Friday, January 7, 2011

Economic Glossary

Base point pricing
Definition: Base pointing pricing is the practice of firms setting prices as if their transportation costs to all locations were the same, even if all the vendors are distant from one another and have substantially different costs of transportation to each location. One might interpret this as a form of monitored collusion between the vendor firms.

Cost-of-living index
Definition of Cost-of-Living Index: A cost-of-living price index measures the changing cost of a constant standard of living. The index is a scalar measure for each time period. Usually it is a positive number which rises over time to indicate that there was inflation. Two incomes can be compared across time by seeing whether the incomes changed as much as the index did.


Definition of the Keynes Effect: As prices fall, a given nominal amount of money will be a larger real amount. Consequently the interest rate would fall and investment demanded rise. This Keynes effect disappears in the liquidity trap. Contrast the Keynes effect with the Pigou effect.

Definition of k Percent Rule: A k percent rule is a monetary policy rule of keeping the growth of money at a fixed rate of k percent a year. This phrase is often used as stated, without specifying the percentage