192 definitions by Abu Yahya

*noun*; generic term for economic thought developed from 1776 to 1930, which assumed the following basic concepts:
1. all types of goods, including factors of production, can be efficiently traded in markets;
2. given free markets, all goods available for purchase will, in fact, be purchased (including labor);
3. free markets include unlimited ability of prices of commodities to move upwards or downward to ensure the quantity supplied matches the quantity demanded.

*Subdivisions*
Adam Smith (1723-1790), auther of *The Wealth of Nations* (1776) is usually credited with compiling the critical ideas into a single theory.

Some historians regard the classical era as really beginning after 1817, with the work of David Ricardo (1772-1823) and Nassau Senior (1790-1864). Ricardo and David developed the concept of diminishing marginal utility to explain the idea of factor cost, and ultimately, market equilibrium.

After 1870, however, classical economics experienced the marginal revolution, in which the field adopted a much more systematic approach to addressing major research questions.

As a result of the Great Depression (1929-1939), classical economics generally faded from view until the late 1970's. At this time, the rational expectations hypothesis and real business cycle theory were refined in order to address problems that had crippled classical economics in the 1920's.

Textbooks addressing classical economic research since 1964 usually call it "New Classical economics." From 1982 to 2006, nearly all Nobel prizes in economics were awarded to New Classical economics such as
George Stigler, Ronald Coase, Robert Lucas Jr., Edward Prescott, and Edmund Phelps.
Proponents of classical economics are nearly always extremely conservative in their political views, and usually conclude that the sole legitimate role of the state is to defend property rights.
by Abu Yahya March 03, 2009

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A currency whose value is set by the currency markets; money whose exchange rate relative to other currencies is determined mainly or entirely by unrestricted trading in the currency. Most currencies are dirty float|dirty floats, which means that the government issuing them attempts to manage their traded value in some way; or else hard peg|hard pegs, in which the value is tied to something specific.


When a currency is floating, then its value may rise because the county is running a trade surplus, or it is running a capital account surplus. Floating currencies are not fiat money, although they are often confused for each other.
For most of the last half century, most money used around the world has been floating currency.
by abu yahya August 03, 2008

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(ECONOMICS) when a government has to restructure spending by massively cutting social programs, development programs, and subsidies on basic necessities. Often accompanied by taxes increases, especially on lower incomes (since the poor cannot escape tax hikes).
Usually we use the term "austerity program" when the government in question has to backtrack on its ideological commitments. An example of this is France, after June 1982. The Socialist government of Mitterrand had just implemented a raft of major new social welfare programs, and was promptly forced to cut everything back when the deficit ballooned.
by Abu Yahya May 04, 2010

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a number that is the sum of the unemployment rate and the inflation rate. It reflects the overall caliber of a country's prior economic management.

The term was coined by Arthur Okun and was inspired by the Phillips Curve.
During the 1980's and '90's, Austria had the lowest misery index in the world. Unemployment rates AND inflation rates were almost nil.
by Abu Yahya February 14, 2009

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in economics, the net income from assets that are owned by foreigners. The citizens of a country will own assets that are physically located overseas (for example, real estate in another country, shares of foreign stock, or even labor performed while an expatriate), and those assets earn income. At the same time, foreigners likewise earn income on assets located in ones' own country.

If domestically-owned assets located abroad earn more income than domestic assets owned by foreigners, then there will be a net flow of income from overseas. This is a collateral benefit to running a trade surplus, especially over several years.

An example might be the United Kingdom (UK) during the 19th century. Prior to the 1880's, the UK exported far more than it imported. With the foreign money, it bought assets in the economies of other countries, such as the USA, Continental Europe, and the future Commonwealth of Nations. These assets naturally earned a lot of income, as they accumulated over many decades. The income from these assets was so large that, after the 1880's, the UK ran a trade deficit but still had a current account surplus.


In the case of the UK, the current account surplus from the NFFI was still large enough that the UK could continue to buy foreign assets that earned income, even as its trade deficit grew during the early 20th century.
Gross national product (GNP) is gross domstic product (GDP) minus net foreign factor income (NFFI).
by Abu Yahya February 14, 2009

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The belief efforts to protect people from calamity will only lead to them being more careless, and bringing on more calamity.

This is a fallacy because it (a) assumes people can adjust personal risk to replicate an incomparable situation, and (b) it confusing risk-taking and risky behavior. "Risk-taking" is a neutral term that includes anything that increases risk in some way, such as operating a machine at a higher speed. This usually is done to get some other benefit. "Risky behavior" is foolish, feckless, or sloppy behavior that has no intrinsic utility to the person engaging in it.
An example of the curmudgeon's fallacy is the erroneous claim that safer cars make for careless drivers.
by Abu Yahya August 31, 2008

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(FINANCE) a type of financial derivative; a certificate that gives the owner the right to buy (or sell) a fixed amount of a specific thing for a specific price (the strike price).

An option to buy something else is called a call option; an option to sell something else is called a put option. An option has a strike price, which is the price at which you are entitled to buy (or sell) the underlying commodity, or stock, or foreign currency, or whatever.

Options allow the owner to speculate in the possibility that market prices will change in a certain direction, without actually spending the value of the underlying item. For example, suppose WTI crude is $85.75/bbl. In order to make $1000 off of a $0.25 increase in the price, you ordinarily would need to own 4000 bbls of crude, which you can't afford. So, instead, you buy a call option for 4000 bbls with a strike price of $85.75/bbl (i.e., exactly what it is now). This option will cost a tiny amount of money. If the price goes up to $86.00/bbl, you don't own the oil, but your options are now worth $1000 to somebody who wants to buy that oil.

An option with intrinsic value (for example,a call option whose strike price is less than the spot price) is "in the money." An option with no intrinsic value is "out of the money."
BILL: So, options are just like gambling, am I right?

ANNA: For most people. But if you're already in the business of buying or selling a particular thing, an option can protect you against a bad price movement.

BILL: But options on stocks? I mean, unless a company wants to reward its own executives, or something?

ANNA: Well, you might need options on stocks to hedge risk, if you're a fund manager. That way you can focus on long-run investing.
by Abu Yahya April 04, 2010

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