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Lecture-4: Basic Concepts of Economics Part-III (Money and Banking ;International Economics;Poverty;Unemployment;Development Economics) by S.Maitra, Associate Professor, Civil Services Study Centre, Administrative Training Institute, Kolkata (Feb 2014)

Money and Banking 

Monetary Policy: The term monetary policy refers to actions taken by central banks to affect monetary magnitudes or other financial conditions.

Bank Rate: Bank rate is the rate at which the central bank of a country provides loan to the commercial banks.

Open Market Operations: Open market operation consists of purchase and sale of securities by the central bank of the country.

Cash Reserve Ratio: Cash Reserve Ratio is a certain percentage of bank deposits which banks are required to keep with RBI in the form of reserves or balances.

Selective Credit Control: Selective Credit Controls are aimed at regulating  the distribution of credit amongst sectors or purposes.

Repo Rate:  Repo (Repurchase) rate is the rate at which the RBI lends shot-term money to the banks against securities.

Reverse Repo Rate: Reverse Repo rate is the rate at which banks park their short-term excess liquidity with the RBI.  

Financial inclusion: Financial inclusion is the process of ensuring access to appropriate financial products and services needed by vulnerable groups such as weaker sections and low-income groups at an affordable cost in a fair and transparent manner by mainstream institutional players.

Non-Performing Asset: An asset, including a leased asset, becomes non performing when it ceases to generate income for the bank. A non performing asset (NPA) is a loan or an advance where interest and/ or instalment of principal remain overdue for a period of more than 90 days in respect of a term loan.

Call money market: The call money market is an important segment of the money market where uncollateralized borrowing and lending of funds take place on overnight basis.

Liquidity Adjustment Facility: RBI stands ready, on daily basis, to lend or borrow money from the banking system, as per the latter’s requirement, at fixed interest rates. The primary aim of such an operation is to assist banks to adjust to their day-to-day mismatches in liquidity, via repo and reverse repo operations.

General Credit Card: With a view to helping the poor and the disadvantaged with access to easy credit, banks have been asked to consider introduction of a general purpose credit card facility up to Rs. 25,000 at their rural and semi-urban branches.

Lead Bank Scheme: Lead Bank Scheme emphasizes making specific banks in each district the key instruments of local development by entrusting them with the responsibility of locating growth centres, assessing deposit potential, identifying credit gaps and evolving a co-ordinated approach to credit deployment in each district, in concert with other banks and credit agencies.

Development banks: Specialized public and private financial intermediaries providing medium  and long-term credit for development projects.

Price and Inflation

Inflation: A persistent and appreciable rise in the general level of prices of goods and services in an economy over a period of time.

Demand-pull Inflation:  It is a situation when “too many money chasing after too few goods”. An excess of aggregate demand over aggregate supply generates inflationary rise in prices. When money supply increases it creates more demand for goods but if supply of goods cannot be increased due to full employment or other reasons, demand-pull inflation is caused.

Cost-push inflation: Cost-push inflation is caused by wage increase enforced by labour unions, profit increase by the entrepreneurs and input price rise due to structural or external reasons

Inflation Tax: Printing of money to raise government revenue is like imposing a tax as it causes inflation and inflation eats up a part of the value of money. This is called inflation tax

Wholesale Price Index (WPI): WPI is a weighted average of price (whole sale) relatives of commodities, classified into three categories namely, primary, manufacturing and fuel and power.

Consumer Price Index (CPI): CPI is a weighted average of price relatives of a basket of goods and services consumed by the people. 

Headline inflation: While ‘headline inflation’ covers the entire set of goods and services included in the general index, ‘core inflation’ otherwise known as ‘underlying inflation’ ignores the volatile items in the general index.

Inflation targeting: Inflation targeting refers to the practice of the central bank to set an inflation target and then adjust its monetary policy accordingly.

Inflationary Gap: The inflationary gap is the amount by which aggregate expenditure would exceed aggregate output at the full employment level of income.

Producer Price Index (PPI): The Producer Price Index is a family of indices that measures the average change over time in the selling prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller.

Headline inflation: Headline inflation covers the entire set of goods and services included in the general index.

Core inflation: Core inflation, otherwise known as ‘underlying inflation’, ignores the volatile items in the general index.

International Economics

Autarky: A closed economy that has no trade relation with the rest of the world.

Balance of trade: The difference between the value of exports and the value of imports.

