Economicae^©

an illustrated encyclopedia of economics

Famous Economists

Mathematics of Economics

G8:	The eight industrialized countries in the G8 group are Canada, France, Germany, Great Britain, Italy, Japan, Russia, and the United States. [The emergence of China and India as significant economic forces makes it reasonable to expect China and/or India to join this group soon, so it will probably become the G9, and may swell to become the G10.] The annual G8 summits usually yield agreements about how the members will try to deal with problems entailing the global economy and such environmental issues as global warming and fishing in the world’s oceans.
gains from scale:	Gains from scale are cost savings realized because international trade enables firms to become larger so that they can more fully exploit economies of scale because they serve larger markets.
gains from scope:	Cost savings are termed gains from scope if lower costs are realized because production technologies for different products are complementary.
gains from specialization of labor:	Gains from specialization of labor are the values of the extra output yielded when workers combine different types of expertise to perform a particular task.
gains from trade:	Gains from trade are the improvements in human welfare because trading parties gain by acquiring (a) unique goods that they could not produce, (b) goods at lower costs than could be yielded by own-production, (c) transfers of technology (d) greater income that, through higher saving, stimulates investment, (e) gains from economies of scale and economies of scope made economically feasible by serving larger markets, and (f) calmer relations between nations because mutual interdependence raises the cost of conflict.
galloping inflation:	Galloping inflation is the label for double-digit rates of annual increases in the price level. Contrast with creeping inflation and hyperinflation.
gamble:	[1] Noun: A gamble is a decision about a risky choice. [2] Verb: To gamble is to engage in risky choices.
gamblers’ fallacy:	Individuals are prone to the gambler’s fallacy (also known as the law of small numbers) if a sequence of clearly independent outcomes for events (e.g., fair coin flips) are viewed as having predictive power and consequently alter behavior. Fair coins, fair dice, fair cards, and fair lottery ticket drawings have no memories. However, people tend to avoid lottery ticket numbers that have won recently, so they are prey to the gambler’s fallacy. As long as winning numbers are randomly selected, the fact that a number won in a previous lottery has no bearing on whether that number will be drawn in a current lottery. The gambler’s fallacy is manifested in such statements as “odds even out in the long run” or, “poker player X is due to win a hand,” or “he’s on a lucky streak,” or, “this stock has gone down so long that it’s bound to go up.” See also law of small numbers.
game theory:	Game theory is a technique that requires assessing the potential gains and losses from all possible strategies by all participants in some activity so that the most likely combinations of choices and outcomes can be ascertained. See also prisoner’s dilemma.
GDP deflator:	The GDP (implicit price) deflator is a price index composed primarily of components from the consumer price index (CPI) and the producer price index (PPI), and it is used to adjust nominal GDP for changes in the price level.
GDP gap:	The GDP gap is the amount by which current gross domestic product (GDP) is below a full-employment level of GDP.
gene lottery:	See womb lottery.
general equilibrium analysis:	General equilibrium analysis is a method of analysis that not only looks at the direct effects of some variables on others, but also at indirect effects and feedbacks among the economic variables. General equilibrium analysis was originally advocated by Leon Walras and Vilfredo Pareto as more accurate and insightful than the partial equilibrium approach developed by Alfred Marshall. See also partial equilibrium analysis and ceteris parebus.
General Theory:	1. The shorthand term General Theory refers to John Maynard Keynes’ 1936 treatise, The General Theory of Employment, Interest, and Money, which marked the beginning of the Keynesian Revolution in macroeconomic theory. 2. A theory is described as a “general theory” if it applies without failure to every event being considered.
general training:	General training such as formal education increases the productivity of a worker equally for numerous possible jobs or places of employment.
generalization error:	Generalization error occurs when the outcomes of small samples of particular events are expected to be the norm, even though insufficient degrees of freedom exist. For example, expecting everyone in Kazakhstan to walk single file because the lone individual you saw who was from Kazakhstan walked single file would be an especially egregious example of the generalization error.
generational accounting:	Generational accounting attempts to quantify how society’s assets and liabilities affect the relative welfare of current and future generations, and tends to be focused on the distributional effects of the benefits and burdens of government debt and such government entitlement programs as Social Security, Medicare, and Medicaid.
Genuine Progress Indicator (GPI):	The Genuine Progress Indicator (GPI) published by non-profit agency Redefining Progress is an alternative to the United Nations’ Human Development Index (HDI) and to estimates of per capita GDP as a loose measure of social welfare. The GPI takes per capita household consumption as a base figure, and then adjusts by adding factors such as the value of activities of housework and parenting and the value of volunteer work, while subtracting such items the cost of environmental pollution, crime, noise, family breakdown, and losses of leisure time. Conceptually, the GPI and HDI are extensions of the Measure of Economic Welfare (MEW) developed in the 1960s by, among others, the Nobel-Prize winning economist James Tobin.
