Economics Glossary

Revision as of 21:31, 13 March 2011

Animal Spirits

The colourful name that keynes gave to one of the essential ingredients of economic prosperity: confidence. According to Keynes, animal spirits are a particular sort of confidence, "naive optimism". He meant this in the sense that, for entrepreneurs in particular, "the thought of ultimate loss which often overtakes pioneers, as experience undoubtedly tells us and them, is put aside as a healthy man puts aside the expectation of death". Where these animal spirits come from is something of a mystery. Certainly, attempts by politicians and others to talk up confidence by making optimistic noises about economic prospects have rarely done much good

Asian Financial Crisis 1997

During 1997-98, many of the East Asian tiger economies suffered a severe finanical and economic crisis. This had big consequences for the global financial markets, which had become increasingly exposed to the promise that Asia had seemed to offer. The crisis destroyed wealth on a massive scale and sent absolute poverty shooting up. In the banking system alone, corporate loans equivalent to around half of one year's GDP went bad - a destruction of savings on a scale more usually associated with a full-scale war. The precise cause of the crisis remains a matter of debate. Fingers have been pointed at the currency peg adopted by some countries, and a reduction of capital controls in the years before the crisis. Some blamed economic contagion. The crisis brought an end to a then widespread belief that there was a distinct "Asian way" of capitalism that might prove just as successful as capitalism in America or Europe. Instead, critics turned their fire on Asian cronyism, ill-disciplined banking and lack of transparency. In the years following the crisis, most of the countries involved have introduced reforms designed to increase transparency and improve the health of the banking system, although some (such as South Korea) went much further than others (such as Indonesia)

Asymetric Information

When something unexpected happens that affects one economy (or part of an economy) more than the rest. This can create big problems for policymakers if they are trying to set a macroeconomic policy that works for both the area affected by the shock and the unaffected area. For instance, some economic areas may be oil exporters and thus highly dependent on the price of oil, but other areas are not. If the oil price plunges, the oil-dependent area would benefit from policies designed to boost demand that might be unsuited to the needs of the rest of the economy. This may be a constant problem for those responsible for setting the interest rate for the euro given the big differences--and different potential exposures to shocks--among the economies within the euro zone

Collateral Debt Obligations

Comparative Advantage

Standard economic concept accounting for gains from trade due to tendency of countries to export goods they produce relatively efficiently. "A country has comparative advantage in producing a good if the opportunity cost [value of opportunities forgone in making a choice] of producing that good in terms of other goods is lower in that country than it is in other countries" (P. Krugman and M. Obstfeld, International Economics: Theory and Policy, 1997, p. 14). In particular cases, used to justify specialization by countries in international division of labor.

Competitive Advantage

Crowding In/Out

Deficit Financing/Spending

Derivatives

In finance, a derivative is a financial instrument that has a value, based on the expected future price movements of the asset to which it is linked—called the underlying asset such as a share or a currency. There are many kinds of derivatives, with the most common being swaps, futures, and options. Derivatives are a form of alternative investment which can be thought as a way of insuring against the fall of the underlying asset. If Derivatives are used as an instrument in themselves they can be a risky form of investment.

Dot Com Bubble 2000

Foreign Direct Investment

Investment by firm based in one country in actual productive capacity or other real assets in another country, normally through creation of a subsidiary by a multinational corporation. Measure of globalization of capital.

General Theory of Employment Interest and Money, The

Written by Keynes in 1936

Glass Steagall

The Banking Act of 1933 was a law that established the Federal Deposit Insurance Corporation (FDIC) in the United States and introduced banking reforms, some of which were designed to control speculation.The repeal of the Glass–Steagall Act of 1933 effectively removed the separation that previously existed between Wall Street investment banks and depository banks. Many claim this repeal directly contributed to the severity of the Financial crisis of 2007–2010.

Ricardian, Ricardo

Secondary Banking Crisis 1973

The Secondary Banking Crisis of 1973–75 was a dramatic crash in property prices in Great Britain which caused dozens of small ("secondary") lending banks to be threatened with bankruptcy. The Bank of England bailed out around thirty of these smaller banks, and intervened to assist some thirty others

Tobin Tax

A tax on international finance transactions. The levy would be very small, perhaps 0.005% but it would deter the speculative nature of financial ttransactions where traders make thousands of transactions to profit from very small changes in prices. The proceeds of the tax would be distributed to developing countries to alleivate the negative impacts of Globalization.