What is the Debt-to-GDP Ratio? The debt-to-GDP ratio, commonly used in economics, is the ratio of a country’s debt to its gross domestic product (GDP). Expressed as a percentage, the ratio is used to gauge a country’s ability to repay its debt. In other words, the debt-to-GDP ratio compares a country’s public debt to its…
What is the Infant Industry Argument? The infant industry argument, a classic theory in international trade, states that new industries require protection from international competitors until they become mature, stable, and are able to be competitive. The infant industry argument is commonly used to justify domestic trade protectionism. The infant industry argument was initiated by…
What is Pareto Efficiency? Pareto Efficiency, a concept commonly used in economics, is an economic situation in which it is impossible to make one party better off without making another party worse off. Understanding Pareto Efficiency To clearly understand the concept of Pareto Efficiency, it is important to introduce the concept of Pareto Improvement. Pareto…
What is the Law of Demand? The law of demand states that the quantity demanded of a good shows an inverse relationship with the price of a good when other factors are held constant (cetris peribus). It means that as the price increases, demand decreases. The law of demand is a fundamental principle in macroeconomics….
What are Inferior Goods? Inferior goods are a type of good whose demand decreases with an increase in the consumer’s income or expansion of the economy (which generally will raise the income of the population). The consumption of inferior goods is generally associated with people in the lower social-economic classes. Despite the association with the…
What is the Poverty Level? The poverty level is also known as the federal poverty level. It is an economic measure used by government agencies to determine if an individual or family’s income is eligible for certain federal subsidies and benefits. It is issued by the U.S. Department of Health and Human Services (DHHS) every…
What is a Legal Monopoly? A legal monopoly, also known as a statutory monopoly, is a firm that is protected by law from competitors. In other words, a legal monopoly is a firm that receives a government mandate to operate as a monopoly. Legal monopolies can be established through: A public franchise A government license…
What is Fannie Mae? The Federal National Mortgage Association, typically known as Fannie Mae, is a United States government-sponsored entity that was established to expand the secondary mortgage market by making mortgages available to low and middle-income borrowers. It does not provide mortgages to borrowers, but purchases and guarantees mortgages through the secondary mortgage market….
What is Reaganomics? Reaganomics refers to economic policies put forward by US President Ronald Reagan during his presidency in the 1980s. The policies were introduced to fight a long period of slow economic growth, high unemployment, and high inflation that occurred under Presidents Gerald Ford and Jimmy Carter. Reaganomics was built upon four key concepts:…
Commodities: Cash Settlement vs Physical Delivery The modes of settlement for most options and futures contracts can be either of the following two methods: 1. Cash Settlement The cash settlement method of settling commodities does not involve the physical delivery of the asset(s) under consideration. It instead involves the settlement of net cash on the…
