What is a Trade War? A trade war is an economic conflict between countries. This results in both countries imposing trade protectionist policies against one another in the form of trade barriers. These barriers can be imposed in a number of different ways, including but not limited to tariffs, import quotas, domestic subsidies, currency devaluation,…
What is Technological Progress? Technological progress refers to the discovery of new and improved methods of producing goods. Changes in technology lead to an increase in productivity of labor, capital, and other factors of production. Technology refers to the process through which inputs are transformed into outputs. A technological change involves the invention of technologies and their release as open…
What is Economic Depreciation? Economic depreciation is the decline in the economic value of an asset over time. It also may refer to consumption of fixed capital for the purpose of estimating national accounts. Economic depreciation, in general, can be attributed to indirect factors such as a decline in the quality of living, deterioration in…
What is the Growth Accounting Equation? The Growth Accounting Equation is a financial tool that measures economic growth – specifically, how changes in real Gross Domestic Product (GDP) in an economy are influenced by changes in available capital, labor, and technology. The Growth Accounting Equation facilitates analyzing economic growth at the minutest level. It enables…
What are Imports and Exports? Imports are the goods and services that are purchased from the rest of the world by a country’s residents, rather than buying domestically produced items. Imports lead to an outflow of funds from the country since import transactions involve payments to sellers residing in another country. Exports are goods and…
What is the Dallas Trimmed Mean? The Dallas Trimmed Mean, popularly known as the Trimmed Mean PCE Inflation Rate, is a measure of core inflation in the price index for Personal Consumption Expenditures (PCE). It is called the Dallas Trimmed Mean because it is estimated by the staff at the Federal Reserve Bank of Dallas….
What is Capital Deepening? Capital deepening refers to an increase in the capital-labor ratio. The capital-labor ratio can go higher either due to an increase in the capital stock or through a decrease in the number of workers. Capital deepening increases the marginal product of labor – i.e., it makes labor more productive (because there…
What is Economic Profit? Economic profit (or loss) refers to the difference between the total revenues, less costs, and the opportunity cost associated with the revenue generated. Opportunity cost is the cost of an opportunity foregone, i.e., given up to pursue another. For example, assume a company needs to make significant changes in their business…
What are Limitations on M&A? Mergers and acquisitions are often used in non-financial debt covenants by lenders with the intention to avoid any significant impact on cash flow on the part of the borrowing party that may or may not affect their ability to pay back the loan. Hence, by putting limitations on mergers and…
What are Total Assets? Total assets refers to the sum of the book values of all assets owned by an individual, company, or organization. It is a parameter that is often used in net worth debt covenants. The value of a company’s total assets is obtained after accounting for depreciation associated with the assets. Net…
