dark matter:

The term “dark matter” has recently been borrowed from cosmologists by economists who apply the label to aggregated differences in the returns on foreign assets owned by U.S. investors relative to the much lower returns realized by foreign investors who own U.S.-based assets. Most foreign investors have financed purchases of U.S. assets with funds they acquired because the current account of the U.S. balance of payments is persistently in deficit. Among other explanations for “dark matter,” these economists theorize that foreign investments by U.S. firms tend to be in such profitable areas as off-shore manufacturing and fast food franchising, while foreigners seek security by buying such safe but low-yield assets as U.S. Treasury bonds. Their controversial theory concludes that U.S. imbalances of trade are the consequence of flawed and misleading accounting , and are inconsequential in any event. See absorption problem for elaboration.

day trader:

A day trader is a financial investor who buys based on very recent changes in the price of a stock, and sells quickly, normally on the same day. The theory underpinning day trading is not spelled out in a systematic fashion that depends on human behavior. Instead, various theories of day trading are based on various fuzzy specifications about how very short term movements in stock prices are predictive of almost immediately subsequent changes because other traders are presumed to systematically overcorrect or undercorrect for price changes based in changed fundamental values. In any event, day trading is extremely inconsistent with fundamental analysis or analysis from the perspectives of behavioral finance. Day trading entails significant transaction costs because of churn. Lucky day traders typically attribute their success to astuteness or skill, and day traders who are unlucky soon find other activities to occupy their time.

deadweight loss:

Deadweight losses are losses of potential consumer or producer surplus caused by market imperfections (e.g., monopoly power or externalities) or distortions introduced by inefficient taxes, laws, or regulations. See also welfare loss triangle.

deadwood:

Deadwood is a term used pejoratively to describe an individual or organization perceived as unproductive.

death tax:

The term death tax is a politically-charged pejorative reference to inheritance taxes. See also inheritance tax.

debasement:

Debasement is a reduction in the amounts of gold or silver in coins that serve as commodity money. When commodity money was common, government mints often “stretched” relatively pure gold and silver coins by melting them down and adding generous portions of nickel, copper, zinc, or lead before restamping coins. Open the Gresham’s law link for more discussion.

debenture:

A debenture is a promissory note or bond backed solely by the credit history of a corporation. Debentures differ from secured (collateralized) bonds because they are not secured by a lien on a physical asset.

debt:

Debt is the broad term applied to what an individual or organization owes to an external party, and includes bonds and bank loans. Debts are sometimes termed liabilities. See also national debt and debt-equity ratio.

debt aversion effect:

The debt aversion effect refers to the reluctance of some people to borrow even though they have investment opportunities with expected rates of return that are significantly higher than the interest rates on available loans. Because of mental accounting, people who are debt averse also tend to pay down long term debt [e.g., mortgages] instead of paying down short-term debt with much higher interest charges [e.g., credit card balances].

debt capital:

Debt capital is the financial capital acquired by selling corporate bonds. Debt capital, along with the funds secured by selling stock, or from retained earnings or commercial loans, enables firms to finance the acquisition of new machinery or buildings.

debt forgiveness:

Debt forgiveness occurs when a borrower’s debt is cancelled or the payment date for the debt is changed to make the effects of their debt burden less severe. Its disadvantage is the risk of moral hazard.

debt rollover:

Debt rollover occurs if, when a bond issue comes due, the debt is refinanced.

debt servicing:

Making scheduled payments on external loans is referred to as debt servicing.

debt-burden effect:

The debt burden effect is a variant of the debt-deflation effect and addresses the possibility that aggregate demand will decrease consequent to deflation because reductions in the price level increase real debt-equity ratios for leveraged firms and increase the likelihood of bankruptcy. Deflation increases the debt-equity ratios of firms because real debt increases, but the expected nominal net income stream that underpins the equity of a firm’s owners declines. The resulting greater likelihood of business failure reinforces both pessimistic “animal spirits” (any cautious instincts of business decisionmakers) and the reluctance of lenders to make or renew loans to such leveraged firms. This effect is emphasized by such post-Keynesians as Hyman Minsky. See also real balance (Pigou) effect, debt-deflation effect, Mundell-Tobin effect, income redistribution effect, expected inflation effect, and expected deflation effect.

debt-deflation effect:

The debt-deflation effect is the decline in aggregate consumer demand that occurs when a declining price level increases the real value of the liabilities of debtors and, simultaneously and symmetrically, the real value of the assets of creditors. Traditional Keynesians posited that the marginal propensities to consume (mpc) of debtors typically exceeds the mpc of creditors. Thus, when the price level falls, the reallocation of real wealth from debtors to creditors reduces the aggregate marginal propensity to consume. Consequently, price level declines may intensify cyclical unemployment in a recession because lower prices shrink consumption demand and consequently, aggregate demand. See also real balance (Pigou) effect, debt-burden effect, Mundell-Tobin effect, income redistribution effect, expected inflation effect, and expected deflation effect.

