Chapter 4 Vocabulary

Naked Economic Chapter 4 Vocabulary
1. Private Sector: “The part of the economy that is not state controlled, and is run by individuals
and companies for profit. The private sector encompasses all for-profit businesses that are not
owned or operated by the government. Companies and corporations that are government run
are part of what is known as the public sector, while charities and other nonprofit organizations
are part of the voluntary sector” (Investopedia).
2. Milton Friedman: “An American economist and statistician best known for his strong belief in
free-market capitalism. Milton Friedman strongly opposed the views of Keynesian economists,
encouraging governments to minimize their involvement in the economy by reducing taxes and
ceasing inflationary policies” (Investopedia).
3. Keynesian Economic: “An economic theory of total spending in the economy and its effects on
output and inflation. Keynesian economics was developed by the British economist John
Maynard Keynes during the 1930s in an attempt to understand the Great Depression. Keynes
advocated increased government expenditures and lower taxes to stimulate demand and pull
the global economy out of the Depression. Subsequently, the term “Keynesian economics” was
used to refer to the concept that optimal economic performance could be achieved – and
economic slumps prevented – by influencing demand through economic intervention policies by
the government. Keynesian economics is considered to be a “demand-side” theory that focuses
on changes in the economy over the short run” (Investopedia).
4. DDT: “a colorless, crystalline, tasteless and almost odorless organochloride known for its
insecticidal properties” (Wikipedia).
5. Burton Malkiel: “wrote ‘A Random Walk Down Wall Street,’ a book that is now regarded as an
investment classic” (Investopedia).
6. Random walk theory: “a stock market theory that states that the past movement or direction of
the price of a stock or overall market cannot be used to predict its future movement”
7. Dead Weight Loss: “The costs to society created by market inefficiency. Mainly used in
economics, deadweight loss can be applied to any deficiency caused by an inefficient allocation
of resources. Price ceilings (such as price controls and rent controls), price floors (such as
minimum wage and living wage laws) and taxation are all said to create deadweight losses.
Deadweight loss occurs when supply and demand are not in equilibrium” (Investopedia).
8. Laffer Curve: “Invented by Arthur Laffer, this curve shows the relationship between tax rates
and tax revenue collected by governments. The curve suggests that, as taxes increase from low
levels, tax revenue collected by the government also increases. It also shows that tax rates
increasing after a certain point (T*) would cause people not to work as hard or not at all,
thereby reducing tax revenue. Eventually, if tax rates reached 100% (the far right of the curve),
then all people would choose not to work because everything they earned would go to the
government” (Investopedia).
9. GDP – Gross Domestic Product: “The monetary value of all the finished goods and services
produced within a country's borders in a specific time period, though GDP is usually calculated
on an annual basis” (Investopedia).
10. Fiscal Drag: Fiscal drag is a concept where inflation and earnings growth may push more tax
payers into higher tax brackets. Therefore fiscal drag has the effect of raising government tax
revenue without explicitly raising tax rates. The result is that real incomes may fall; this acts as a
restraint on the expansion of the economy and may cause people to avoid earning more income
because the higher tax bracket reduces their real income.
11. Supply-Side Economics: “the idea that greater tax cuts for investors and entrepreneurs provide
incentives to save and invest, and produce economic benefits that trickle down into the overall
economy” (Investopedia). In other words, give really rich people a tax break so that they have
even more money. This wealth will then “trickle down” to poor people as the rich spend even
more money. In reality, this is, as famously stated by George Bush (the elder), “voodoo