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Economics 101

A Basic Economics Glossary

Bank of Canada
federal agency which controls interest rates and the money supply in Canada. It influences interest rates by setting rates on short-term loans that it makes to chartered banks. See also interest rates.

barter
to trade or exchange material objects or services without the use of currency.

bond
a sum of money that an investor (like you) loans to a government or corporation. They promise to pay it back after a fixed period of time and in the meantime pay interest at a fixed rate. Bonds may be bought at the time of issue or at any other time until maturity. Canada Savings Bonds (CSBs) are similar to other bonds except that they can be cashed in at any time for their face value plus earned interest. They pay less interest to balance this advantage.

budget
a statement outlining the spending plans of a government or an individual usually for the coming year.

capital
usually refers to assets such as factories, offices, and machinery, the goods that are needed in production and generally last many years. When a person starts her own business she usually needs to invest in some capital to get her started.

classical economics
school of thought developed by Adam Smith. This theory holds that there is no need for government regulation of the economy since the invisible hand of the market will lead to the best possible results.

competition
what develops when two or more producers are providing a similar product or service. When there is no competition there is a monopoly.

compound
to increase in value. Compound interest is calculated on the principal amount (the amount you originally invested) and also on the interest earned on that interest in previous years. For example, a deposit (or loan) compounded at 10 per cent annually will double in about seven years if no money is taken out (or paid in).

consumer, consumption
the individuals and corporations that buy products and services. In economics, consumption refers only to consuming that involves a monetary transaction.

corporate welfare
when a government gives money or a monetary break (like tax cuts or subsidies) to a business. Governments give money to businesses that are very profitable to keep them from moving to other provinces or countries. The province of Manitoba spends a lot more money on corporate welfare than it does on social assistance ('real' welfare).

cost
the price one pays in exchange for something. In economics, cost is usually defined simply as how much money you pay for something. However, there are costs beyond monetary price and many prices do not reflect the true cost of items. For example, the price of gas does not reflect the environmental costs associated with driving a car.

debt
the amount of money owed by a government, corporation, or individual.

deficit
the amount remaining if the amount of money spent is greater than the amount of money received. This word usually refers to the government's deficit which develops when budgets are over-spent.

demand
consumer's interest and ability in consuming products and services. Supply compared with demand dictates price. It is assumed that things that are in low supply and high demand will cost more. Demand is increased through advertising and 'need creation' activities as well as through the lack of available goods.

economics
the study of the economy or the study of how to divide up a world of limited resources.

economy
the production, distribution, and exchange of goods and services, usually measured in terms of the money which facilitates these activities.

expenditures
costs and payments made by a government, a corporation, or an individual. Opposite of
revenue.

finanical advisors
professionals that are trained to provide financial advice including where and when to invest your money, and planning for retirement. Such advisors charge fees to their clients or are paid commissions by the institutions whose products they sell.

financial institution
a business such as a bank or investment company that sells financial products including GICs, bonds, stocks, and mutual funds. These companies often charge no fees to clients but are paid by the institutions (their own or another) whose products they sell. The financial industry represents all of these companies.

GDP
Gross Domestic Product, the total value of the goods and services produced in Canada in a given year.

GNP
Gross National Product, the total value of the goods and services produced in Canada's economy in a given year including things produced abroad.


Guaranteed Income Certificate (GIC)
a sum of money that an investor (like you) lends to a bank, trust company, or credit union for a fixed number of months or years. Interest is paid at a guaranteed rate at specified times. All GICs have a maturity date, and only some may be cashed before that time. Insurance companies sometimes use the name GIAs.

household
a basic economic unit in which one or more people choose to live together and share resources. Economic thinking is based on this division of society allowing that not all members of a household (for example children) bring in a monetary income.

income
money that comes into a personal, business, or government account. Income can be generated in a number of different ways including trading your work for wages and selling a product.


inflation
a general increase in prices usually attributed to a situation in which there is too much money chasing too few goods, thus driving up the price of all goods by driving down the value of money. There are two major ways of calculating inflation. Price inflation is based on the Consumer Price Index (CPI), a monthly measure of how much the price of goods changes. Income inflation is based on the change in wages and based on measures such as the Average Industrial Wage.

infrastructure
the network of goods that make up the physical structure that support other forms of economic and social activity such as roads, water treatment plants, airports, and canals. There is also a social infrastructure of institutions and relationships.

insurance
a financial product that insures against risk. Insurance is available for many risks including death, disability, fire, health care, and theft. Insurance costs a certain amount each month or year. It is always important to find out the coverage and limitations of any insurance plan.

interest, interest rates
the cost of borrowing money. Interest rates are the amount that the person borrowing the money is charged, usually a percentage of how much she has borrowed. Prime interest rates refer to the amount set by the Bank of Canada. Other banks usually decide their interest rate as prime plus a certain percentage.

invest/investment
To invest essentially means to put the valuable things you own into a form in which they will earn more money or other benefit. Putting money in the bank is an investment because it earns interest in the form of money. Buying a house is also an investment because it gives you the use of the house and because houses generally increase in monetary value over the years. Bonds, GICs, and houses are fairly
low-risk investments. Stocks or shares in certain companies are high-risk investments because you never know how well the company will do. Some people earn a lot on stocks; others lose a lot. While people generally talk about monetary investments there are other kinds. Love is a way of investing in people. Reading is an investment in educating yourself.

