Key Terms And Their Meanings Part IV
- Gross Domestic Product : (GDP) A measure of the total value of the goods and services produced in a country during one year, excluding income from investment abroad by residents of the country. It is the gross national product less net income from property or investment abroad.
- Gross National Product : (GNP) A measure of the national income of a country (i.e. of all the residents) according to the value of the goods and services produced, it is taken over a period of a year and can be calculated in three ways. The income method is to add up the total of all incomes, including wages, rent, profits, etc. Only incomes that result from the production of goods or services are included thus pensions and student grants are not included either are interest payments on money lent to the government or receipts for the sale of second-hand goods.
- The output method is to add the values of all the outputs from extractive, manufacturing, construction, transport, and distribution trades together with outputs of gas, electricity, water, insurance, banking, public administration, health, defence, and other services. The value taken for each industry is the net value of the raw materials required. it is sometimes termed the value-added method of calculation because it depends on the increase in value at each stage of processing. Unlike the income method, the output method does not include income from investments held by British citizens abroad, and an adjustment is made for this. The expenditure method is to add all the expenditures on goods and services over the period.
- Only the final expenditure is counted to avoid double counting at intermediate stages in the process of producing finished goods. As in the output, method adjustment is made for investment income from abroad. The expenditure method includes the increase in the value of stocks and the value of exports minus imports.
- The first two methods of calculation give GNP at factor cost; the expenditure method gives the GNP at market prices, which differs from the factor cost by the effect of indirect taxation and subsidies. After adjustment for these (by adding the value of subsidies and subtracting the value of indirect taxation) all three methods should, in theory, give the same result. In fact, there are discrepancies caused by differences in the way in which the figures are collected. If the GNP of a country is taken over a period of years it generally shows an increase that is partly due to inflation. If the ‘money’ GNP is corrected for inflation the resulting ‘real’ GNP can be taken as a quantity with which to measure economic growth. Real GNP per capita is an indicator of a nation’s prosperity but is by no means a perfect measure of the standard of living within a country and requires careful interpretation.
- Hard Currency: A currency that is freely convertible into gold or other currencies because it enjoys sustained excess demand in the market for foreign exchange.
- Hedging: The covering of foreign exchange risk. The simplest way to hedge is with a forward contract. For example, an importer with a debt to be paid in a foreign currency in, say-three months can buy forward the foreign exchange needed, especially if the price of the currency is expected to rise.
- Thing Company: A company that controls one or more other companies. The holding company is generally a purely financial concern, which exerts its authority by owning a complete or majority shareholding in the subsidiary companies.
- Import Duty : (customs duty) A tax on imports imposed on an ad valorem basis; i.e. fixed in the form of a percentage on the value of the commodity imported. Import Substitution: The policy of replacing imports with domestically produced goods, particularly associated with developing countries in their struggle for industrialization and increased wealth.
- Income Tax: A direct tax on all types of income of individuals and families, including wages, rents, interest, and profits.
- International Bank for Reconstruction and Development (IBRD, World Bank): An international financial institution conceived at the Bretton Woods Conference and established in 1945. Its terms of reference are to take a long-term view of monetary affairs (whereas those of the International Monetary Fund, established at the same time, to look after short term difficulties).
- International Development Association (IDA) S “An organisation established in 1960 to supplement the activities of the International Bank for Reconstruction and Development (IBRD) in providing finance for productive projects in the developing countries on terms that are more flexible and less burdensome than conventional rates of interest. International Labour Organisation : (ILO) A specialised agency of the United Nations that promotes decent living standards, satisfactory conditions of work and pay, and adequate employment opportunities.
Here are the notes for Key Terms And Their Meanings Part V.