Trade deficit  =>  imports > exports

Trade surplus =>  exports > imports

Balance of payments: A systematic record of a country’s transactions with the rest of the world.

Balanced trade: A situation in which the value of a country's exports and the value of its imports are equal.

Exchange Rate: An exchange rate is the rate at which one country’s currency can be  traded for another country’s currency. The exchange rate is determined by demand and supply in the foreign exchange markets where traders buy and sell currencies.

Comparative advantage: The principle of comparative advantage states that as long as the relative opportunity costs of producing goods differ among nations, there are potential gains from trade.

Tariff: Tariffs (customs duties) are taxes governments place on internationally traded goods.

Quota: Quotas are quantity limits placed on imports.

Both tariffs and quotas increase price and reduce quantity.

Under a tariff, the government collects the tariff revenue.

With a quota, the domestic price increases, and the importer, not the government, gets the revenue.

Absolute advantage: If one country can produce more of a commodity with the same amount of real resources than another country, the country is said to have absolute advantage over other country.

Capital account: The portion of a country’s balance of payments that records the volume of private foreign investment and public grants and loans that flow into and out of a country during a given period.

Capital account convertibility: Absence of restrictions on the use and availability of a currency for buying and selling international assets. Unlike the current account, the rupee is not fully convertible on the capital account yet in India.

Capital inflow: Borrowing from foreigners .Example: foreigners purchasing domestic assets or surplus in capital account.

Capital outflow: Lending abroad. Example: Indians buying foreign assets or deficit in capital account.

Convertible currency: A currency that can be freely traded for other currencies. Indian rupee is almost convertible now.

Crawling peg:  Exchange rate system in which the exchange rate is allowed to move in line with the excess of domestic over foreign inflation. The objective is to keep the real exchange rate stable.

Devaluation: Increase in the exchange rate by the government.

Exchange rate: The price of one national currency in terms of another.

Foreign exchange reserve: Foreign assets held by the central bank.

Hard currency The currency of a major country, suc as US dollar, German mark, or the Japanese yen, that is freely convertible into other "soft" currencies.

                                                  Stock Market Concepts

Arbitrage: The difference between price of a security in two different exchanges. The difference can be used to make profits by persons holding a security to sell the same at an exchange where its price is high and buy it at an exchange where it is available at a lower price.

Bad Debt: A debt that is not collectible and therefore worthless to the creditor. This debt, once considered to be bad, will be written off by the company as an expense.

Balance Sheet: A financial statement that summarizes a company's assets, liabilities and  shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders.

Balanced Fund: A mutual fund that invests its assets into the money market, bonds, preferred stock, and common stock with the intention to provide both growth and income.

Bankruptcy: The state of a person or firm unable to repay debts.

Basis Point: A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security.

Bear Market: A market condition in which the prices of shares are falling or are expected to fall.

Blue Chip: A nationally recognized, well-established and financially sound company.

Bond: A debt investment with which the investor loans money to an entity (company or government) that borrows the funds for a defined period of time at a specified interest rate.

Book Closure: A company's announcement of a dividend or bonus to investors.

Book Value: The net asset value of a company, calculated by total assets minus intangible assets (patents, goodwill) and liabilities.

Boom: A period of time during which sales or business activity increases rapidly.

Broker: An individual or firm that charges a fee or commission for executing buy and sell orders submitted by an investor.

Bubble: A surge in equity prices, often more than warranted by the fundamentals and usually in a particular sector, followed by a drastic drop in prices as a massive selloff occurs.

Bull Market: A financial market of a certain group of shares in which prices are rising or are expected to rise.

Bullion: Gold and silver that is officially recognized as high quality (at least 99.5% pure), and is in the form of bars rather than coins.

CAGR: The year-over-year growth rate of an investment over a specified period of time. It's an imaginary number that describes the rate at which an investment would have grown if it grew at a steady rate

Capital Gain: An increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold.

Capital Gains Tax: A type of tax levied on capital gains incurred by individuals and corporations. Capital gains are the profits that an investor realizes when he or she sells the capital asset for a price that is higher than the purchase price. 

Cash Flow Statement: This document provides aggregate data regarding all cash inflows a company receives from both its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given quarter.

Closely Held Shares: The shares held by individuals closely related to a company.

Closing Price: The final price at which a security is traded on a given trading day. 