George, Henry	Henry George [1839-1937] was a reformer who advocated a “single tax” on land rents. This proposed panacea would ideally replace all other forms of taxation and simultaneously move society towards greater social justice.
Gibrat’s law:	Gibrat’s law is a theory that a firm’s growth depends strictly on the growth of the industry in which it operates, and that growth is independent of the sizes of firms. Also called Gibrat’s rule of proportional growth.
Gibson’s paradox:	The term Gibson’s paradox was used in 1930 by John Maynard Keynes [A Treatise on Money] to characterize the absence, at least in the short run, of the positive correlation between nominal interest rates and the rate of inflation [or the general level of prices] predicted by Irving Fisher, among others. See also Fisher equation and Keynesian Theory.
Giffen good:	A Giffen good is an inferior good that absorbs so much of the income of impoverished people that the quantity demand rises when its price rises. The purchasing power of low income is diminished so powerfully that the negative income effect (δq ∕ δy <0) overwhelms the substitution effect (δq ∕ δp <0). See also inferior good.
gift economy:	Reciprocal exchanges are not legally required but are commonly expected in a gift economy. Gifting is more common where building good will is likely to enhance prosperity or is in some cases necessary for survival. Actions in a gift economy can be as explicit as bribery or charitable donations or as subtle as doing a small favor for a friend.
gift taxes:	Gift taxes are taxes on large transfers of funds from one individual to another as gifts, rather than as payments for goods or services. Gift taxes are usually intended to limit avoidance or evasion of inheritance taxes.
Gini coefficient:	A Gini coefficient is a summary measure of how unequally distributed one variable is related to another and is a number between 0 and 1, where perfect equality has a Gini coefficient of zero, and absolute inequality yields a Gini coefficient of 1. The Gini coefficient is calculated from the relative areas under a Lorenz curve. Open the Lorenz curve link for a graph and more discussion
Glass-Steagall Act	The Glass-Steagall Act (1933) established the Federal Deposit Insurance Corporations, which insures bank deposits, and prohibited the joint ownership of commercial banks and investment banks (e.g., brokerage firms). This prohibition was eliminated by the Gramm-Leach-Bliley Act, so that commercial banks may now own brokerage firms. (Example Wachovia now owns A.G. Edwards, which is now a part of Wachovia Securities.)
global monetarism:	See law of one price.
globalism:	Critics identify globalism as an ideology that supports expending international trade and flows of resources between countries. These critics condemn this view as ignoring problems associated with globalization, including losses of cultural norms, growing inequality in the distribution of income, and miscellaneous problems of transition. These critics also tend to lump globalism with both neoliberalism and neo-conservatism.
globalization	Globalization is a term referring to the rapid integration across international borders of markets for goods, services, and capital. Globalization has been facilitated by: (1) technological advances in telecommunications and transportation, which have reduced transaction costs; (2) agreements to lower trade barriers (often brokered by the World Trade Organization (WTO), (3) the expanded roles played by giant multinational corporations, and (4) developmental loans and other forms of assistance brokered by such institutions such as the International Monetary Fund (IMF) and World Bank.
globalony:	“Globalony” is a label intended to condemn an argument as invalid in its characterizations of the benefits or drawbacks of globalization. For example, the assertion that everyone gains from any expansion of international trade is globalony. The accusation that global warming results from globalization alone is also globalony.
glut:	The term glut is a synonym for a surplus of a good.
goal framing effect:	The goal framing effect is exhibited when people are more likely to adopt a goal framed (described) in positive terms than if the identical goal is framed in negative terms. For example, a friend who encourages you to study by predicting that you will be a very successful college graduate is likely to be more helpful than someone who merely nags you for watching soap operas and going out to drink and socialize every night. See also framing, attribute framing, risky-choice framing, and prospect theory.
going concern:	A going concern is jargon for well established firm expected to generate a positive stream of income because revenues are expected to exceed costs.
gold bugs:	“Gold bugs” are people who favor a return to a gold standard in which every dollar would be backed by a dollar's worth of gold.
gold standard:	1. Under a gold standard, money may be exchanged at a fixed rate for gold. For example, from the end of the Civil War until 1933, one ounce of gold could be bought from the U.S. Treasury for $20, or sold to it for $20. A fixed exchange rate exists automatically between a domestic and a foreign currency if both countries are on a strict gold standard. 2. Analysts in numerous fields sometimes use the term “gold standard” to describe the best possible policy or outcome for a situation.
good:	A good is any commodity, resource, or service that helps satisfies a human want and, in so doing, increases human happiness.
