Below is a reference list of some special names and common terms used in economics.
B
Banking Reserves
A narrow definition is the deposits held by commercial banks with the central bank (also known as exchange settlement funds). A broad definition is the conjunction of currency held by a commercial bank (currency reserves) and their central bank deposits. Bank-held currency is basically interchangeable with exchange settlement funds.
Base Money
Also known as the monetary base, or state fiat money. This is the conjunction of coins and notes on issue and commercial banks’ deposits with the central bank.
Behavioural Economics
A branch of economics that concentrates on explaining the economic decisions people make in practice, especially when these conflict with what conventional economic theory predicts they will do. Behaviourists augment or replace traditional ideas of economic rationality (homo economicus) with decision-making models borrowed from psychology.
Bond
An interest-bearing security issued by governments, companies and some other organisations, which may be traded on the open market.
Bubble
A phenomenon where the price of an asset rises far higher than can be explained by the income likely to be derived from holding that asset.
Budget Balance
Is the difference between the quantity of money spent into the real economy by a government in one year and the money paid to it from taxation and any other (non-lending) sources over that time-span. If the Balance is positive we have a Deficit, and if it is negative we have a Surplus.
Buffer Stock
A buffer stock is a commodity held by a government to stabilize prices in a market.
C
Capital Adequacy
Is the ratio of the net worth of a business to its risk-weighted assets. The inverse of capital adequacy is a measure of leveraging.
Capitalism
An economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state.
Chartalism
The theory that modern money originated via sovereigns’ direction of economic activity. States created demand for the currency they issue primarily by levying taxes payable only in that currency.
Commercial Bank
Also known as a retail bank. A financial institution whose essential activities are to take financial deposits from the public and to provide loans to the public – on which interest is charged.
Cost-push inflation
A decrease in supply increases the cost of some goods or services, causing a general rise in prices. Example: In the 1970s, OPEC spiked oil prices, exacerbating speculation and causing wages and prices to spiral in other parts of the U.S. economy.
Currency
Currency consists of tangible fiat money created and issued by the state (coins and banknotes). It is one component of base money – which also includes digital state fiat money (e.g. banking reserves).
D
Deflation
Refers to a persistent fall in the general price level of goods and services.
Deleveraging
Refers to a reduction in liabilities in order to improve net worth and thereby reduce the overall level of leveraging.
Demand
Refers to the quantity of a good or service that people are both willing and able to buy.
Demand-pull inflation
An increase in demand outstrips the production of real goods and services in the economy, causing a general rise in prices.
E
Ecological Economics
Is both a transdisciplinary and interdisciplinary field of academic research addressing the interdependence and coevolution of human economies and natural ecosystems, both intertemporally and spatially. By treating the economy as a subsystem of Earth’s larger ecosystem, and by emphasizing the preservation of natural capital, the field of ecological economics is differentiated from environmental economics, which is the mainstream economic analysis of the environment.
Endogenous Money
Refers to the view that the quantity of money in the real economy is determined endogenously – i.e. as a result of the interactions of other economic variables – rather than exogenously by an external authority such as a central bank.
F
Factors of Production
Are the ingredients of economic activity: land, labour, capital and enterprise.
Financial Instability Hypothesis
Hypothesis developed by American economist Hyman Minksy, who argued that financial crises are endemic in capitalism because periods of economic prosperity encouraged borrowers and lender to be progressively reckless. This excess optimism creates financial bubbles which eventually burst. Therefore, capitalism is prone to move from periods of financial stability to instability.
Fiscal Policy
The means by which a national government can adjust its financial operations (mainly spending, taxing and borrowing) in order to monitor and influence a nation’s economy.
Functional Finance
An economic policy approach developed by British economist Abba Lerner. Governments should maintain a reasonable level of demand at all times. If there is too little spending the government should cut taxes or increase its own spending. If there is too much spending, the government should raise taxes or decrease its own spending. Full employment and price stability are the goals, regardless of the size of ‘national debt’.
G
Glass-Steagall Act
The Glass-Steagall Act, also known as the Banking Act of 1933 (48 Stat. 162), was passed by the U.S. Congress in 1933 and prohibited commercial banks from engaging in the investment business. It was enacted as an emergency response to the failure of nearly 5,000 banks during the Great Depression.