debt-equity ratio:

The debt-equity ratio is the external debt owed by a firm divided by the equity (net worth) of the firm. Debt equity ratios are measures of financial leverage. See also leverage.

debt overhang:

Debt overhang exists when a country, often a one in the third world, will be unable to pay off its debt in the future. This is often caused because a country has borrowed heavily and then cannot repay loans because its own currency is losing value.

debt repudiation:

Debt repudiation is enactment of a law or executive decree that cancels the foreign debt of a government or special interest group, and is tantamount to a declaration of bankruptcy. Debt repudiation is used reluctantly because of the consequent reduction in access to credit markets.

debtor:

A debtor is an individual or organization or nation that owes funds or is otherwise obligated to an external party.

decentralized decision making:

In a decentralized system of organization, the power to make decisions is diffused, and tends to be made by the unit of the organization that is affected directly (bottom-up as opposed to top-down). In a decentralized economy, most decisions about what to produce, when and how to produce, and who gets to use output are determined in markets. See also centralization and central planning.

decentralized socialism:

Decentralized socialism is an economic system characterized by social ownership of resources, but which relies on markets to resolve the economic problem by setting equilibrium prices and quantities.

deciles:

An individual statistical observation (e.g., SAT scores) is commonly characterized as in the first, second, third, …, tenth decile when the statistical distribution is divided into tenths.

decision fatigue:

Decision fatigue refers to the tendency for the quality of decisions to erode after an individual has made numerous choices, or becomes increasingly exhausted. The rationality of decisions diminishes, and germane information the decisionmaker already possesses is decreasingly perceived as relevant for the decision at hand.

decision tree:

A decision tree is a structure specifying possible alternatives (or alternative sequences) and the expected consequences (costs and benefits) of alternative choices.

declared preference:

A person’s declared preference refers to the set of decisions that accord with a person’s statements, and may not accord with actual behavior, which is referred to as revealed preference. Economists are prone to pay far more attention to deeds than to words – focusing on people’s actual choices and not merely their statements about what their choices will be. For example, a voter might declare a preference for the candidate of a fringe party (e.g., Libertarians) and assert an intention to vote for that party’s candidates, but then vote for either the Republican or Democratic candidates in the privacy of the voting booth. Alternatively, a declared preference (stated intention) to diet might be belied by consistent snacking, and such cheating on a diet is the individual’s revealed preference. See also revealed preference theory.

decrease in demand:

A decrease in demand entails the entire demand curve shifting downward and to the left, and occurs only if one or more of the nonprice determinants of demand change. Less will be purchased at each possible price.

decrease in quantity demanded:

A decrease in quantity demanded results from an increase in the price of the good, and is a leftward movement from one point on a given demand curve to a point that reflects a higher price and a lower quantity.

decrease in quantity supplied:

A decrease in quantity supplied is shown by a movement towards the origin along an existing supply curve, and results from a decline in the price of the good or service.

decrease in supply:

The entire supply curve shifts to the left; occurs only if one of the nonprice determinants of supply changes so that less will be available at each possible price.

decreasing cost industry:

A decreasing cost industry is an industry for which the long‑run supply curve is negatively sloped, reflecting declines in per unit costs as total production in the entire industry increases.

decreasing returns to scale:

A production function exhibits decreasing returns to scale if increases in all inputs by a given proportion yield a less-than-proportional increase in output. See Marginal Cost and Diminishing Marginal Return.

deductible:

A deductible is the amount that a patient must pay before health insurance begins to cover any health care costs. The higher that the deductible, the more powerfully market forces curb price hikes for minor medical care. See also coinsurance.

deductive reasoning:

Deductive reasoning proceeds logically from well defined sets of a priori general principles to the specific case or example being analyzed, in contrast to inductive reasoning, which begins with specifics and then extrapolates them into generalizations. See also Austrian economics and syllogism, and contrast with inductive reasoning.

deep market:

A deep market is a well organized market in which there many potential buyers and sellers who engage in frequent transactions and the total monetary volume of transactions is relatively large. See also competition, atomistic markets, pure competition, and perfect competition.

defalcation:

Defalcation refers to the misuse or embezzlement of property or funds by a fiduciary (an individual or organization serving as an agent) entrusted to manage such assets by the assets’ owners (principals).

default:

A default is the failure to make timely payments in accord with the terms of a loan. Also used as a verb.

default risk:

Default risk is the risk to a lender that a borrower will default on a loan

defeasance:

Defeasance (from the French word défaire, which means “to undo”) refers to the annulment of a contract. A legal defeasance is any provision embedded in a contract that voids the contract in the eventy that certain specified acts occur.

defensive medicine:

Defensive medicine is an inefficient strategy adopted by medical providers intended to minimize the probability of costly malpractice lawsuits. For example, doctors may order relatively unnecessary and expensive tests to ensure that they rule out even very unlikely conditions that, if undetected, might foment a lawsuit. Defensive medicine results in medical care for which the marginal social costs (e.g., insurance costs or government subsidies in addition to the charges to the patient) far outweigh the expected marginal benefits to the patient.

deficit:

A budget deficit exists when government revenue is less than its outlays, and may be financed by the federal government a: (a) by having the Treasury issue bonds, which entails an increase in government debt, or (b) by printing new money (monetary base), whereby the central bank purchases the Treasury bonds. The budget equation for the federal government can be summarized as G = T + ΔB + ΔMB. In the United States, whether the budget deficit (G-T) is covered by net new national debt (Δ in Treasury bonds) or by printing monetary base (ΔMB) is determined by the open market operations of the Federal Reserve System. See also absorption problem, crowding out, fiscal policy, monetary policy, open market operations, and budget surplus.

deflating:

Using a price index to adjust monetary values for changes that occur to the price level over time; dividing the nominal values of a time series for a variable by (1% of) the price level during the period in which the nominal variable occurs.

deflation:

Reductions in the average level of prices are referred to as deflation.

deflationary gap:

See recessionary gap.

deflationary growth

Deflationary growth occurs if Aggregate Supply increases at a faster rate than Aggregate Demand, thereby exerting downward pressure on prices.

delibrate practice :

Expert performance research has identified deliberate practice as a necessary condition for acquiring world class expertise, whether in an athletic event (e.g., tennis) or an analytical skill (e.g., poker or backgammon) or an occupation (e.g., brain surgery), although basic aptitude (genetic endowments and a favorable environment) are also necessary ingredients for the development of extraordinary expertise. Deliberate practice entails (a) focusing on technique rather than outcome, (b) setting specific goals,l and (c) monitoring performance and utilizing feednback about performance. For example, a poker player engages in deliberate practice aimed at securing expertise when focused on good decisions instead of mere wins and losses. See also expert performance research and outliers.

demand:

Demand reflects the amounts of a good that people are willing and able to buy, given the prices and choices available to them. Click on the link for a further exploration on demand. See Influence on Demand

demand curve:

A demand curve connects the maximum quantities of a good an individual or group are willing and able to buy at various prices, or the maximum prices they are willing and able to pay for various possible quantities of a good. Click on the link for a further look into both individual and market demand curves. deriving individual demand curve

demand deposits:

Demand deposits are funds kept in a financial institution that by law must be available immediately in response to the depositor’s request. Checking accounts are examples.

demand function:

A representation of how the amount of a good or resource that people want to buy is affected by certain determinants. A market demand function, for example, can be expressed as Qd = f(P, Pref, Pog, Y, N, T, E), where QD = the amount people want to purchase per period; P = price of the good, Pref = tastes and preferences; Pog = prices of related goods; Y = income; T = a proxy for taxes, subsidies, or government regulations governing use; and E = expectations about, e.g., future prices or availability.

demand price:

The highest price that buyers are willing and able to pay for a specific amount of a good or resource. Also known as subjective price. See also supply price.

demand schedule:

A demand schedule is a table reflecting the maximum quantities of a given good or resource that buyers are willing and able to purchase per period at various market prices.

demand, law of:

The quantity demanded of an economic good varies inversely with its price. Click on the link for more on the law of demand.

demand-pull inflation:

Demand-pull inflation (sometimes called demand-side inflation) refers to hikes in the price level that originate from growth of Aggregate Demand; caused by excessively rapid increases in the growth rate of the nominal money supply or upward shifts in autonomous real expenditures; demand‑pull inflation generates a counterclockwise adjustment path of inflation versus real output.

demerit good:

A “demerit” good [or merit bad] is a good or service available for purchase on the market that some “outside analyst” or dominant group regards as intrinsically unhealthy, degrading, or socially damaging for other people to consume, regardless of the consumers’ own desires, preferences or values. See also merit good and merit bad.

demographic effects:

Demographic effects are the effects emanating from changes in population characteristics (e.g., the age structure, birth rates, education, marital status, or mobility between locations) on such things as the rates of saving, investment, and economic growth, the composition of demands for goods and services, and the supply of labor.

demography:

Demography is the study of variations in population caused by such events as famine, conflicts, diseases, or changes in social, cultural, and economic activities, and how changes in the age and size of the population in turn affect social, cultural, and economic activities.

