# Glossary of economics

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This glossary of economics is list of definitions about economics, its sub-disciplines, and related fields.

## B

• Backward induction – is the process of reasoning backwards in time, from the end of a problem or situation, to determine a sequence of optimal actions. It proceeds by first considering the last time a decision might be made and choosing what to do in any situation at that time. Using this information, one can then determine what to do at the second-to-last time of decision. This process continues backwards until one has determined the best action for every possible situation (i.e. for every possible information set) at every point in time.
• Balance of payments – also known as balance of international payments and abbreviated B.O.P. or BoP, of a country is the record of all economic transactions between the residents of the country and the rest of world in a particular period of time (over a quarter of a year or more commonly over a year). The balance of payments is a summary of all monetary transactions between a country and rest of the world. These transactions are made by individuals, firms and government bodies. Thus the balance of payments includes all external visible and non-visible transactions of a country.
• Balance of trade – The balance of trade, commercial balance, or net exports (sometimes symbolized as NX), is the difference between the monetary value of a nation's exports and imports over a certain period.[20] Sometimes a distinction is made between a balance of trade for goods versus one for services. "Balance of trade" can be a misleading term because trade measures a flow of exports and imports over a given period of time, rather than a balance of exports and imports at a given point in time. Also, balance of trade does not mean that exports and imports are "in balance" with each other or anything else.
• Balanced budget – A balanced budget (particularly that of a government) is a budget in which revenues are equal to expenditures. Thus, neither a budget deficit nor a budget surplus exists (the accounts "balance"). More generally, it is a budget that has no budget deficit, but could possibly have a budget surplus.[21] A cyclically balanced budget is a budget that is not necessarily balanced year-to-year, but is balanced over the economic cycle, running a surplus in boom years and running a deficit in lean years, with these offsetting over time.
• Bank – A bank is a financial institution that accepts deposits from the public and creates credit.[22] Lending activities can be performed either directly or indirectly through capital markets. Due to their importance in the financial stability of a country, banks are highly regulated in most countries. Most nations have institutionalized a system known as fractional reserve banking under which banks hold liquid assets equal to only a portion of their current liabilities. In addition to other regulations intended to ensure liquidity, banks are generally subject to minimum capital requirements based on an international set of capital standards, known as the Basel Accords.
• Bankruptcy – The inability to pay debt due to loss of income, increased spending, or an unforeseen financial crisis.
• Barriers to entry – In theories of competition in economics, a barrier to entry, or an economic barrier to entry, is a cost that must be incurred by a new entrant into a market that incumbents do not have or have not had to incur.[23][24] Because barriers to entry protect incumbent firms and restrict competition in a market, they can contribute to distortionary prices and are therefore most important when discussing antitrust policy. Barriers to entry often cause or aid the existence of monopolies or give companies market power.
• Barter – In trade, barter (derived from baretor[25]) is a system of exchange where participants in a transaction directly exchange goods or services for other goods or services without using a medium of exchange, such as money.[26] Economists distinguish barter from gift economies in many ways; barter, for example, features immediate reciprocal exchange, not delayed in time. Barter usually takes place on a bilateral basis, but may be multilateral (i.e., mediated through a trade exchange). In most developed countries, barter usually only exists parallel to monetary systems to a very limited extent. Market actors use barter as a replacement for money as the method of exchange in times of monetary crisis, such as when currency becomes unstable (e.g., hyperinflation or a deflationary spiral) or simply unavailable for conducting commerce.
• Behavioral economics – studies the effects of psychological, cognitive, emotional, cultural and social factors on the economic decisions of individuals and institutions and how those decisions vary from those implied by classical theory.[27]
• Bellman equation
• Bequest motive – seeks to provide an economic justification for the phenomenon of intergenerational transfers of wealth. In other words, to explain why people leave money behind when they die.
• Bertrand–Edgeworth model – In microeconomics, the Bertrand–Edgeworth model of price-setting oligopoly looks at what happens when there is a homogeneous product (i.e. consumers want to buy from the cheapest seller) where there is a limit to the output of firms which they are willing and able to sell at a particular price. This differs from the Bertrand competition model where it is assumed that firms are willing and able to meet all demand. The limit to output can be considered as a physical capacity constraint which is the same at all prices (as in Edgeworth’s work), or to vary with price under other assumptions.
• Black–Scholes model – The Black–Scholes /ˌblæk ˈʃlz/[28] or Black–Scholes–Merton model is a mathematical model for the dynamics of a financial market containing derivative investment instruments. From the partial differential equation in the model, known as the Black–Scholes equation, one can deduce the Black–Scholes formula, which gives a theoretical estimate of the price of European-style options and shows that the option has a unique price regardless of the risk of the security and its expected return (instead replacing the security's expected return with the risk-neutral rate). The formula led to a boom in options trading and provided mathematical legitimacy to the activities of the Chicago Board Options Exchange and other options markets around the world.[29] It is widely used, although often with adjustments and corrections, by options market participants.[30]:751
• Board of governors – It is the main governing body of the Federal Reserve of the United States that directs the operations of the Fed. Its seven members supervises the 12 Federal Reserve Districts.
• Bond – In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. The most common types of bonds include municipal bonds and corporate bonds. The bond is a debt security, under which the issuer owes the holders a debt and (depending on the terms of the bond) is obliged to pay them interest (the coupon) or to repay the principal at a later date, termed the maturity date.[31] Interest is usually payable at fixed intervals (semiannual, annual, sometimes monthly). Very often the bond is negotiable, that is, the ownership of the instrument can be transferred in the secondary market. This means that once the transfer agents at the bank medallion stamp the bond, it is highly liquid on the secondary market.[32]
• Break-even (economics) – The break-even point (BEP) in economics, business—and specifically cost accounting—is the point at which total cost and total revenue are equal, i.e. "even". There is no net loss or gain, and one has "broken even", though opportunity costs have been paid and capital has received the risk-adjusted, expected return. In short, all costs that must be paid are paid, and there is neither profit nor loss.[33][34]
• Bretton Woods system – The Bretton Woods system of monetary management established the rules for commercial and financial relations among the United States, Canada, Western Europe, Australia, and Japan after the 1944 Bretton Woods Agreement. The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent states. The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained its external exchange rates within 1 percent by tying its currency to gold and the ability of the IMF to bridge temporary imbalances of payments. Also, there was a need to address the lack of cooperation among other countries and to prevent competitive devaluation of the currencies as well.
• Budget deficit
• Budget set – A budget set or opportunity set includes all possible consumption bundles that someone can afford given the prices of goods and the person's income level. The budget set is bounded above by the budget line. Graphically speaking, all the consumption bundles that lie inside the budget constraint and on the budget constraint form the budget set or opportunity set. By most definitions, budget sets must be compact and convex.
• Budget surplus
• Big push model – is a concept in development economics or welfare economics that emphasizes that a firm's decision whether to industrialize or not depends on its expectation of what other firms will do. It assumes economies of scale and oligopolistic market structure and explains when industrialization would happen.
• Business cycle – The business cycle, also known as the economic cycle or trade cycle, is the downward and upward movement of gross domestic product (GDP) around its long-term growth trend.[35] The length of a business cycle is the period of time containing a single boom and contraction in sequence. These fluctuations typically involve shifts over time between periods of relatively rapid economic growth (expansions or booms), and periods of relative stagnation or decline (contractions or recessions).
• Business economics – is a field in applied economics which uses economic theory and quantitative methods to analyze business enterprises and the factors contributing to the diversity of organizational structures and the relationships of firms with labour, capital and product markets.[36]
• Business sector – or corporate sector - sometimes popularly called simply "business" - is "the part of the economy made up by companies".[37] It is a subset of the domestic economy,[38] excluding the economic activities of general government, of private households, and of non-profit organizations serving individuals.[39]

