Naked Economic Chapter 4 Vocabulary

  1. Private Sector: “The part of the economy that is not state controlled, and is run by individuals and companies for profit. The private sector encompasses all for-profit businesses that are not owned or operated by the government. Companies and corporations that are government run are part of what is known as the public sector, while charities and other nonprofit organizations are part of the voluntary sector” (Investopedia).
  2. Milton Friedman: “An American economist and statistician best known for his strong belief in free-market capitalism. Milton Friedman strongly opposed the views of Keynesian economists, encouraging governments to minimize their involvement in the economy by reducing taxes and ceasing inflationary policies” (Investopedia).
  3. Keynesian Economic: “An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed by the British economist John Maynard Keynes during the 1930s in an attempt to understand the Great Depression. Keynes advocated increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the Depression. Subsequently, the term “Keynesian economics” was used to refer to the concept that optimal economic performance could be achieved – and economic slumps prevented – by influencing demand through economic intervention policies by the government. Keynesian economics is considered to be a “demand-side” theory that focuses on changes in the economy over the short run” (Investopedia).
  4. DDT: “a colorless, crystalline, tasteless and almost odorless organochloride known for its insecticidal properties” (Wikipedia).
  5. Burton Malkiel: “wrote ‘A Random Walk Down Wall Street,’ a book that is now regarded as an investment classic” (Investopedia).
  6. Random walk theory: “a stock market theory that states that the past movement or direction of the price of a stock or overall market cannot be used to predict its future movement” (Investopedia).
  7. Dead Weight Loss: “The costs to society created by market inefficiency. Mainly used in economics, deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources. Price ceilings (such as price controls and rent controls), price floors (such as minimum wage and living wage laws) and taxation are all said to create deadweight losses. Deadweight loss occurs when supply and demand are not in equilibrium” (Investopedia).
  8. Laffer Curve: “Invented by Arthur Laffer, this curve shows the relationship between tax rates and tax revenue collected by governments.The curve suggests that, as taxes increase from low levels, tax revenue collected by the government also increases. It also shows that tax rates increasing after a certain point (T*) would cause people not to work as hard or not at all, thereby reducing tax revenue. Eventually, if tax rates reached 100% (the far right of the curve), then all people would choose not to work because everything they earned would go to the government” (Investopedia).
  1. GDP – Gross Domestic Product: “The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis” (Investopedia).
  2. Fiscal Drag: Fiscal drag is a concept where inflation and earnings growth may push more tax payers into higher tax brackets. Therefore fiscal drag has the effect of raising government tax revenue without explicitly raising tax rates. The result is that real incomes may fall; this acts as a restraint on the expansion of the economy and may cause people to avoid earning more income because the higher tax bracket reduces their real income.
  3. Supply-Side Economics: “the idea that greater tax cuts for investors and entrepreneurs provide incentives to save and invest, and produce economic benefits that trickle down into the overall economy” (Investopedia). In other words, give really rich people a tax break so that they have even more money. This wealth will then “trickle down” to poor people as the rich spend even more money. In reality, this is, as famously stated by George Bush (the elder), “voodoo economics.”