Department of Energy:

The federal Department of Energy is responsible for overseeing national energy policies of the United States.

dependence effect:

The dependence effect is John Kenneth Galbraith’s notion that much of consumer demand derives from our responses to advertising and marketing that causes us to demand goods that are largely irrelevant to our wellbeing or happiness.

dependency ratio:

The dependency ratio is computed as the number of people deemed dependents (ex: children, retirees, or the extremely disabled) divided by number of healthy people of working age.

dependency theory:

Dependency theory is the perspective that the terms of trade of less developed countries are artificially low in part because they exporting raw materials and food and fiber at low prices while importing sophisticated high-priced industrial products produced by firms with market power. Dependency theory also characterizes low per capita incomes in less developed countries as resulting from exploitation by multinational firms that relocate to other poor countries whenever domestic wage rates begin rising, a process described as the race to the bottom.

dependent variable:

The value of a dependent variable is contingent upon the value of other variables, which are called independent variables. If variables are determined interdependently, then the function is an implicit function. For example, a very simple demand function for a specific good can be written as Qd = f(P), or an equally valid demand function addressing the same good can be written as P = g(Q).

depletable:

A resource or commodity is considered depletable if it can be used up or consumed completely with no chance for re-use. Petroleum, for example, is a depletable resource, and an apple is also depletable because it can be eaten completely, and cannot be used thereafter.

depletion allowance:

Lobbying by oil companies yielded depletion allowances that provided significant incentives for rapid extraction of petroleum reserves. In calculating their tax liabilities, oil companies were permitted to reduce their taxable incomes by roughly 27.5 percent of their total revenues from the sale of petroleum. Depletion allowances were eliminated as a tax loophole in the late 1970s.

deposit insurance:

Deposit insurance is coverage, usually required by government, for a bank’s depositors against losses for specific types of assets such as checking and savings deposits. The protection covers a person’s savings in the event that a bank was to default. Currently the Federal Deposit Insurance Corporation insures assets for up to $100,000. Such insurance programs promote financial stability and are typically government-established. See also, FDIC and NCUSIF.

depository institution:

Depository institutions are financial intermediaries that accept deposits of funds from households, and in the United States include such organizations as commercial banks, credit union, savings and loan associations, or federal savings banks.

depreciation:

Depreciation is the loss in value of a piece of capital because of wear-and-tear encountered in production during a period, or because of obsolescence. The amount of capital used up during a period. Depreciation is a cost of production. Accountants compute depreciation very roughly and primarily for tax purposes in a measure economists call the capital consumption allowance.

depreciation of a currency:

A decrease in the value of one currency measured in terms of its exchange rates with other currencies. See also exchange rate risk.

depression:

A depression is sharp and sustained decline in business activity that is considered more severe than a recession. Output plummeted during 1929-1933, and unemployment rates rose from roughly 4% to a high estimated at 25%. The United States suffered from the Great Depression from 1929 until the onset of World War II.

deregulation:

Deregulation is the rescinding of laws governing business practices.

derivatives:

Derivatives are financial securities with value linked to, or derived from, other financial securities.

derived demand:

The demand for a resource that exists because of its productivity; resource demands are derived from demands for output.

descriptive graphs:

A descriptive graph is an illustration of data intended to identify how the values of variables change across time, or are subdivided, or how variables are related in some fashion that is not necessarily causal. Bar graphs, line graphs, or flow charts are examples of descriptive graphs that can imaginatively portray to readers of newspapers, corporate annual reports, textbooks, … such variables as proportional distributions of income, time series for data, or the proportions of sales accounted for by different items.

determinant:

A variable that influences or affects another variable.

determinant of demand:

Any influence on the demand for a good. Determinants of demand include a: (a) the price of the good, (b) tastes and preferences, (c) prices of related goods, (d) income, (e) expectations about prices and availability, (f) numbers of buyers in the market, and (g) such government policies as taxes or subsidies and laws or regulations.

determinant of supply:

Any influence on the supply of the good. Determinants of supply include a: (a) the price of the good, (b) technology, (c) prices of related goods, (d) resource prices, (e) expectations about prices, (f) numbers of sellers in the market, and (g) government subsidies, taxes, and regulations.

determinate:

A system of equations is said to be determinate if the equations yield a solution.

determinism:

Determinism is the philosophy that all past, present, and future phenomena are completely explicable through scientific laws. The core models of most of “modern” science are deterministic. In this view, everything,, including human choices, is predetermined by the physical and chemical interactions of matter and energy, and the perception that we are “free to choose” is an illusion. See also dialectical materialism. Contrast with hysterisis, path dependence, and historicism.