Commodity: A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often used as inputs in the production of other goods or services.

Commodity Index: An index that tracks a basket of commodities to measure their performance.

Crash: A major decline in a financial market.

Demat – Dematerialization: Dematerialisation is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited into the BO’s account with his DP.

Dalal Street: A term that refers to the Bombay Stock Exchange, the major stock exchange in India. The street is home not only the Bombay Stock Exchange but also a large number of other financial institutions.

De-merger: A corporate strategy to sell off subsidiaries or divisions of a company.

Debenture: A type of debt instrument that is not secured by physical asset or collateral.  Debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond in order to secure capital.

Debt: An amount of money borrowed and owed by one party to another.

Debt Fund: An investment pool, such as a mutual fund or ETF, in which core holdings are fixed income investments. The fee ratios on debt funds are lower, on average, than equity funds because the overall management costs are lower.

Derivative: The term "Derivative" indicates that it has no independent value, i.e. its value is entirely "derived" from the value of the underlying asset. The underlying asset can be securities, commodities, bullion, currency, live stock or anything else. In other words, Derivative means a forward, future, option or any other hybrid contract of pre determined fixed duration, linked for the purpose of contract fulfillment to the value of a specified real or financial asset or to an index of securities.

Disinvestment: The action of an organization or government selling or liquidating an asset or subsidiary.

Diversification: A risk-management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.

Dividend: Distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.

EBITDA - Earnings Before Interest, Taxes, Depreciation and Amortization: EBITDA is a good metric to evaluate profitability

EPS - Earnings Per Share: EPS is the earning on each share of a company.

ESOP - Employee Stock Ownership Plan: A qualified, defined contribution, employee benefit plan designed to invest primarily in the stock of the sponsoring employer.

FCCB - Foreign Currency Convertible Bond: A type of convertible bond issued in a currency different than the issuer's domestic currency. 

FDI - Foreign Direct Investment: An investment abroad, usually where the company being invested in is controlled by the foreign corporation.

FII - Foreign Institutional Investor: Foreign Institutional investors (FIIs) are entities established or incorporated outside India and make proposals for investments in India. The biggest source through which FIIs invest is the issuance of Participatory Notes (P-Notes), which are also known as Offshore Derivatives. Types of typical investors include banks, insurance companies, retirement or pension funds, hedge funds, investment advisors and mutual funds.

GAAP - Generally Accepted Accounting Principles: The common set of accounting principles, standards and procedures that companies use to compile their financial statements.

GDR - Global Depositary Receipt: A bank certificate issued in more than one country for shares in a foreign company. The shares are held by a foreign branch of an international bank.

Gilt Fund: A mutual fund that invests in several different types of medium and long-term government securities in addition to top quality corporate debt.

Growth Fund: A diversified portfolio of stocks that has capital appreciation as its primary goal, and thereby invests in companies that reinvest their earnings into expansion, acquisitions, and/or research and development.

Haircut: The difference between prices at which a market maker can buy and sell a security.

Hedge: Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract.

Hedge Fund: An aggressively managed portfolio of investments that uses advanced investment strategies such as leverage, long, short and derivative positions in both domestic and international markets with the goal of generating high returns.

Holding Period: In a long position, holding period refers to the time between an asset's purchase and its sale. In a short sale, the length of time for which the short position is held.

Initial Public Offering – IPO: The first sale of stock by a private company to the public.

Income Fund: A mutual fund that seeks to provide stable current income by investing in securities that pay interest or dividends.

Index: A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is essentially an imaginary portfolio of securities representing a particular market or a portion of it.

Index Fund: A portfolio of investments that is weighted the same as a stock-exchange index in order to mirror its performance.

Insider Trading: The buying or selling of a security by someone who has access to material, nonpublic information about the security. Insider trading can be illegal or legal depending on when the insider makes the trade. It is illegal when the material information is still nonpublic.

Institutional Investor: A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions.

Liquidity: The degree to which an asset or security can be bought or sold in the market without affecting the asset's price.

Maturity Date: The date on which the principal amount of a note, draft, acceptance bond or other debt instrument becomes due and is repaid to the investor and interest payments stop.

Mid Cap: Companies having a market capitalization between Rs 500 cr. and Rs 1,000 cr.

Mutual Fund: A security that gives small investors access to a well-diversified portfolio of equities, bonds and other securities. Each shareholder participates in the gain or loss of the fund. Units are issued and can be redeemed as needed.