Global Financial Crisis
A severe economic event during 2008-9, considered by many economists to have been the worst financial crisis since the Great Depression of the 1930s. It threatened the collapse of large financial institutions, which was prevented by the bailout of those institutions by national governments.
I
Inflation
A continuous rise in the average price of goods and services across the economy. During a period of inflation, the value of money falls compared to the value of goods and services (“money is worth less”). It may be subdivided into many specific forms of inflation, such as that pertaining to consumer prices, wholesale goods, wages, assets, etc. Inflation does not affect everyone equally.
Investment
Refers to acquiring an asset in the expectation of a future benefit. If the asset is available at a price worth investing, it is normally expected either to generate income, or to appreciate in value, so that it can be sold at a higher price (or both).
L
Legal Realism
A school of legal philosophy most popular in the United States during the first half of the 20th century. Legal realism holds that legal reasoning and legal institutions are inescapably political, rather than natural or autonomous. Laws inherently cannot be purely neutral or objective rules.
Leveraging
Refers to the magnitude of the financial assets held by a business in relation to its net worth.
Liability
A duty or responsibility to others that entails settlement by a future transaction which yields an economic benefit.
Liquidity
Refers to how easily an asset can be spent, if so desired. Base money is wholly liquid. The liquidity of other assets is usually less; how much less may be measured by the ease with which they can be exchanged for base money (that is, liquidated).
M
Monetary Policy
Monetary policy is the ultimate constraint on money creation and monetary stability, accomplished through open market operations by the central bank (buying/selling of Treasury securities from/to the private sector) with the objective of keeping consumer price inflation within an agreed target bound.
N
National Debt
Is the aggregate of all federal Treasury securities on issue to the non-government sectors.
Neoclassical Economics
Is currently the mainstream economic school of thought throughout the world. It claims to relate supply and demand to an individual’s rationality and his or her ability to maximize utility or profit.
Neoliberalism
An ideology denoting a modified form of liberalism, embracing a free market economic model in which control of economic factors is transferred from the public sector to the private sector.
Net Worth
Is the difference between the assets held by a business and its liabilities.
P
Paradigm
Is a framework containing basic assumptions, ways of thinking and methodology which are commonly accepted by members of a discipline.
Post-Keynesian economics
A heterodox school of economic thought with its origins in The General Theory of John Maynard Keynes, with subsequent development influenced to a large degree by Michał Kalecki, Joan Robinson, Nicholas Kaldor, Sidney Weintraub, Paul Davidson, Piero Sraffa and Jan Kregel. Historian Robert Skidelsky argues that the post-Keynesian school has remained closest to the spirit of Keynes’ original work. Some post-Keynesians took a more progressive view than Keynes himself, with greater emphases on worker-friendly policies and redistribution. Robinson, Paul Davidson and Hyman Minsky emphasized the effects on the economy of practical differences between different types of investments, in contrast to Keynes’ more abstract treatment. And post-Keynesians do not accept that the theoretical basis of the market’s failure to provide full employment is rigid or sticky prices or wages.
Progressive
Pertains to the idea of progress, which asserts that advancement in science, technology, economic development, and social organization are vital to improve the human condition.
S
Saving
Refers to income not spent, or deferred consumption.
Say’s Law
States that supply creates its own demand. So argued a French economist, Jean-Baptiste Say (1767-1832), and many classical and neo-classical economists since. British economist John Maynard Keynes argued against Say, making the case for the use of fiscal policy to boost demand if there is not enough of it to produce full employment.
Sectoral Balances
Refers to the financial balances of the private sector, government sector and foreign sector. A sectoral analysis framework for macro-economic analysis of national economies was developed by British economist Wynne Godley. By definition, the three balances must net to zero.
Social Justice
Refers to justice in terms of the distribution of wealth, opportunities, and privileges within a society.
State Theory of Money
A theory devised by German economist Georg Knapp, which argues that money’s value derives from its issuance by an institutional form of government rather than spontaneously through relations of exchange.
Supply
Refers to the quantity of a good or service that is available at any particular price.
Supply-side Policies
Refer to proposals to increase economic growth by making markets work more efficiently.
Sustainability
Is the endurance of systems and processes, which largely means the property of systems to remain diverse and productive indefinitely.
V
Velocity of circulation
The speed with which money circulates within the economy, measured by the number of times it changes hands.
Volatility
The most widely accepted measure of risk in financial markets is the amount by which the price of a security swings up and down. The more volatile the price, the riskier is the security.