devaluation of a currency:

A currency experiences devaluation when exchange rates are either “pegged,” or fixed under a gold standard, and government decide to reduce the exchange rate of one currency for another, or under a gold standard, a government decrease the gold content of its currency. Devaluation is similar to but not synonymous with depreciation of a currency.

developed countries:

Developed countries are the wealthiest nations on earth, and include most of western Europe, the United States, Canada, Japan, Australia, and New Zealand.

developing countries:

Developing countries are countries on the path from agriculture to industrialization, and include China, Mexico, and South Korea, although the categorization of countries between less developed and developing is both somewhat arbitrary and fluid. See also less developed countries and trap of underdevelopment.

development:

Economic development entails qualitative changes in an economic system; and occurs when there are improvements in either the quality of life or the quality of goods, or both.

dialectical materialism:

Dialectical materialism is the underpinning for Karl Marx’s explanations of historical change. According to orthodox Marxism, all massive social and cultural changes are determined by contradictions that exist in the ways that societies produce, exchange, distribute, and consume goods. For the most part, these contradictions are perceived as embedded in conflicts that exist between the different classes in society. Marx merged the dialectical method of Georg Hegel with the materialism of Ludwig Feurbach to develop this philosophy.

dictator game:

In the so-called dictator game, one agent (player) called “the proposer” has sole discretion about how to split (“allocate”) a specific lump sum (“endowment”) with a second player (the respondent). For example, one person might be given complete discretion about how to split, say, $20 with a second person. Standard economic theory suggests that the rational choice for Homo economicus is to allocate nothing to the second person, but this outcome is inconsistent with some laboratory experiments. The dictator game is not actually a game per the standard vocabulary of game theory because the responder is passive and has no decision to make. See also ultimatum game.

dictatorship of the proletariat:

In Karl Marx’s version of history and forecast of the evolution of society, a dictatorship of the proletariat is a transitional stage that immediately follows a short and bloody revolution to overthrow capitalism. During this stage, the last vestiges of capitalism will be swept “into the dustbin of history” and people will be educated to be cooperative rather than competitive. This stage is succeeded by communism, in which production and distribution will be in accord with the slogan, “from each according to ability, to each according to need.” And everyone will live happily ever after. See also proletariat.

dilution:

Dilution occurs when some partial owners of an asset (e.g., shareholders) experience reductions in the values of their share because other agents (e.g., other shareholders) have gained increased control or increased claims to the revenues flowing from these assets. For example, Ted Turner experienced significant dilution when Time-Warner was absorbed by AOL, based on inflated stock values for AOL. Dilution commonly occurs when the value of an is reduced because of the sudden decrease in an asset's market value when information becomes available causing investors to realize that the asset lacks qualities that had previously been publicized.

dimensionless:

A function is dimensionless when the units of measure do not alter results. The price elasticity of demand, for example, is dimensionless because whether the quantity demanded is measured in pounds, grams, or tons has no effect on the calculation, nor does whether the price is measured in US cents, US dollars, or Euros. See also zero degree homogeneity.

diminishing marginal returns, law of:

When additional equal units of a variable input are applied to fixed inputs, a point is inevitably reached where total output increases at a diminishing rate as additional units of the variable input are applied to the fixed inputs; diminishing marginal returns are pervasive even in the long run because it is virtually impossible to vary all influences on production both proportionally and simultaneously.

diminishing marginal utility, principle of:

Consumption of successive units of a good eventually causes an additional unit of the good to yield less satisfaction than that of the preceding unit.

diminishing returns, law of:

The law of diminishing returns is the concept that beyond some point, the further any activity is extended, the more difficult (and costly) it is to extend that activity further. In mathematical terms, the law of diminishing returns rests on the notion that all activities are ultimately bounded by a convex hull.

direct costs of regulation:

The direct costs of regulation include (a) administrative costs to the government (employee salaries, office supplies, and other overhead expenses) and (b) compliance costs incurred by regulated entities (primarily in the private sector, but also by other governmental units that must comply with regulations).

direct tax:

A direct tax is a tax imposed on the income or wealth of an individual or organization. Contrast with indirect tax.

dirty float:

A managed float or a “dirty float” is a policy wherein governments intervene in a “floating” foreign exchange market in attempts to stabilize exchange rates.

disbanding rate:

The disbanding rate is the percentage of organizations that cease operating during a specified period relative to the number of organizations with similar missions that continue to operate. For example, disbanding has been significant in banking in the United States because of mergers and acquisitions; the number of banks today is less than half of the number that operated in 1980.

disbursement:

Disbursement refers a transfer of funds by cash or check to pay for goods or services.

