originated in 17th century Italy, compound interest can be thought of as ―interest on interest,‖ and will make a sum grow at a faster rate than simple interest, which is calculated only on the principal amount. The rate at which compound interest accrues depends on the frequency of compounding such that the higher the number of compounding periods, the greater the compound interest. Thus, the amount of compound interest accrued on $100 compounded at 10% annually will be lower than that on $100 compounded at 5% semi-annually over the same time period. What is 'Internal Rate of Return - IRR' Internal rate of return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments. Internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. IRR calculations rely on the same formula as NPV does. The following is the formula for calculating NPV: Where: Ct = net cash inflow during the period t Co= total initial investment costs r = discount rate, and t = number of time periods