invisible hand
the force Adam Smith believed would guide free market economics ensuring that prosperity would come to all. See also laissez faire economics.

labour force
the percentage of the population over the age of 15 who are employed in paid work or who are actively looking for paid work.

laissez faire economics
a school of economics inspired by Adam Smith who believed that if we would just let the market be, competition would create order and eventually prosperity for all. See also invisible hand.

macroeconomics
usually refers to economic issues that concern the performance of the economy on a national scale, such as unemployment, trade, interest rates, and government budgets.

market, free market
a setting in which transactions occur. For example, the labour market refers to the market in which workers sell their labour time and employers purchase that time for a wage. A free market is one in which there are no regulations as to what can be bought, sold, and traded and therefore nothing to ensure the well-being of all peoples and the environment.

microeconomics
deals with the economic activity of individuals or small groups, for example the impact of specific types of taxes on retired women or the consequences of the deregulation of trade on garment factories.

monopoly, monopolized
what develops when there is only one producer providing a service

mortgage
a loan acquired for purchasing a home or other property. Like other loans a mortgage has a time period and a rate of interest. 'Paying off' a mortgage means making regular payments of interest and at the same time some payment to reduce the principal (the amount borrowed). Mortgages can be set for short or long periods of time.

mutual fund
a monetary investment that is put into a fund along with money from many other investors. There are hundreds of such funds in Canada, operated by hundreds of investment companies. Managers of a particular fund, in turn, invest that fund's money in other companies. Mutual funds vary widely in risk but are generally considered higher-risk investments. The Crocus Investment Fund is a Manitoba-based mutual fund that lends money to Manitoba companies that meet specific criteria.

neo-classical economics
a theory that calls for the deregulation of the economy in order to allow markets to set prices for all commodities, including labour.

neo-liberalism
laissez faire economic theory which opposes state intervention in the economy and believes in the free operation of the market.

opportunity value
a valuation system used to determine the monetary value of unpaid work. Calculated as to how much a person loses in wages by taking time away from the paid work force in order to do unpaid work. See also replacement value.

portfolio
the set of a person's investments including mutual funds, cash, Guaranteed Investment Certificates (GICs), Canada Savings Bonds (CSBs), stocks, etc.

producer, production

one who produces the goods; opposite of consumer. Production refers to the creation of goods and services that are available at cost.

production boundary
areas of human activity that are not measured or counted in national accounts. These include household activities, items produced that are not marketed, and illegal transactions.

replacement value
a valuation system used in determining the monetary value of unpaid work. Calculated on the basis of how much it would cost to pay someone else to do the work. See also opportunity value.

return/returns
an investment return is how much you get back from an investment compared with the amount you invested. You never know how much that will be. For example, the returns on a share in a company may be very high or may amount to not much at all. If you're lucky, the returns on investing time into a relationship are a happy relationship for years to come.

revenue
various incomes and payments received by a government or an individual. Opposite of expenditures.

shareholders
people who own stocks or shares in a company and share in its profits and/or losses.

shares/stocks
investments made in a particular company. Returns on shares and stocks are entirely dependent on how well that company does, in other words, how much money it makes.

subsidy
a grant given to off-set costs. An individual may receive subsidized housing if she can't afford to pay the full price. A corporation may receive a subsidy to grow food or to produce missiles.

supply
the amount of goods and services available for consumers to buy. Supply compared with demand dictates price. It is assumed that things that are in low demand and high supply cost less. Supply is increased when production increases.

surplus
the amount of money that remains when income is greater than expenditures. The opposite of a deficit.

taxes, income taxes
money the government collects from individuals and corporations to fund the services it provides. Personal income tax is paid by individuals while corporate income tax is paid by corporations and businesses. There are two categories of taxes. Progressive taxes serve to redistribute wealth within a country by ensuring that the wealthiest people pay a higher percentage of taxes. Income taxes are progressive taxes. In contrast, regressive taxes charge everyone the same percentage of tax, no matter what their income level. The GST is a good example of a regressive tax.

time-use surveys
surveys that measure how citizens spend their time. Time-use surveys are an important tool for measuring unpaid work and have been used in Canada since the 1996 Census.

transaction
the exchange of money, goods, or services through buying, selling, or exchange.

trickle-down economics
an assumption that the benefits of economic growth will eventually trickle-down to the poorest sectors of a society. History has shown that this does not actually happen. Economic growth does not benefit all members of a society equally but rather increases the wealth of the richest while increasing the poverty of the poorest.

unemployment rate
the percentage of a country's labour force (those people who are working or looking for work) that does not have work.

unregulated market
a market with few government regulations and interventions controlling it. An unregulated market would not have price controls and would encourage total freedom of movement for capital, goods and services.

UNSNA
UN System of National Accounts - an international system of accounting that displays a country's economic activities, in other words, those activities that involve monetary transactions.

value
what something or someone is worth. In terms of economics, value is judged solely by monetary value, what something or someone is worth in money.

wage
what an individual receives, usually in the form of money, for providing a service.

Acknowledgements
This glossary has borrowed heavily from a number of sources including: CCPA's Show us the Money: The Politics and Process of Alternative Budgets, Marilyn Waring's Counting for Nothing, and the Canadian Department of Finance.

If you would like to play a game with these terms visit the Quiz.

For information on terms relating to Trade and Globalization, see A Basic Globalization Glossary.

  • Economics Glossary


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