disciplinary benefits of unemployment:

The disciplinary benefits of unemployment are the lower costs and prices to firms and consumers when there is slack in the labor force and shirking is reduced because the prospect of layoffs looms.

discomfort index:

The discomfort index (or misery index) is the inflation rate plus the unemployment rate, and it sometimes is asserted to approximate the macroeconomic health of the economy.

discount bond:

A discount bond (also known as a zero-coupon bond) is priced below its face value and pays off only at it maturity. A discount bond does not explicitly pay interest. For example a: a discount bond with a face value of $2000 that matures next year might be purchased for $1800 now (depending on interest rates).

discount rate:

The discount rate is the interest rate (d) the FED charges member banks when they borrow money from FED “discount windows” that operate in each Federal Reserve District Bank. Although the district banks set the discount rate as a matter of law, the Federal Reserve System’s Federal Open Market Committee has de facto control over this rate.

discount window:

The discount window is the unit in each Federal Reserve District Bank that makes discount loans to member banks.

discounted present value:

See present value.

discouraged workers:

Unemployed workers are categorized as discouraged workers if they have ceased searching for jobs because they view the prospect of finding acceptable paid work as so unlikely that diligent search is not a wise investment of their time and resources. Discouraged workers are not counted in the official unemployment statistics in the United States. Factoid a: The measured size of the labor force in the United States decreased between 2000 and 2003 because so many discouraged workers dropped out of the force when the employment level fell by roughly 3 million workers during a recession. See also dishonest non-workers.

discrete data:

A set of data is discrete if the values belonging to it can be separated and counted as integers. Examples of discrete data include such things as population size, numbers of substitute goods, or gender. Contrast with continuous data, which includes such things as the number of points in a line, or income, or other items or concepts that are infinitely divisible.

discretionary fiscal policy:

Discretionary fiscal policy is the process of deliberately changing the laws governing government spending and taxation for purposes of macroeconomic stabilization.

discretionary income:

Discretionary income is the after-tax income over which a person (or the entire household sector) has significant control, which can then be used for either consumption or saving. Discretionary income is most commonly measured at the macroeconomic level by disposable income.

discretionary monetary policy:

Discretionary monetary policy is exercised when a central bank changes its policies in attempts to adjust interest rates or the money supply and consequently, the overall state of the economy.

discrimination:

Economic discrimination occurs when equivalent units of a resource receive different rates of remuneration even though their potential marginal contributions to total output are the same.

diseconomies of scale:

Diseconomies of scale exist when increased inputs result in less than proportional increases in output so that long-run average costs rise with output.

disequilibrium:

When the forces for change in a system are not in balance.

dishonest non-workers:

Dishonest non-workers claim to be available for work so they can draw unemployment benefits, even though they do not intend to work. They can cause the true unemployment rate to be overstated. See also phantom unemployment and discouraged workers.

disincentives:

A disincentive is a cost or penalty that discourages an activity. This term is often applied to government policies such as taxes that discourage productive activities. See also tax wedge.

disinflation:

Disinflation is a significant decrease in the rate of inflation, and usually creates pressures for recessions.

disintermediation:

1.    Disintermediation increasingly refers to the adoption of new technology that eliminates the need for some intermediaries when distributing a product. The internet, for example, increasingly allows customers to deal directly with producers. iPod is an example – music stores are being by-passed when people buy music on-line.

2.    In the 1970s and early 1980s, disintermediation referred to waves of withdrawals of funds from banks and thrift institutions because depositors could earn higher interest rates from, e.g., mutual funds.

disinvestment:

Disinvestment is any decline in the total quantity of capital because of declines in business inventories, or because the depreciation of existing capital exceeds investment in new capital.

dismal science:

The label “dismal science” was applied to economics by the historian-essayist Thomas Carlyle. Many pundits inaccurately believe that Carlyle’s label was a response to the pessimistic views of Reverend Thomas Robert Malthus, who theorized that the equilibrium for human population occurs when most people live a razor’s edge existence at bare subsistence levels. In fact, however, Carlyle actually invented the term when castigating the sentiments of classical liberal economists such as John Stuart Mill, who vigorously opposed slavery. Carlyle was a racist who viewed the end of slavery with dismay.

dispersive force:

Dispersive force refers to pressure for firms to avoid locating very close to each other so that they can reduce the need to compete for customers by charging lower prices, or to compete for such resources as labor by paying higher wages or prices.

disposable personal income

Disposable personal income (DPI) is the after‑tax income households receive in a given year, and equals consumption plus saving (C + S).

disposition effect:

