Economic Terms , Economy Traditional - Notes | Study Indian Economy for State PSC Exams - BPSC (Bihar)

Economic Terms 

• Registered Capital (Authorised or  Nominal Capital): The amount of capital with which the company intends to be registered is called Registered Capital. It is the maximum amount which the company is authorised to raise by way of public subscription.
• Issued Capital : The part of the authorised capital which is offered to the public for subscription is called issued capital.
• Subscribed Capital : That part of the issued capital for which applications are received from the public.
• Called up capital : The amount on the shares which is actually demanded by the company to be paid is known as called up capital.
• Paid up capital : That part of the called up capital which is offered and is actually paid by the members is known as paid up capital.
• Reserve Tranche : The first tranche of IMF is known as the Reserve Tranche. It equals the difference between the country's quota in the fund and the fund's holdings of the country's currency. It can be drawn any time by the member country whithout conditions, without charges and need not be returned.
• Credit Tranche : These can be drawn if the country concerned has agreed a stabilisation programme with the IMF and signed a standby or extended agreement. These are accompanied by harsh and stringent conditions.
• Compensatory and contingent Financing facility (CCFF) : Under this facility, money is available to member countries who are facing balance of payments problems. This facility has an access limit of 122 per cent of quota. The contingent part of this facility enables India to implement her structural adjustment programme.
• Structural Adjustment Facility (SAF) : This facility was created in 1986 for use by low income countries. This facility provides balance of payments assistance on concessional terms with repayment beginning five and a half years after disbursement. In order to use this facility the member country is required to preprare a policy framework paper with the assistance of the IMF and World Bank. The overall access limit is 70% of the quota.
• Enhanced Structural Adjustment Facility (ESAF) : Created in 1987 with the same purpose as the SAF but has a maximum drawing limit of 250-350 per cent of the quota. The member country drawing under this facility also requires to prepare a policy frame work paper.
• Extended Fund Facility (EFF) : Under this facility, loans are given over a period of 3-4 years to members implementing IMF “Structural Adjustment Programmes”. This facility has an upper drawing limit of 140% of the quota.
• Blown up Price : The final price of goods following a rise in the price of basic materials and fuel.
• Blue Chip Rate : Refers to the lowest interest rate payable by borrowers having the highest credit rating.
• Bullet Loan : A single-repayment loan having no amortisation; that is a loan which has not been paid off in instalments.
• Call money : Funds borrowed by discount houses from the clearing and other banks in many countries and which they employ in holding a portfolio of assets. A high proportion of these funds are borrowed literally at call :
• Cheap Money : A phase in which loans have been available at low rates of interest or a policy which creates this situation.
• Fiscal Drag : Refers to the restraining effects upon growth and demand of increasing effective rates of taxation. Fiscal drag may take place under conditions of inflation when increased wages and salaries have brought people into higher tax brackets.
• Gilt-edged : A high-grade bond issued by a company which has demonstrated its ability to earn a comfortable profit over a period of years and pay its bond holders their interest without interruption.
• Greenback : The U.S. dollar sometimes is called greenback.
• Green Currency : The term used for agricultural unit of account for the European Economic Community. An accounting device only, the exchange rates between the national currency and the unit of account have been called green monies.
• Green Money : A set of special exchange rate which are used to convert common farm prices into national currencies, in the European Economic Community.
• Negative Income Tax : Means a govt. payment to individuals whose income falls below prescirbed levels.
• Negative Real Growth : Refers to a contraction in the value of economic activity, taking inflation into account.
• Prime Rate : The lowest interest rate which is payable by borrowers having the highest credit rating.
• Soft Currency : A currency which is having a falling exchange rate due to continuing balance of payments deficits. Such a currency would not be held by other countries as part of their exchange reserves.
• Bank Rate Policy: The bank rate (BR) has been defined in the Reserve Bank of India Act as the standard rate at which it (the Bank) is prepared to buy or rediscount bills of exchange or other commercial papers eligible for purchase under this Act. But for all practical purposes, the BR is taken as the rate at which the RBI extends advances to the commercial banks.
• Cash reserve ratio : refers to that portion of total deposits of a commercial bank which it has to keep with the Reserve Bank in the form of cash reserves. Under the Reserve Bank of India Act, scheduled banks are required to maintain with the RBI a certain proportion of their aggregate demand and time liabilities. The RBI is empowered to vary the cash ratio between 3 per cent and 15 per cent of the total demand and time liabilities.
• Statutory liquidity ratio: refers to that portion of total deposits of a commercial banks which it has to keep with itself in the form of cash reserves. Statutory liquidity requirements supplement the statutory cash reserves and are so designed as to prevent commercial banks from offsetting the impact of statutory cash reserves by liquidating their Government security holdings.
• Gross domestic investment : consists of the outlays for additions to the fixed assets of both the private and public sectors plus the net value of inventory changes.
• Gross domestic product (GDP): measures the total final outputs of goods and services produced by the country’s economy i.e., within the country’s territory by residents and nonresidents, regardless of its allocation between domestic and foreign claims.
• Gross domestic savings: shows the amount of gross domestic investment financed from domestic output. It is calculated as the difference between gross domestic investment and the deficit on current account of goods and non-factor services (excluding net current transfers). It comprises both public and private savings.
• Gross national product (GNP): measures the total domestic and foreign output claimed by residents of the country. It comprises gross domestic product plus factor incomes accruing to residents from abroad, less the income and in the domestic economy accruing to persons abroad.
