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Sunday, September 25, 2011

Economic Glossary:

Black market: An illegal market in which the price of the goods sold is above a legally set maximum price. A black market invariable results whenever the government imposes a price ceiling on a good. A common example of a price ceiling is rent controls on apartments in many large cities. Although landlords cannot "legally" rent apartments for more than the specified maximum, they often do so "illegally" by charging "finders fees" and "tenant association dues." In so doing, they have entered into the realm of black markets.

Consumer Price Index (CPI): measures the changes in the price of goods and services. The CPI measures price change from the perspective of the consumer. It is a key way to measure changes in purchasing trends and inflation in each country. Most developed countries have an inflation target measured by the CPI. A higher than expected reading should be taken as positive/bullish for the currency (as the common way to fight inflation is raising interest rates, which may attract foreign investment), while a lower than expected reading should be taken as negative/bearish for the currency.

Budget deficit: An excess of budgetary expenditures over revenues. The federal government is well known for its inclination to operate with a budget deficit. But it is not alone. Consumers also find themselves in this position on many occasions. When a budget deficit occurs, the excess spending is financed through borrowing. For the federal government this involves issuing government securities. For households it typically involves some sort of bank loan, credit card purchase, use of savings (borrowing from thyself), or hitting a friend up for a few bucks.

Basis points:
in some fields, such as finance, where very small percentage changes are significant, measurement might be in basis points. A basis point is 100th of 1%. An interest rate increase of ¼% might be described as being of 25 basis points.