NAV - Net Asset Value: The total value of the fund's portfolio less liabilities.

Open End Fund: A type of mutual fund where there are no restrictions on the amount of shares the fund will issue. If demand is high enough, the fund will continue to issue shares no matter how many investors there are. Open-end funds also buy back shares when investors wish to sell.

Oversubscribed: A situation in which the demand for an initial public offering of securities exceeds the number of shares issued.

P/E Ratio - Price-Earnings Ratio: PE ratio or PE multiples is the ratio arrived by dividing Current market Price by Earnings per share of that stock.

Pension Fund: A fund established by an employer to facilitate and organize the investment of employees' retirement funds contributed by the employer and employees.

Portfolio: The group of assets - such as stocks, bonds and mutuals - held by an investor.

Redemption: The return of an investor's principal in a security, such as a stock, bond, or mutual fund.

Registrar: An institution or organization that is responsible for keeping records of bondholders and shareholders.

Sensex: An abbreviation of the Bombay Exchange Sensitive Index (Sensex) - the benchmark index of the Bombay Stock Exchange (BSE). It is composed of 30 of the largest and most actively-traded stocks on the BSE.

Warrant: A derivative security that gives the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame.

Write-Off: A reduction in the value of an asset or earnings by the amount of an expense or loss.

YOY - Year Over Year: A method of evaluating two or more measured events that compares the results of measurement at one time period with those from another time period, on an annualized basis.

Yield: Yield is the annual rate of return for any investment and is expressed as a percentage.

Microeconomics

Allocative efficiency:  Production of maximum output possible, using given quantities of inputs and available techniques of production in the most efficient manner.

Asymmetrlc informatlon: A situation in which one party (say, seller) in the market has more information than another party (i.e. buyer).

Invisible hand: According to Adam Smith if individuals conduct their economic activities in their own best interests, the economy will operate at maximum efficiency, without government requiring to intervene.

Cartel: An organization of producers agreeing to limit the output of their product in an effort to raise prices and Profits. Example: OPEC.

Colluslon: An agreement among sellers of a commodity to set a common price or share their commodity market so as to reduce competition among them.

Cost-benefit analysis: The actual and potential private and social costs of various economic decisions are compared with actual and potential private and social benefits. Decisions or projects that yield the highest ratio of benefit to cost are usually selected for implementation.

Diminishing returns: If one factor of production is kept unchanged and other factors are added in constant increments, the marginal productivity of variable factors will eventually decline.

Division of labor: Allocation of tasks among workers such that each one engages in tasks that-he or she performs most efficiently. Division of labor promotes worker specialization and thereby adds to overall labor productivity.

Economies of scale: Economies of scale refers to increase in the scale of production, resulting in reduction in the cost of production per unit of output.

Externality: Any benefit or cost borne by an individual resulting from another person’s behaviour. Factor mobility: The unrestricted transference or free voluntary movement of. factors of production among different uses and geographic locations.

Factor-price distortions: When prices of the factors of production do not reflect their true scarcity values i.e. their competitive market prices. Factor-price distortions may lead to the use of inappropriate techniques of production.

Imperfect competition: A market situation in which producers have some degree of control over the price of their product. Examples: Monopoly and oligopoly.

Imperfect market: A market where any (or some) features of perfect competition such as, large number of buyers and sellers, free entry and exit, homogeneous product and complete information is absent.

Increasing returns: A more than proportional increase in output that results from a change in the scale of production leading to a reduction in cost per unit as scale enlarges. Generally public utility services such as water supply, electricity etc. are characterized by increasing returns. This leads to natural monopoly.

Market failure: A phenomenon that results from the existence of market imperfections that weaken the functioning of a free-market economy and the market fails to realize Pareto optimality.Market failure often provides the justification for government intervention.

Pareto optimality: A situation in which no one can be made better off without making someone else worse off.

Perfect competition: A market situation characterized by (i) Large number of buyers and sellers; (ii) homogeneous products; (iii) free entry and exit and (iv) perfect knowledge.

Prisoners' dilemma: A situation in game theory in which all parties would be better off cooperating than competing, but, given that cooperation has been initially achieved, each party would gain the most by cheating while others stick to the cooperative agreements.

Product differentiation: The practice of some producers to differentiate their products from similar ones through differential packaging and/or advertisements. 