The disposition effect is the tendency of financial investors to sell shares shortly after their prices have increased and to hold assets that have declined in value. This tendency is related to the overconfidence of some investors, and to the sunk cost fallacy, and may arise from the subjectively greater psychological harm associated with an error of commission than from a comparably valued error of omission.

dissaving:

Dissaving [or negative saving] occurs when desired consumption exceeds income. Families dissave by borrowing or drawing down their past savings when they purchase goods and services.

distortion costs of inflation:

The distortion costs of inflation are the losses of efficiency caused when reduces certainty and warps decisions and relative prices.

distributive efficiency:

Distributive efficiency requires people who value relatively the most (a ratio) each of the goods society produces to consume them relatively more. For example, if you prefer apples to peanuts while I like peanuts better than apples, your apple-to-peanut consumption ratio must be greater than mine. Distributive efficiency in financial markets requires asset portfolios to reflect savers’ relative time horizons and willingness to bear risk, and debt structures to reflect the sources and terms of funding relatively best suited to the needs of economic investors, government agencies, or deficit households. See also allocative efficiency and productive (technical) efficiency. Click on the link for more information on the components of economic efficiency.

diversification:

Diversification is the process of adjusting a portfolio to reduce risk by combining assets with differing risk structures across time. For example, if the price of one stock (a seller of luxury goods) can be expected to go down in the event of a recession while another (a seller of inferior goods) can be expected to rise, buying both stocks reduces the risk of a downturn in economic activity.

diversified firms:

Diversified firms are firms that produce numerous very different types of goods or services. See also conglomerates.

divestiture:

Divestiture is a court ordered requirement in antitrust cases that a large corporation be broken down into smaller independent companies.

dividends:

A dividend is a payment to a stockholder of a share of corporate income. Corporate income is divided between (a) retained earning, (b) corporate income taxes, and (c) dividends to stockholders.

division of labor:

The division of labor entails dividing work on a good or service into a number of tasks, each performed by a different person. One person may design a computer program, for example, while another writes the computer code, a third “debugs” the program, a fourth writes the user manual and help files, a fifth copies the program to CDs, a sixth packages and ships the programs, and so on.

dollar drain:

A dollar drain occurs when a foreign country’s imports from the United States exceed its exports to the United States; the results are a reduction in that country’s dollar reserves. This concept can also be applied to currencies of other countries.

dollarization:

Dollarization occurs when the value of a nation’s currency has been so unstable that neither exporters to the country nor the country’s citizens will accept it as a medium of exchange, with the result that the country replaces its currency with a relatively stable foreign currency, usually the dollar. Dollarization can be an informal process but more commonly, the country’s government declares it to be “operating on the dollar.”

dominant design:

Dominant design refers to an established product or production method that serves as the market standard. This does not imply that dominant designs are technologically superior to potential substitutes. Dominance may merely be an artifact of history.  See also path dependence, hysterisis, and QWERTY.

dominant strategy:

In game theory, a dominant strategy is a player’s best response, no matter what strategy other players might follow.

double coincidence of wants:

A double coincidence of wants is a requirement of barter that transactions occur only after you locate someone who has what you want and who wants what you have.

double counting problem:

The double counting problem occurs if GDP is calculated as the sum of all firms’ sales revenues without taking into account that some output would have been counted twice, or even more a: First when sold by one firm as an intermediate good for another firm, and then, ultimately, as a finished product, to a final consumer or firm that invests in new equipment of construction. The double counting problem is avoided by the value-added technique. The value added technique subtracts all purchases of intermediate goods from the revenues of each firm to calculate GDP.

double taxation:

“Double taxation” refers to the process by which corporations pay taxes on their incomes, and then, if some after-tax income is distributed to stockholders, these dividends are taxed again at the individual’s personal income tax rate.

Dow-Jones Industrial Average:

The Dow-Jones Industrial Average (DJIA) is an index that reflects the price-adjusted average of 30 major blue-chip industrial stocks actively traded on the New York Stock Exchange and the NASDAQ.

downside risk:

Downside risk is the expected loss that would be incurred if the outcome of a venture proved significantly worse than expected. Contrast with upside risk.

downsizing:

Downsizing is a noun referring to the process by which a private enterprise or government agency reduces the number of workers it employs. An organization may downsize (verb) in response to a decline in the demand for its production, or as a consequence of automation.

downward rigidity of wages:

See efficiency wages, sticky wages, and asymmetric wage-price reaction functions.

drive to maturity:

Walt W. Rostow’s fourth stage of economic development. Rapid industrialization causes per capita output and income to grow rapidly.

dual banking system:

The dual banking system in the United States allows the operation of both national banks chartered by the federal government’s Comptroller of the Currency, and state banks, chartered by agencies of the 50 state governments.

dual exchange rate:

