d).Inferior
good: A type of good for which demand declines as
the level of income or real GDP in the economy increases. This occurs when a
good has more costly substitutes that see an increase in demand as the
society's economy improves. An inferior good is the opposite of a normal good,
which experiences an increase in demand along with increases in the income
level. An example of an inferior good is public transportation. When consumers
have less wealth, they may forgo using their own forms of private
transportation in order to cut down costs (car insurance, gas and other car
upkeep costs) and instead opt to use a less expensive form of transportation
(bus pass).
e).Public
good:
In economics, a public good is a good that is both non-excludable and non-rivalries
in that individual cannot be effectively excluded from use and where use by one
individual does not reduce availability to others.
Examples of
public goods include fresh air, knowledge, lighthouses, national defence, flood
control systems and street lighting. Public goods that are available everywhere
are sometimes referred to as global public goods.
f).Floating
Exchange Rate: A
country's exchange rate regime where its currency is set by the
foreign-exchange market through supply and demand for that particular currency
relative to other currencies. Thus, floating exchange rates change freely and
are determined by trading in the forex market. This is in contrast to a "fixed
exchange rate" regime.
g).Quasi-rent: Quasi-rent
is like economic rent, but usually larger, because it is the excess of return
over short run opportunity cost, which does not include the fixed cost of
replacing or duplicating fixed assets such as a piece of capital or an
invention. Thus, infra-marginal rent.
For example at
the time of creation of Bangladesh, the demand for houses increased owning to
increase in population. But the supply could not be increased because of the
sacristy of building materials. For the time being, their supply was much
limited as that of land. Rent rose. This abnormal increase in the return on
capital invested in building is nothing but Quasi-rent.
h).Basel
II Accord: The
Basel Accords determine how much equity capital - known as regulatory capital -
a bank must hold to buffer unexpected losses. Equity is assets minus
liabilities. For a traditional bank, assets are loans and liabilities are
customer deposits. But even a traditional bank is highly leveraged (i.e., the
debt-to-equity or debt-to-capital ratio is much higher than for a corporation).
If the assets decline in value, the equity can quickly evaporate. So, in simple
terms, the Basel Accord requires banks to have an equity cushion in the event
that assets decline, providing depositors with protection.
The regulatory
justification for this is about the system: If big banks fail, it spells
systematic trouble. If not for this, we would let banks set their own levels of
equity -known as economic capital - and let the market do the disciplining. So,
Basel attempts to protect the system in much the same way that the Federal
Deposit Insurance Corporation (FDIC) protects individual investors.
i).
Reserve Ratio'/Cash Reserve Ratio/Cash Reserve Requirement: A Cash Reserve
Ratio, also known as the Reserve Requirement is a regulation set by Central
bank (Bangladesh Bank) which dictates the minimum amount (reserves) that a
commercial bank (in some cases, any bank) must be held to customer notes and
deposits. In simpler terms this is the amount the bank must surrender with/to
the Central (governing) Bank.
It is a
percentage of bank reserves to deposits and notes. Cash reserve ratio is also
known as liquidity ratio or cash asset ratio and is utilized as a tool
(sometimes) in monetary policy and as a tool to influence the country’s
interest rates, borrowing and economy. For example, if the reserve ratio in the
Bangladesh is determined by the central bank to be 11%, this means all banks
must have 11% of their depositors' money on reserve in the bank. So, if a bank
has deposits of 1 billion, it is required to have 110 million on reserve.
j).
Gresham's Law: In currency valuation, Gresham's Law
states that if a new coin ("bad money") is assigned the same face
value as an older coin containing a higher amount of precious metal ("good
money"), then the new coin will be used in circulation while the old coin
will be hoarded and will disappear from circulation.
Coins were first
made with gold, silver and other precious metals, which gave them their value.
Over time, the amount of precious metals used to make the coin decreased
because the metals were worth more on their own than when minted into the coin
itself. If the value of the metal in the old coins was higher than the coin's
face value, people would melt the coins down and sell the metal. Similarly, if
a low quality good is passed off as a high quality good, then the market will
drive down prices because consumers won't be able to determine the good's real
value.
k). Opportunity
cost:
Opportunity cost is the cost of any activity measured in terms of the value of
the next best alternative that is not chosen. It is the sacrifice related to
the second best choice available to someone, or group, who has picked among
several mutually exclusive choices. The opportunity cost is a key concept in
economics, and has been described as expressing "the basic relationship
between scarcity and choice".
Example: The difference in return between
a chosen investment and one that is necessarily passed up. Say you invest in a
stock and it returns a paltry 2% over the year. In placing your money in the
stock, you gave up the opportunity of another investment - say, a risk-free
government bond yielding 6%. In this situation, your opportunity costs are 4%
(6% - 2%).
L).Cost-Push
Inflation:
Definition: Cost
push inflation is inflation caused by an increase in prices of inputs like labor,
raw material, etc. The increased price of the factors of production leads to a
decreased supply of these goods. While the demand remains constant,
the prices of commodities increase causing a rise in the overall price
level. This is in essence cost push inflation.
In this case, the overall price level increases due to higher costs of
production which reflects in terms of increased prices of goods and commodities
which majorly use these inputs. This is inflation triggered from supply
side i.e. because of less supply. The opposite effect of this is called
demand pull inflation where higher demand triggers inflation.
Apart from rise in prices of inputs, there could be other factors leading to
supply side inflation such as natural disasters or depletion of natural
resources, monopoly, government regulation or taxation, change
in exchange rates, etc. Generally, cost push inflation may occur in case
of an inelastic demand curve where the demand cannot be easily adjusted
according to rising prices.