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Lecture-3: Basic Concepts of Economics Part-II (Demography and Census;Five Year Plans;Poverty;Unemployment;Development Economics) by S.Maitra, Associate Professor, Civil Services Study Centre, Administrative Training Institute, Kolkata (Feb 2014)

Demography and Census

Demography: Demography is the statistical study of human population. It encompasses the study of the size, structure, and distribution of these populations.

Crude Birth Rate (CBR): CBR measures the number of live births per 1000 population in a given year.

Age-Specific Fertility Rate (ASFR): ASFR measures the annual number of births to women of a specified age or age group per 1,000 women in that age group.

General Fertility Rate (GFR): GFR is the number of live births per 1000 women ages 15-49 in a given year.

Total Fertility Rate (TFR): TFR is the sum of the Age-Specific Fertility Rates (5-year age groups between 15 and 49) for female residents during a year multiplied by 5, whole divided by 1000.

Crude Death Rate (CDR): CDR is the total number of deaths to residents in a given year divided by the total population of that year per thousand. 

Infant Mortality Rate (IMR): IMR is the number of newborns dying under one year of age divided by the number of live births per thousand.

Neonatal mortality rate (NMR): NMR the ratio of the number of deaths of children less than 29 days of age in one year to the number of live births in that year per thousand.

Post neonatal mortality rate (PNMR): PNMR the ratio of the number of deaths in one year of children more than 29 days upto one year of age to the number of live births in that year per thousand.

Demographic Dividend: An increase in the working age ratio can raise the rate of economic growth. This is known as “demographic dividend.”

Five Year Plans

Economic planning:

Economic planning is a sort of conceiving, initiating, regulating and controlling economic activity by the State according to set priorities with a view to achieving well defined objectives within a given time span.

Differentiate between plan and non-plan expenditure

The expenditure in developing ‘planned’ projects is plan expenditure while that on maintenance and running of the existing projects is known as non-plan expenditure.

Democratic planning:

Planning is ‘democratic’ if people are associated at both formulation and implementation stages and it is finalized through debate among people’s representatives.

Regional planning: 

Regional planning is a sort of spatial planning at various territorial levels (such as block/district/state) for achieving sustainable development for the region.

Indicative planning: Indicative planning is peculiar to the mixed economy. In a mixed economy, the public and private sectors work together. In indicative planning the private sector is neither rigidly controlled nor directed to fulfill the targets and priorities of the plan.  The state provides all types of facilities to the private sector but does not direct it, rather indicates the areas in which it can help in implementing the plan.

Imperative planning:

Under imperative planning all economic activities and resources of the economy operate under the direction of the state. There is complete control over the factors of production by the state. There is no consumers sovereignty in such planning.

Comprehensive plan: An economic plan that sets targets to cover all the major sectors of the national economy.

Poverty

Poverty: According to the World Bank (2000), “poverty is pronounced deprivation in wellbeing.”

Headcount Index

By far, the most widely used measure is the headcount index, which simply measures the proportion of the population that is counted as poor, often denoted by P₀.

Poverty Gap Index

A moderately popular measure of poverty is the poverty gap index (PGI), which adds up the extent to which individuals on average fall below the poverty line, and expresses it as a percentage of the poverty line.

Definition of Poverty Line

Defining a poverty line is the first step in estimating poverty. A poverty line which distinguishes the poor from the non-poor is derived by estimating the value of the minimum required consumption levels of food, clothing, shelter, fuel and health care, etc.

Absolute poverty: The people are said to be in absolute poverty if the minimum amounts of food, clothing and shelter necessary for survival absorb all of their income.

Poverty trap A bad equilibrium for a family, community, or nation, involving a vicious cycle in which poverty and underdevelopment breed more poverty and underdevelopment, often from one generation to the next.

Basic needs A term used by the International Labor Organization to describe the basic goods and services (food, shelter, clothing, sanitation, education, etc.) necessary for a minimum standard of living.

Poverty line: A poverty line which distinguishes the poor from the non-poor is derived by estimating the value of the minimum required consumption levels of food, clothing, shelter, fuel and health care, etc.

Unemployment

Frictional Unemployment: A temporary phenomenon which arises when workers are temporarily out of work while changing jobs or are suspended due to strikes or lockouts.

Casual Unemployment: In industries /services such as construction, catering etc., also in agriculture, where workers are employment on a day to day basis, there are chances of casual unemployment occurring due to short-term contracts which are terminable anytime.