## H

• Housing starts – The number of new houses being built during a period of time.
• Hyperinflation – Monetary inflation occurring at an extremely high rate.

## R

• Rate of profit
• Rational choice – The idea of making choices by using logic and that people will chose the most beneficial of the options afforded.
• Rational expectations
• Real income effect – The change in consumption resulting from a change in income, adjusted for inflation.
• Real GDP – GDP that has been adjusted for inflation by applying the price deflator.
• Recession – Part of the business cycle in which the nation's output (real GDP) does not grow for at least six months.
• Regional science
• Regressive tax – A tax schedule that states that the more one earns, the lower the tax burden.
• Regulation – Government restrictions on a business firm that usually helps consumers or the environment.
• Retail Sales – Purchases of finished goods and services by households and firms.
• Returns to scale
• Revenue – Total income from sales of output.
• Rights
• Right to work laws – State laws forbidding unions from forcing workers to join and pay union dues.
• Risk aversion
• Risk-return relationship – The direct relationship between the risk of an investment and its expected return or profit; the higher the risk, the higher the opportunity for gain or loss and vice versa.
• Rivalry

## U

• Underemployment – Working at a job for which one is overqualified, or working part-time when full-time work is desired.
• Unemployment – Under utilization of a factor of production, including labor.
• Uniform
is a type of clothing worn by members of an organization while participating in that organization's activity.
• Unit of account
• Unitary elastic
• Unskilled labor – Labor that requires no specialized skills, education, or training.
• Utility – Usefulness of a good or service in order to satisfy a need or a want.

## V

• Variable cost – are costs that change in proportion to the good or service that a business produces.[54] Variable costs are also the sum of marginal costs over all units produced.
• Velocity of money – The term "velocity of money" (also "The velocity of circulation of money") refers to how fast money passes from one holder to the next. It can refer to the income velocity of money, which is the frequency at which the average same unit of currency is used to purchase newly domestically-produced goods and services within a given time period.[55] In other words, it is the number of times one unit of money is spent to buy goods and services per unit of time.[55]

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