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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.

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
In economics, a monetary policy in which the value of the local currency is determined by the foreign exchange markets, with some intervention by the government (or its allies) in the event of excessive or dangerous movements.

Usually the term is applied when the country ignores long term shifts in value, but intervenes directly to avoid crises.
Most of the nations in the world have neither a hard peg nor floating currency, but something in between--a dirty float, in which trade is under some restrictions.
by abu yahya July 10, 2008
Organization founded in 1943 by Lewis H. Brown (the asbestos tycoon).

(Brown's company, Johns-Manville, was the largest asbestos manufacturer in the US during the 1930s, and was involved in a massive, 40-year cover-up of the severe health risks posed by asbestos.)

The American Enterprise Association (AEA) was created to design and promote policies that strengthen the political power of large corporations. In 1970, William Baroody, Sr. became its head and changed the name from "Association" to "Institute" (AEI); he had earlier learned how to (a) launder oversized campaign contributions from corporate boards, and (b) how to present the AEI as an earnest, high-minded, non-partisan research group (or "thinktank"). Baroody's sons, William Jr. and Michael, both became important Conservative Movement figures.

The AEI was, until the 1990's, mainly a very well-heeled devil's advocate against any progressive cause: it opposed regulating cigarettes, municipal water systems, environmental protections of all kinds, and the Endangered Species Act. Its budget grew enormously and it spawned subsidiary organizations such as NGOWatch, the Center for Strategic and International Studies, the Project for a New American Century (PNAC), and many more besides.

During the period 1997-present, the AEI became much more intensively focused on armed confrontation. In the name of "security," especially "energy security," the AEI appears to have spent an increased share of its already-burgeoning budget on promoting war or sanctions against many countries with a majority Muslim population. It argued against democratic review of US foreign policy, and in favor of criminalizing dissent. Position papers ceased to have any research content at all, and became pure polemics.

After the 2008 elections, which provided a clear repudiation of AEI policies *en masse*, the AEI focused on promoting itself as the guardian of national security; it did this by arguing that torture and extraordinary renditions were vital to keeping the USA safe from foreign terrorists. This made the organization valuable to former administration officials subject to prosecution for violations of Hague Conventions & Geneva Conventions
In February 2007, *The Guardian* (UK) reported that the American Enterprise Institute was offering scientists and economists $10,000 each, "to undermine a major climate change report" from the United Nations Intergovernmental Panel on Climate Change (IPCC). AEI asked for "articles that emphasise the shortcomings" of the IPCC report, which "is widely regarded as the most comprehensive review yet of climate change science."
by Abu Yahya May 29, 2009
title of book by John Maynard Keynes (1883-1946) outlining the general concept of Keynesian economics. The book was published in 1936.

Prior to the Great Depression, opinions about how to properly manage the economy were dominated by Neoclassical economics, which advocated little government intervention. In particular, unemployment was regarded as the consequence of workers failing to accept wages sufficiently low to permit full employment.

During the Great Depression, unemployment soared to 25% in the USA and Germany. Economics had no advice to give to leaders anxious to do something, and none of the neoclassical predictions were coming true. The government of the UK commissioned J.M. Keynes to lead a commission of top British economists in a general review of economic theory; their finding were summarized by Keynes in *The General Theory*.

*The Findings*

The Cambridge team did not have access to statistics of national income and product accounting (NIPA). They did have some data on unemployment and prices, especially from the USA.

Keynes also identified several inherent logical problems with neoclassical economic theory about saving and investment. The theory said that all economic output of an economy would tend to be consumed; all saving would be invested; and all workers would be employed, *provided wages fell low enough*.

Keynes noted the economic mechanism by which investment occurs has little to do with the existing rate of saving; both are influenced by interest rates, but other forces come into play (e.g., liquidity preference for saving, business opportunities and user cost for investment). Hence, aggregate demand can drift very far out of alignment with output (or potential output).

Another finding was that employment rates actually did not respond in a predictable way to the fall in wages. The US economy suffered periods when a reduction in the wage level lead to increases in employment, despite the assumption that workers would have withdrawn from the labor market.

Finally, Keynes proposed the use of monetary policy and fiscal policy for regulating business cycles.
The *The General Theory of Employment, Interest, and Money* completely shook up the world of economic policy. Hereafter, governments took responsibility for economic conditions or they lost power.
by Abu Yahya March 03, 2009
(FINANCE) a contractual obligation to buy or sell a fixed amount of a thing at a set price, at a specific time in the future.

Same as a futures contract.
SALES AGENT: I have this awesome product made in the USA I want to sell in Europe. It's cheap now, but what if the euro goes down against the dollar? I could lose a lot of money on inventory.

BROKER: No problem, just buy a future for the amount of US dollars you'll need to pay your suppliers.

SALES AGENT: You mean, a futures contract for dollars?

BROKER: Yes, a euro-pegged future for dollars. When the contract comes due, you pay the euros, they pay you the dollars, and BOOM! You're good to go. No risk.
by Abu Yahya April 04, 2010
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
(ECONOMICS) international bank created after World War 2 to coordinate currency stabilization. Main policy tool consists of lending money to central bank of countries facing a liquidity crisis.

In some cases, as when a member government is insolvent, the IMF will impose a structural adjustment program (SAP) requiring the government to jettison programs it has to serve the poor. For this reason, the IMF is often harshly criticized.
It is often said that the IMF makes economic crises worse by imposing the same austerity program everywhere, thereby further reducing a member state's ability to pay its sovereign debt.
by Abu Yahya May 04, 2010