Seasonal Unemployment: Industries or occupations such as agriculture, catering, holiday resorts, where production activities are seasonal in nature offer employment only for a certain period of time in a year. People engaged in such type of work may remain unemployed during the off-season, which is known as seasonal unemployment.

Structural Unemployment: Unemployment which arises due to change in the pattern of demand leading to changes in the structure of production in the economy is termed as the structural unemployment.

Technological Unemployment: Due to introduction of new machinery, improvements in methods of production, labour-saving devices etc. some workers tend to be replaced by machines. This unemployment is known as technological unemployment. For example, use of synthetic rubber is bound to reduce demand for natural rubber leading to unemployment in rubber plantation.

Cyclical Unemployment: Associated with cyclical fluctuations of economic activity due to trade cycle; Mostly found in the capitalist countries like USA etc.

Chronic Unemployment: When unemployment tends to a long time feature of a country, it is called chronic unemployment. Underdeveloped countries suffer from chronic unemployment on account of the vicious cycle of poverty, resource scarcity, high population growth, low capital formation etc.

•       Disguised Unemployment

Refers to a situation where people may be working and apparently employed, yet their contribution to output may be zero or negative. Found mainly in agriculture, public sector enterprises etc.

Labour force participation rate (LFPR): LFPR is defined as the number of persons/ person-days in the labour force per 1000 persons /person-days.

Worker Population Ratio (WPR): WPR defined as the number of persons/person days employed per 1000 persons/person-days.

Proportion Unemployed (PU): It is defined as the number of persons/person-days unemployed per 1000 persons/person-days.

Unemployment Rate (UR): UR is defined as the number of persons/person-days unemployed per 1000 persons/person-days in the labour force (which includes both the employed and unemployed).

 Development Economics

Agrarian System: The pattern of land distribution, ownership and management, also the institutional and social structure of the agro-based economy.

Agricultural extension services: Services offered to the farmers, usually by the government or non-governmental organizations, in the form of transmitting information, new ideas, methods, and advice relating to use of fertilizers, pest control, soil testing and conservation methods etc. with a view to encouraging and assisting them to achieve larger agricultural output.

Approprtate technology:  Technology of production that is appropriate a country given its factor endowments.

Capability: Amartya Sen introduced the concept of ‘capability’ in development economics.  Sen defined capabilities of an individual as "the freedom that a person has in terms of the choice of functionings, given his personal features and his command over commodities.”

Capital accumulation: Increase in a country's stock of real capital like plants, machineries and productive equipments. Economic development of a country largely depends on the rate of capital accumulation.

Foreign direct investment (FDI): Overseas investments by private multinational corporations. Broadly, foreign direct investment includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra-company loans.

Amortlzation: Gradual payoff of a loan principal.

Approprtate technology: Technology that is appropriate for an economy given its existing factor endowments. For example, a technology employing a higher proportion of labor relative to other factors in a labor-abundant economy is usually more appropriate than one that uses smaller labor proportions relative to other factors.

Basic needs: The basic goods and services (food, shelter, clothing, sanitation, education, etc.) necessary for a minimum standard of living.

Big push: A concerted effort, led often by the Government policy, to initiate or accelerate economic development across a broad spectrum of sectors and industries in the economy. 

Blodlverslty: The variety of life forms within an ecosystem.

Biomass fuels: Any combustible organic matter that may be used as fuel, such as firewood, dung, or agricultural residues.

Brain drain: The emigration of highly educated and skilled professional and technical manpower from the developing to the developed countries.

Buffer stocks: Stocks of commodities such as food items held by some authority to be used during scarcity or to moderate price fluctuations.

Capability: The freedom that a person has in terms of the choice of functionings, given his personal features and his command over commodities.

Capltal intenslve technlque: A technique of production that uses a higher proportion of capital relative to other factors of production such as labor or land per unit output.

Capltal-labor ratio: The number of units of' capital per unit of labour,

Capital-output ratio: The units of capital required to produce a unit of output over a given period of time.

Capital stock: The total amount of physical goods existing at a particular time that have been produced for use in the production of other goods (including services).

Casual employment: Employment on an ad hoc basis without regular hours or a wage contract most often found in the informal sector.

Common market: A form of. economic integration in which there is free internal trade, a common tariff, and the free movement of labor and capital among partner states. The European Union is an example.

