Essential Economic Concepts: Key Terms Defined
Productive Factors
Productive factors are the inputs used to produce goods or services. The three fundamental factors of production, which originate others, are labor, capital, and land.
Floating Exchange Rate
A floating exchange rate is an exchange rate policy regime under which the parity or the price of a country's currency with respect to foreign currencies is determined freely in the foreign exchange market, without systematic intervention by the fiscal authority.
Loanable Funds
Loanable funds refer to the supply of funds available for lending in the financial market.
Frequency of Data
The frequency of data refers to how often statistical data is collected or reported. An economic variable can be measured hourly, daily, weekly, monthly, quarterly, or annually.
Policy Horizon
The policy horizon is the period for which the monetary authority targets its policy instrument for inflation to return to the value of its goal.
Inflation Tax
The inflation tax is the implicit tax paid by money holders whose real value is eroded by inflation.
Monetary Stimulus
Monetary stimulus refers to a rapid expansion of monetary policy at a particular time. When the policy rate is below its neutral level, monetary policy is considered expansionary.
Indexing
Indexing is a price adjustment mechanism for goods, services, wages, and asset values, based on the variation of a specific index, typically a consumer price index.
Consumer Price Index (CPI)
The Consumer Price Index (CPI) is a monthly index showing the evolution of the general price level. It serves as a basis for monitoring the monetary value of a representative basket of consumer goods.
Inflation
Inflation is a general rise in the prices of goods and services, reflected in a systematic increase in the general price index.
Core Inflation
Core inflation measures inflation of the consumer price index basket by eliminating products whose prices are more volatile. It is often measured by CPIX and CPIX1.
CPIX
CPIX is obtained from the CPI basket, which excludes perishables (such as fruits and vegetables) and energy (including gasoline, kerosene, and natural gas).
CPIX1
CPIX1 is obtained from the CPI basket, which excludes perishables and energy, as well as goods and services that are subject to discrete changes.
Long Term
In economics, the long term is a period in which the values of economic variables, after a disturbance, have reached their steady or stable state.
Liquidity
Liquidity is the ability to pay cash obligations in the short term. It relates to the ease with which assets can be converted into cash without causing further loss of value.
Economic News
Economic news refers to new, unforeseen, or unanticipated information relevant to current and future economic activity, which amends the expectations and decisions of economic agents.
Open Market Operations
Open market operations involve the buying and selling of government securities by the central bank, whose main purpose is to keep the daily interbank rate around the policy rate.