• Real income: is the income that a household or firm receives in terms of the real goods and services it can purchase. Alternatively, it is simply money income adjusted by some price index.
• Recession: is a period of slack general economic activity as reflected in rising unemployment and excess productive capacity in a broad spectrum of industries.
• Redistribution policies: is the policies geared to reducing inequality of incomes and expanding economic opportunities in order to promote development. Examples include progressive tax policies, provision of services financed out of such taxation to benefit persons in the lower-income groups, rural development policies giving emphasis to raising levels of living for the rural poor through land reform, and other forms of asset and wealth redistribution.
• Regressive tax: If the ratio of taxes to income as income increase tends to decrease, the tax is called “regressive”, i.e., relatively poor people will pay a larger proportion of their income in taxes than will relatively rich people. A regressive tax therefore is pro-rich.
• Savings: are that portion of disposable income not spent on consumption by households plus profits retained by firms. Savings are normally assumed to be positively related to the level of income (personal or national)
• Savings ratio: is savings expressed as a proportion of disposable income over some period of time. It shows the fraction of national income saved over any period. The savings ratio is sometimes used synonymously with the average propensity to save.
• Special Drawing Rights (SDRs): is a new form of international financial asset—often referred to as paper gold created by the International Monetary Fund (IMF) in 1970 and designed to supplement gold and dollars in setting international balance of payments accounts.
• Structural adjustment loans: is loans by the World bank designed to foster structural adjustment in the LDCs by supporting measures to remove excessive governmental controls, getting factor and product prices to better reflect scarcity values and promoting market competition.
• Stock Exchange: The Stock Exchange is the market for the buying and selling of existing securities, including government bonds, loan stock of foreign goverments and local authorities and company shares and debentures.
• Securities: An instrument in the form of a document conferring ownership of specific assets. Two types: Shares and Bonds or Debentures
• Bear: A pessimistic market operator. It also refers to those who sell shares which they do not possess. They are sold in the hope of buying the shares back at a lower price.
• Ready Forward: Sale of securities and simultaneous repurchase price is also fixed at the time of sale.
• Bonds: An instrument of acknowledging loan raised at a specific interest rate and repayment date.
• Broker: A stock exchange member acts as an agent for clients and buys and sells shares on their behalf in the market on a brokerage (commission).
• Bull: An optimistic operator who first buys and sell shares. This is in expectation of the share prices going up. The term is supposed to come from the bull’s method of attack which is to toss upwards on his horns.
• Debentures: Sealed bond issued by a company acknowledging it has borrowed a certain sum on which interest is payable. A debenture holder is a creditor, not a shareholder, his claims must be satisfied before any dividend is paid.
• Equity: A share capital entitling the shareholder’s voting rights in proportion to his shareholding. It has not guaranteed dividend. Shareholders share profits of the company when the directors declare a dividend.
• Double Ready Forward: Two simultaneously ready forward deals being carried out between two operators.
• Jobber: A stock dealer who is the member of the stock exchange and deals with the public only through the medium of brokers.
• Mutual Funds: Operated by Finance Companies/Banks, etc., wherein money raised from shareholders is invested in a wide variety of securities. Investors thus avail themselves of a diversified portfolio managed by the professionals in the expectation of high dividend capital appreciation.
• Ad-valorem Tax: Ad-valorem tax is a kind of indirect tax in which goods are taxed by their values. Value added Tax (VAT) is an ad-valorem Tax.
• Balance of Payments: Balance of Payments is the difference between the demand for, and supply of, a country’s currency on the foreign exchange market.
• Capital receipt: Loans raised by the Centre from the market. Government borrowings from the Reserve Bank and other parties, sale os Treasury Bills, and loans received from foreign governments from a part of capital receipt.
• Contingency Fund: This is a fund used for meeting emergencies where the Government cannot wait for an authorisation of the Parliament. The Government subsequently obtains Parliamentary approval for the expenditure.
• Blue Chip: It is concerned with such equity shares whose purchase is extremely safe. It is a safe investment. It does not involve any risk.
• Bull: Bull is that type of speculator who gains with the rise in prices of share and stocks. He buys share or commodities in anticipation of rising prices and sells them later at a profit.
• Authorized capital: In is the maximum amont that the company can raise through subscriptions from the public.
• Paid up capital: It is the actual amount of the shares which are paid for by the shareholders. If there are no defaulters, called up capital becomes the paid up capital as well.
• Deflation: Deflations is the reverse case of inflation. Deflation is that state of falling prices which occurs at that time when the output of goods and services increases more rapidly than the volume of money in the economy.
• Giffin Goods: Giffin Goods have the positive relationship between price and quantity demanded and as a result demand curve of Giffin goods slopes upward from left to right.
• Net National Product (NNP): When depreciation is deducted from GNP i.e., Gross National Product, we get Net National Product (NNP).
• Reserve Asset Ratio: It is the ratio of a Bank’s reserve assets to its eligible liabilities.
• Special Drawing Rights (SDRs): It is a reserve asset (known as ‘Paper Gold’) created within the framework of the International Monetary Fund in an attempt to increase international liquidity.
• Statutory Liquidity Ratio (SLR): The amount of liquid assets, such as case, precious metals (Gold) or other short-term securities, that a financial institution must maintain in its reserves. Every bank is required to amintain at the close of business everyday.