Allocative EfficiencyA neoclassical concept referring to the allocation of productive resources (capital, labor, etc.) in a manner which best maximizes the well-being (or “utility”) of individuals. |
Automatic StabilizersGovernment fiscal policies which have the effect of automatically moderating the cyclical ups and downs of capitalism. Examples include income taxes (which collect more or less taxes depending on the state of the economy) and unemployment insurance benefits (which automatically replace lost income for people who lose their jobs). |
Balanced BudgetAn annual budget (such as for a government) in which revenues perfectly offset expenditures, so that there is neither a deficit nor a surplus. |
BanksA company that accepts deposits and issues new loans. It makes profit by charging more interest for the loans than it pays on the deposits, as well as through various service charges. By issuing new loans (or credit), banks create new money which is essential to promoting economic growth and job creation. |
BarterA form of trade in which one good or service is exchanged directly for another, without the use of money as an intermediary. |
BondA financial security which represents the promise of its issuer (usually a company or a government) to repay a loan over a specified time period, at a specified rate of interest. The bond can then be bought and sold to other investors, over and over again. When the rate of interest falls, bond prices rise (and vice versa) – since when interest rates are lower, the bond’s promise to repay interest at the specified fixed rate becomes more valuable. |
CapitalBroadly defined, capital represents the tools which people use when they work, in order to make their work more productive and efficient. Under capitalism, capital can also refer to a sum of money invested in a business in hopes of generating profit. (See also. circulating capital, fixed capital, human capital, machinery and equipment, physical capital, and structures.) |
CapitalismAn economic system in which privately-owned companies and businesses undertake most economic activity (with the goal of generating private profit), and most work is performed by employed workers who are paid wages or salaries. |
Central BankA public financial institution, usually established at the national level and controlled by a national government, which sets short-term interest rates, lends money to commercial banks and governments, and otherwise oversees the operation of the credit system. Some central banks also have responsibility for regulating the activities of private banks and other financial institutions. |
ClassThe different broad groups in society, defined according to what work they do, their wealth, their degree of control over production, and their general role in the economy. |