SOME ECONOMIC TERMS
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What is Recession?
Ans:-A country is in Recession when factories and businesses are closing, unemployment is increasing and people in general have less money. In macroeconomics a recession is a decline in a country's Gross Domestic Product, or negative real economics growth for two or more successive quarters of a year. During a recession economy either slows down or contracts.
A recession may involve simultaneous declines in other factors of overall economic activity such as employment, investment and corporate profits. People buy less stuff resultantly there is less factory production. An unhealthy stock market is also an indicator.
2. What is Depression [or Economic Depression]
Ans:- A prolonged and severe Recession is called a Depression or Economic Depression. The Great Depression of 1929 was a global phenomenon that affected the world economies for 10 years. In USA it was triggered by "Black Thursday", October 24, 1929 when 12.9 million share of stock were sold in one day. Share prices declined by 15 to 20% , resulting in a stock market crash.
The peak of Great Depression was in 1933 when the unemployment rose from 3% to 25% and the wages of those employed fell up to 42%. GDP of USA was cut in half and world trade was reduced by 65%.
3. What is Inflation?
Ans:- "Inflation is when prices continue to creep upward, usually as a result of overheated economic growth or too much capital in the market chasing too few opportunities. Usually wages creep upwards, also, so that companies can retain good workers. Unfortunately, the wages creep upwards more slowly than do the prices, so that your standard of living can actually decrease." (Reference www.about.com )
"Inflation is the rise in the amount of money circulating in a given economy over a period of time resulting in a general rise in prices. It is measured as the percentage rate of change of a price index". ( Reference:- http://en.wikipedia.org/wiki/Inflation )
4. What is Deflation
Ans:- A decrease in the general price level over a period of time. The term is also used to refer to the decrease in money supply.
5. What is Foreign Exchange
Ans:- The simultaneously buying of one currency and selling of another or the conversion of one currency into another. [ The currencies of countries other than your own, or international currencies generally - Encarta Dictionary]
6. What is Foreign Exchange Reserves
Ans:- Liquid assets held by a central bank or government of a country, for use in intervening in the foreign exchange market. This includes gold, or convertible foreign currencies, e. g. US Dollars for countries other than the United States, and DM for countries other than Germany. This also includes government securities issued in the above currencies. [ Reference http://www.lse.co.uk/ ] Please click below to see the list of countries by Foreign Exchange Reserves
http://en.wikipedia.org/wiki/List_of_countries_by_foreign_exchange_reserves
7. What are Liquid Assets
Ans:- These are the assets we can easily sell. [ or They are assets that can be quickly turned into cash. Stocks, bonds and gold coins are liquid. A house or a race horse would be illiquid. ]