Transcript Workshop in economic terms

Workshop on economic terms
a) Gross Domestic Product (GDP)
A measure of the value of all goods and
services produced by the economy. Unlike
gross national product (GNP), GDP includes
the values of good and services earned by a
nation within is boundaries.
Thus, it includes only the income derived from
factories and businesses within the country
(and not without).
b) Gross Domestic Product (GDP)
For example, when General Motors British
unit repatriates dividends, profits, or
interest on loans, the money is counted as
part of US GNP, whereas British GM profit
is not included in US GDP.
GDP is regarded as a better measure of
how the whole economy is doing and also
permits international comparison.
Gross National Product (GNP)
A measure of the value of all goods and
services produced in the economy and is
the nation’s broadest gauge of economic
health.
Balance of trade
The part of a nation’s balance of payments
that deals with merchandise (or visible)
imports or exports.
When “invisibles”, or services, are included,
the total accounting for imports and
exports of goods and services is called the
balance on current account.
Balance of international payments
A statement showing all a nation’s
transactions with the rest of the world for a
given period.
It includes purchases and sales of goods
and services, gifts, government
transactions, and capital movements.
Antidumping law
Statute that sets a minimum price on an
import. If the import enters the country at a
price below the minimum, the law prompts
a government probe of possible dumping.
Antitrust
Legislation aimed at prohibiting
monopolies, restraints of trade, price fixing
and discrimination, exorbitant quality
discounts to large buyers, and
conspiracies to suppress competition.
Free trade area
A free trade area exists when two or more
states (normally, but not necessarly
contiguous) agree to remove all restrictions
on trade between them, but continue to
make individual arrangements for their trade
with countries not party to the free trade
agreement.
Under World Trade Organization (WTO)
rules, a free trade area must cover at least
90 per cent of participating states’ trade.
Customs Union
A customs union is a territory within which there are
no internal barriers to the free movement of goods
and in respect of which a single set of rules, tariff,
quotas, etc. is applied to goods entering the
territory from outside. (Common External Tariff)
A customs union is recognized as a “regional trading
arrangement” under the World Trade
Organization (WTO) Agreement, and the members
of a customs union are exempt from the
requirement to accord “most favoured nation”
treatment to non-members.
Common Market
A common market is a customs union within
which the free movement of goods, service,
capital and labour is guaranted (also Single
Market).
See the European Economic Community
(EEC).
Interest rate
A rate, typically stated as a percentage per year,
charged on money borrowed or lent. It is the
cost to use credit or money.
It is determined by supply and demand for credit
or available for borrowing.
There are different kinds of interest rates such
as the prime interest rate which is the rate
banks charge their most financially sound
corporate borrowers.
The federal discount rate is the rate the
Federal Reserve Banks charges its members
banks for overnight loans.
Foreign exchange rate
The rate, or price, at which one country’s
currency is exchanged for the currency of
another country.
For example, if one British pound costs $
1.25, then the exchange rate for the pound
is $ 1.25.
A country has a fixed exchange rate, and
then stands ready to defend that rate. An
exchange rate which is not fixed is said to
“float”.
Foreign direct investment (FDI)
Investment that involves ownership of a
company in a foreign country.
In exchange for the ownership, the investing
company usually transfers some of its
financial, managerial, technical, trademark, and other resources to the foreign
country.
It is distinguished from foreign portfolio
investment.
Money supply
• The level of funds available at a given time
for conducting transactions in an
economy. The Federal Reserve System
can influence the money supply through its
monetary policy measures. There are
many definitions of the money supply.
Floating exchange rate
A situation in which a country’s
foreign exchange rate is determined
entirely by the market – by the forces
of supply and demand – without
intervention by central banks or
governments.
The result is usually much greater
fluctuations in exchange rates than
under a fixed exchange rate.
Adjustable peg system
• An exchange-rate system in which the
exchange rates between currencies are
fixed or “pegged” at particular values, but
which can be adjusted when they become
too far out of line with fundamental forces.
Currency depreciation
• A fall in the exchange rate of one currency
in terms of other currencies under a
system of floating exchanges rates. This is
in contrast with devaluation, which
denotes a lowering of fixed rates of
exchange.
Inflation
• A general rise in the price level. When inflation is
present, a dollar today can buy more than a dollar in
the future.
• Although the causes of inflation are diverse, a frequent
source of inflationary pressures is the excess demand
for good and services which pulls product prices
upward – demand-pull inflation.
• Rising wages and material costs may lead to the
upward pressure on price – cost-push inflation.
• Furthermore, excessive spending and/or heavy
borrowing due to a budget deficit by the federal
government can be inflationary.
Deflation
• A general decrease in prices. It is the
opposite of inflation and distinguished from
disinflation, which is a reduction in the rate
of price increases. Deflation is caused by
a deflation policy whose tools include
fiscal measures such as tax increases and
monetary measures such as high interest
rates.
Depression
• A prolonged period during which unemployment is
unusually high and plants are operating much below
capacity.
• “Depression” is said to have been used first by
President Herbert Hoover around 1930, because it
sounded less frightening than words such as “panic”
or “crisis”. But the Great Depression of the 1930s
gave that word ugly associations, and it was
replaced by yet another euphemism, recession.
• Today, a recession is usually defined as a period of
at least two consecutive quarters during which real
GNP declines.