In a dual exchange rate system there is a fixed official exchange rate and an illegal market-determined exchange rate. Dual exchange rates are most common in less-developed countries where the value of the exchange rate is pegged and the domestic currency is set at an artificially high level, creating shortages of foreign exchange.

dual labor market:

The dual labor market refers to the characteristic that in a developing country, rural workers in a relatively backward agricultural sector earn far lower wages than industrialized urban workers who use more advanced technologies.

dummy variable:

A dummy variable is a qualitative variable that encodes a particular attribute. It can only take values of either zero or one. It is called a “dummy” variable because it only represents information from a categorical variable. This can also be referred to as an indicator variable. For example, if sex were thought pertinent to a statistical analysis of, say, purchases of perfume or automobiles, a dummy variable for sex might use zero to denote a male and one for a female.

dumping:

Dumping refers to exporting a good for a price that competitors in the importing country condemn as “unfairly low” because it is either below cost, or using price discrimination and setting a price less than is charged in the exporting country. Buyers in the importing country almost always benefit from dumping. However, dumping may be predatory when firms in one country try to secure monopoly (market) power by driving their foreign competitors out of the competitors’ home markets, in which case consumers in the importing country may be harmed in the long run.

duopoly:

A duopoly is an industry containing only two firms.

durable goods:

Durables are consumer goods that are usually useful across an extended period, typically a year or more. Cars and trampolines, for example, are durable goods. Swim suits or grape jelly, on the other hand, are non-durable goods, and fresh strawberries are perishable goods.

duration:

The duration of a financial portfolio is a weighted average of the maturities of the income streams expected from the assets in the portfolio. See also portfolio theory.

Dutch auction:

In Dutch auctions goods being sold are initially offered at price expected to substantially exceed the final price. At preset intervals as the auction progresses, the selling price is cut until a bidder signals willingness to pay the offered price. The first bid made is the successful bid, and the auction is finished. Alternatively, if the auction is for a work contract or the purchase of a good or service, the initial asking price is set well below the expected final price. At preset intervals as the auction progresses, the purchasing price is raised until a bidder signals willingness to sell the good or perform the service at the offered price. Again, the first bid made is the successful bid, and the auction is finished. This type of auction is the opposite of an English auction, which starts the initial selling price below a good’s expected final price, with successive offers by bidders until no one is willing to pay more than the offer by the successful bidder. The U.S. Treasury uses a variant of a Dutch Auctions to sell its T- bills. See also English auction and second price auction.

dynamic consistency:

1.      An individual exhibits dynamic consistency when the choices made at one point in time are consistent with the choices expected to be made at a later time. For example, if you know that cramming for exams does not work well for you and you consequently choose to study today because you intend to sleep well on the night before an examination, you are time consistent and your choices are dynamically consistent.

2.      Dynamic consistency also exists when a government announces a course of action and then has strong incentives so that it does implement that policy.

dynamic economies of scale:

Dynamic economies of scale occur when greater experience in a particular industry on the parts of firms or workers yields decreases in average production costs and increases in the average productivity of resources. These gains are realized as the cumulative output of an industry increases. See Absorptive Capacity and Learning Curve

dynamic gains from trade:

The dynamic gains from trade are the economic growth and development stimulated by international trade, and include a: (a) technology transfers, whereby research and the development of inventions and innovations in one country result in shared improvements in technology, (b) capital accumulation fostered because trade increases real income, and part of that increased income is saved and invested in new capital, and (c) gains from economies of scale and economies of scope made economically feasible when firms are able to serve larger markets. See also gains from trade, uniqueness gains, and political gains.

dynamic hedging:

Dynamic hedging is a strategy for portfolio management that relies on the Black-Scholes formula and attempts to buy options “everywhere in the world, at every instant in time” to minimize (or even eliminate) risk. Unfortunately, dynamic hedging cannot minimize uncertainty, and some attempts at large-scale dynamic hedging have lost hundreds of millions of dollars for their investors (e.g., Long Term Capital Management).

dynamic inconsistency:

1.      An individual exhibits dynamic inconsistency by making a choice that is certain to be regretted later. For example, a smoker determined to quit knows that having “just one more cigarette” is inconsistent with long term satisfaction, but many smokers proceed to have that regrettable extra marginal cigarette, knowing that they will then smoke another, and then another.

2.      Dynamic inconsistency also exists when a government announces a course of action for political reasons but either faces strong disincentives that preclude implementation of the policy, or the government may fail to implement the promised policy because it, perhaps knowingly and in advance, lacks strong incentives to implement that policy.

dynamic models:

A dynamic model is a model intended to explain behavior or predict changes across time, and ideally considers how current variables and behavior depend on earlier variables or behavior. See also static model.