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ECONOMIC TERMINOLOGY- M - P

PUBLISHED BY: SURENDER KUMAR
OCTOBER 25, 2012

   
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ECONOMIC TERMINOLOGY- M - P

MAASTRICHT TREATY

The treaty signed in Maastricht (the Netherlands) in 1992. More formally called the Treaty on European Union. It was meant to create the European Union (EU) out of the European Economic Community. It cleared the path towards European Economic and Monetary Union. It also built the foundations of intergovernmental cooperation and foreign policy. The Euro is the common currency of the European Union. It is headquartered in Brussels.

 

 

 

 

MERIT GOODS

Those commodities which are taken as socially desirable, regardless of the consumers' preferences. Most governments are ready to bypass the citizens’ free will by subsidizing certain goods and services e.g. education.

 

 

 

 

MICRO-FINANCE

Financial services for the poor who cannot access the formal banking system. Micro-credit began with the discovery that the poor can save and repay loans, especially women in rural areas by rotating credit, in which regular savings can get you a loan at a multiple of the saved amount and perhaps using peer pressure in small communities.

 

 

It has become really large — mostly for credit — with thousands of institutions in developing countries. Some institutions provide micro-finance on purely commercial basis but it is difficult to reduce the cost per loan to viable levels. In India, the sector faces a bleak future because of the lending institutions cannot raise funds from banks and loan recovery problems.  Besides, some state governments e.g. Andhra Pradesh have stopped loan recovery due to allegations of levying extremely high interest rates.

 

 

 

 

MIXED ECONOMY

An economic model in which both private and public enterprises take part in economic activities, though not always in all sectors, some of which may be for the government monopoly. A mixed ownership of the means of production is typical of all modern economic systems.

 

 

India’s has been a mixed economy since Independence, with the public and private sectors given distinct roles. Of course, the balance has shifted in recent decades after the policy of liberalization came into force. Though the economy remains a mixed one, the private sector occupies a commanding position in several niches earlier reserved for the public sector.

 

 

 

 

 

MOST FAVOURED NATION

Such a clause in an international treaty obliges all the participants to give to each other any favourable trading terms offered in agreements with third parties. In simple words, it means no favour or disfavor for any country in terms of conditions for global trade. This is part of the General Agreement on Tariffs and Trade.

 

 

 

 

 

NAVRATNA

Those Public Sector Units that have been granted functional autonomy by the government on the basis of their past financial performance. Some of these are Mahanagar Telephone Nigam Ltd., Steel Authority of India Ltd., Indian Oil Corp  etc. Some other units have been given the status of Mini-Navratnas.

 

 

 

 

 

OLIGOPOLY

A market situation dominated by a few large suppliers. Oligopolies often see heavy product differentiation through advertising and other devices, with long periods of price stability disrupted by keen price competition. Cement, soft drinks, and IMFL and Commercial Truck Cargo are notable examples of oligopoly in India.

 

 

 

 

PONZI SCHEME

An investment fraud (a pyramid or chain scheme) in which the culprit keeps the investment and pays returns to its older investors from the money invested by the new joinees. The name comes from a 1920s scandal in the US involving Charles Ponzi. During the 2009 sub-prime crisis, Bernie Madoff, a US stockbroker, was found guilty and put behind bars for running a similar scheme, probably the largest fraud in history.

 

 

In India, all such money-circulation scheme, involving no product or service, are banned by the Reserve Bank but such instances keep on popping up now and then.

 

 

 

 

POVERTY

In India, poverty was traditionally defined by calorie consumption (minimum of 2400 calories/day in rural areas and 2200/ day in urban areas) earlier, but the definition has undergone a shift of late.  Currently, the Planning Commission defines poverty in terms of having a certain minimum purchasing power at a point of time. For instance, in a controversial decision, the Commission recently came out with a proposal to define notional poverty as having less than Re. 28.65/- per day in an urban area and Re. 22.42/- in a rural area. The definition attracted much criticism because of its obvious irrelevance given the current inflation but the Commission has clarified that it is a notional definition used to determine the eligibility for Below Poverty Line benefits.

 

 

Many experts like D T Lakdawala point out that this kind of perspective can be quite misleading because calories or food alone does not drive a man. According to this view, the ability to buy clothes, housing, education and the like must also be part of the criteria used to define poverty. If one were to go by this definition, the number of Below Poverty Line people is going to multiply several times the official figure of 34%.


 

 

 

PREDATORY PRICING

Fixing very low prices to weaken or eliminate competitors or to keep out new entrants. Since prices will be raised again once these goals are achieved, there is no permanent benefit to the consumer. Predatory pricing is a means of establishing or maintaining the monopoly power.  For example, several telecom players had accused the BSNL of predatory pricing upon its entry in the cellphone space because it could afford to charge low rates owing to its already-existing tower network. Incidentally, charging such prices is a violation of fair pricing and comes within the purview of the Competition Commission of India’s regulations.

 

 

 

 

PREFERENCE SHARES

Preference shareholders enjoy preference over ordinary shareholders, but follow bond holders, in dividend payment and in the return of capital if the firm is liquidated. These shares normally entitle the holder only to a fixed rate of dividend. They have limited voting rights and may be redeemable or not.

 

 

Cumulative preference shares carry forward the right to preferential dividends, if unpaid, from one year to the next. From the investor's viewpoint, preference shares lie between bonds and ordinary shares in terms of risk and income, while to the company, they give some flexibility in distribution policy.

 

 

 

 

 

PRIME LENDING RATE

The interest rate charged by commercial banks from the very best of corporate borrowers for short-term loans in the USA. Other borrowers pay more. In India, the Reserve Bank had a decontrolled Prime Lending Rate (PLR) mechanism wherein every bank had a maximum rate for lending i.e. Prime Lending Rate. The actual interest rate for a particular customer was a few percentage points below this rate, depending on credit risk. But this system has now been replaced by a Base Rate system which prescribes a floor rate for all banks.

 

 

 

 

 

PUMP PRIMING

The infusion of small government spending into a depressed economy to boost business confidence and promote big private investment. In the wake of sub-prime crisis in 2008, the USA followed this policy so as to revive the economy.

 

 

 

 

 

PURCHASING POWER PARITY (PPP)

A foreign exchange rate between two currencies so that the same goods and services could be bought for the same money in each country if the cost were converted. For example, if a loaf of bread costs Re. 20/- in India and $2 in the US, the purchasing-power parity would be Re. 10/- to $1. The Gross Domestic Product (GDP) of different countries, measured in their currency, is to be converted into a common currency to enable a valid comparison. The normal market exchange rates between currencies are not an accurate measure because they are influenced by a variety of forces.

 

 

The practice of measuring a country’s GDP on the basis of its Purchasing Power Parity vis a vis some other popular currency (e.g. US dollar) is gaining popularity. India routinely figures among top 5 nations, if one were to go by the PPP methodology of GDP calculation.

 

 


PRIMARY DEFICIT

Fiscal deficit minus interest payments. It describes how much of the government borrowings go towards meeting expenses other than interest payments.

 

 

 

 

PLASTIC MONEY

A term used for credit cards issued by banks and financial institutions. Credit cards are used by the cardholders for shopping, buying traveling tickets etc.



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