Archives: Terms

Definition of Real Money Supply Real Money Supply refers to the amount of money available in an economy, adjusted for inflation. This concept is essential because it provides a more accurate picture of the purchasing power of the currency in circulation. By adjusting for changes in the price level, economists […]

Definition of Real Interest Rate The real interest rate is the rate of interest an investor expects to receive after allowing for inflation. It essentially reflects the true cost of borrowing and the real yield on investments. The real interest rate is calculated by adjusting the nominal interest rate to […]

Definition of Real GNP Gross National Product (GNP) is a broad measure of a nation’s total economic activity. Real GNP adjusts this economic measure for inflation, providing an assessment of the economic production of a country by considering the value of goods and services produced by its citizens over a […]

Definition of Real Exchange Rate The real exchange rate (RER) is a measure that adjusts the nominal exchange rate to reflect differences in price levels between two countries. It shows the relative price of goods between countries and is crucial for understanding competitiveness and purchasing power. In essence, the real […]

Definition of Real Costs Real costs refer to the total cost of producing a good or service, considering both direct and indirect expenses. This concept encompasses all resources expended in the production process, such as labor, materials, and overheads, as well as opportunity costs. Opportunity costs represent the value of […]

Definition of Real Business Cycle (RBC) Theory Real Business Cycle (RBC) Theory is an economic theory that focuses on real (i.e., inflation-adjusted) shocks to the economy as the primary cause of business cycle fluctuations. According to RBC theorists, changes in technology, productivity, or supply of resources (such as oil) can […]

Definition of Real Balances Real balances refer to the purchasing power of the money holdings of individuals or institutions, taking into account the effects of inflation. That means real balances represent the quantity of goods and services that can be purchased with a given amount of nominal money, adjusted for […]

Definition of Real Balance Effect The real balance effect, also known as the Pigou effect, refers to the change in consumption resulting from a change in real wealth caused by a change in the price level. Essentially, it captures how the purchasing power of consumers’ money alters as prices increase […]

Definition of Reaction Curve A reaction curve, also known as a best response function, is a concept in game theory and economics that describes the optimal response of one firm to the strategies chosen by another firm. It reflects the strategic interdependence between firms in an oligopolistic market, where each […]

Definition of Rawlsian Social Welfare Function The Rawlsian social welfare function is a concept in welfare economics that evaluates the desirability of different economic states or distributions based on the principles introduced by philosopher John Rawls. According to Rawls’s theory of distributive justice, the most just society is one that […]