Archives: Terms

Definition of Gandhian Economics Gandhian economics is a school of economic thought based on the principles espoused by Mahatma Gandhi, a key figure in India’s independence movement. It emphasizes simplicity, self-sufficiency, and a moral and ethical approach to economics. Gandhian economics advocates for the development of a society based on […]

Definition of the Galor-Zeira Model The Galor-Zeira model is a framework within developmental economics that illustrates how income distribution and economic development are interconnected, particularly highlighting the impacts of credit market imperfections on inequality and growth. It builds on the premise that disparities in wealth can lead to divergent educational […]

Definition of Gale-Shapley Algorithm The Gale-Shapley Algorithm, also known as the Deferred Acceptance Algorithm, is a solution to the Stable Matching Problem, which essentially involves matching members of two groups to one another based on preferences, ensuring a stable outcome. A “stable” match means there are no two individuals who […]

Definition of Gains from Trade Gains from trade refer to the net benefits that individuals, companies, and nations achieve by engaging in voluntary exchange. This concept is rooted in the principle of comparative advantage, which suggests that economies can benefit when they specialize in the production of goods and services […]

Definition of the Fundamental Theorems of Welfare Economics The Fundamental Theorems of Welfare Economics are central to understanding how economic efficiency can be achieved in markets and the potential role of government in achieving optimal allocation of resources. These theorems provide a formal basis for evaluating the efficiency of market […]

Definition of The Fundamental Theorems of Asset Pricing The Fundamental Theorems of Asset Pricing are foundational concepts in financial economics that establish the relationship between risk and return in competitive markets. They provide theoretical frameworks for pricing derivatives and understanding the conditions under which markets are complete (i.e., every payoff […]

Functions of Money Money serves several vital functions in any economy, influencing how transactions, savings, investments, and various economic activities are conducted. Understanding the roles and characteristics that define money is crucial for grasifying basic economic principles. These functions are broadly categorized into three main areas: medium of exchange, store […]

Definition of Full-Reserve Banking Full-reserve banking is a financial system where banks are required to keep the full amount of each depositor’s funds in reserve, ready for immediate withdrawal on demand. This means that, unlike in fractional-reserve banking, banks cannot use the vast majority of deposited funds for lending, investment, […]

Definition of the Frisch–Waugh–Lovell Theorem The Frisch–Waugh–Lovell (FWL) theorem is a principle in econometrics that provides insight into the estimation of coefficients in multiple linear regression models. This theorem states that the estimated coefficient of a variable in a multiple regression is the same as the coefficient obtained by regressing […]

Definition of Friedman’s k-percent Rule Friedman’s k-percent rule is a monetary policy proposal recommended by economist Milton Friedman, which suggests that the central bank should increase the money supply at a constant annual rate. This rate should be equal to the long-term growth rate of the real GDP, typically around […]