Common property resource: A resource that is publicly owned and allocated under a system of unrestricted access.

Customs union: A form of economic integration in which two or more nations agree to free all internal trade  among nations while levying a common tariff for trade with other nations..

 Debt-service ratio: The ratio of interest and principal payments due in a year to export receipts for that year.

Deforestation: The clearing/destruction of forested land.

Dependency burden: The proportion of the people aged 0 to 15 and above 65 to total population. The people in this age group is considered economically unproductive and therefore not counted in the labor force.

Dualism: Two situations or systems, (one desirable and the other not) coexisting side by side in one place. For example, modern and traditional sectors, urban and rural, extreme poverty and affluence, etc.

Economic union: Complete integration of two or more economics into a single economic entity.

Export promotion Government policy to increase the volume of a country's exports through export incentives and other means with a view to generating more foreign exchange.

Incremental capital-output ratio (ICOR): The amount of additional capital needed to increase output by one unit.

Infant industry: A newly set-up domestic industry which requires the protection of a tariff barrier to grow.

Informal sector: In many countries, a large part of the urban economy is characterized by small competitive individual or family firms, petty retail trade and services, labor-intensive methods, free entry and non-observance of labour laws etc.

Innovation: The application of scientific inventions in production processes and methods to produce new products with a view to making profit.

Financial intermediary Any financial institution, public or private, that serves to channel loanable

funds from savers to borrowers. Examples include commercial banks, cooperative banks, non-banking finance companies and development banks.

Fixed exchange rate When exchange value of a national currency remain fixed in relation to another (usually the U.S. dollar) and is not allowed to fluctuate on the international money market.

Flexible exchange rate The exchange value of a national currency that is free to fluctuate in response to shifts in demand and supply of foreign exchange.

Foreign direct investment (FDI): Overseas investments by private multinational corporations.

Formal educational system The organized and accredited educational system, with qualified teachers, standard curricula, regular academic years, and recognized certification.

Free-rider problem: Situation in which people enjoys benefits without paying for it.

Free-trade area: A form of economic integration in which there exists free internal trade among member countries but each member is free to levy different external tariffs against non-member nations.

Globalization: The increasing integration of national economies with the international markets.

Government failure Situation in which government intervention in an economy worsens outcomes.

Human capital: Productive investments embodied in human beings. These include skills, abilities, and health resulting from expenditures on education, training and medical care.

Inward-looking development policies:  Policies that stress economic self-reliance of a nation, by promoting development of indigenous appropriate technology, the imposition of substantial

protective tariff and non-tariff trade barriers to promote import substitution, and the general discouragement of private foreign investment.

Market economy: A free private-enterprise economy governed by consumer sovereignty, a price system, and the forces of supply and demand.

Mixed economic systems: Economic systems that are a mixture of both capitalist and socialist economies. Public and private sectors co-exist in such economic system.

Multi-fiber arrngement (MFA): A set of nontariff bilateral quotas established by developed countries on imports of cotton, wool, and synthetic textiles and clothing from individual developing countries.

Non formal education: Any non-school-based program that provides basic skills and training to

individuals. Examples include adult education, on-the-job training programs, and agricultural

and other extension services.

Outward-looking development policies: Policies that encourage free trade; the free movement of capital, workers, enterprises; a welcome to multinational corporations etc.

Privatization: Selling public assets (corporations) to individuals or private business interests.

Property rights: Legal titles given to natural resources such as land to people enabling them freely to buy and sell their assets, and other rights to use, gain income from, or sell property.

Purchasing power parity (PPP): The purchasing power of a country's currency: the number of units

of that currency required to purchase the same basket of goods and services that a U.S. dollar

buys in the United States.

Rent seeking: Efforts by individuals and businesses in an economy to capture the economic rent arising from price distortions and physical controls caused by excessive government intervention,

such as licenses, quotas, interest rate ceilings, and exchange control.

Social safety net: A set of government programs such as public distribution system, welfare payments, free health clinics, and unemployment insurance designed to ensure a minimum level of living for the poor.

Urban bias: When the urban sector is favoured in the development policies, thereby creating a widening gap between the urban and rural economies.

Trickle-down theory of development: The notion that an overall growth of gross national product and income per capita would automatically benefit (trickle down) the poor. 

(For detail study you may refer to my book: General Studies Paper-I by Access Publishing available at Flipkart: 

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