Goodhardt’s law:	Goodhart’s law asserts that “any observed statistical regularity will tend to collapse once pressure is placed on it for control purposes,” meaning that any relationship between two variables is likely to break down if the government tries to use this relationship as a policy tool. This law was elaborated by Charles Goodhart, a member of Britain’s Monetary Policy Committee in the 1950s.
government budget constraint:	State and local governments must tax or borrow to cover their outlays. The federal government budget constraint is a mathematical specification that total federal outlays (the sum of its spending on goods and services, plus transfer payments and interest on debt) must equal the sum of (a) tax revenues [including funds secured through the sales of assets], (b) net new national debt [bonds issued by the Treasury and held by parties external to the federal government], and (c) new monetary base [cash in the hands of the non-banking public plus reserves in the banking system]. In rough summary, federal outlays are financed by taxing, borrowing, or printing. If G = outlays and T = taxes and B = bonds (national debt) and MB = the monetary base, then the federal budget constraint is G = T + ΔB + ΔMB. Note that this equation dispenses with the legal fiction that the Federal Reserve System is not an agency of government. For the purposes of the budget, the Fed’s open market operations determine the respective parts of government spending not covered by taxes but which are covered by borrowing and “printing.” See also fiscal federalism.
government failure:	Government failure refers to allocative inefficiencies or other failures to accomplish basic economic goals are precipitated by government policies. An example of government failure would be a famine in a planned economy caused by misguided agricultural policies, or interference with channels of distribution. See also public choice and law of unintended consequences.
graduated-payment mortgage:	In a graduated payment mortgage (GPM), the regular payments start off at less than in a conventional mortgage, but gradually increase until the mortgage and its interest is fully paid. A GPM enables a homebuyer to qualify for larger loan than would a conventional mortgage, and so are usually granted to borrowers whose incomes are expected to increase in the near future, such as recent college graduates.
grant:	A grant is a transfer of funds between two entities that is intended by one as a support for the other. For example, federal grants to states and individuals support such activities as education or research and development.
graph:	A graph is a picture of a relationship between two or more variables.
Great Depression:	The era labeled the Great Depression followed the collapse of the world economy that began in 1929. In the United States, real disposable income fell more than 26% between 1929 and 1933, and unemployment rates soared from a low of about 3.2% to roughly 25%. Many family incomes and assets evaporated. Public welfare programs were also meager, and many working class families became homeless, or were forced to live with relatives. Some families spent their days searching for scraps of clothing and food to stay alive. Depressions and recessions tend to occur when aggregate demand has plummeted.
green belt:	A green belt is a plot of land or a region intended to be maintained in a reasonably natural state, so that commercial or industrial development is severely restricted.
green collar worker:	Green collar workers are previously relatively unskilled people who have been trained to help clean up and preserve the environment by working in such processes as recycling. Applying these skills to conservation projects and environmental development helps protect the environment and also reduces chronic unemployment.
green GDP:	“Green GDP” is a proposed reform for calculating GDP that would reduce measured gross domestic product by subtracting the social costs of such activities as pollution, deforestation, and the drawdown of nonrenewable resources.
green revolution:	The green revolution refers to an upsurge during the past few decades in the development and worldwide distribution and implementation of new hybrid grains and agricultural technologies. Agricultural outputs have soared, facilitating the rural-urban migration of population and the process of industrialization in many less developed countries.
green taxes:	Green taxes are taxes intended to improve the environment. Taxes imposed on pollution are an example.
greenback:	The slang term “greenback” refers to U.S. paper money.
Gresham’s law:	Gresham’s law is the observation that “Bad money drives out good.” This occurs because people will try to pay with money they regard as inferior, and to hoard currencies they perceive as superior. Open the Gresham’s law link for more discussion, and see also debasement.
grim strategy:	In game theory, a grim strategy entails repeatedly refusing to cooperate with another party to punish any single previous failure to cooperate by the party being punished. See also tit-for-tat strategy.
gross domestic product:	Gross domestic product (GDP) is the value of all production that takes place in a country annually, regardless of whether the resources used are owned domestically or by foreigners. GDP replaced Gross National Product as the primary measure used to report U.S. production in 1991.
gross investment:	Gross investment is the addition of new economic capital without subtracting depreciation of existing capital. In National Income Accounting, aggregate gross investment is termed Gross Private Domestic Investment.
gross national product:	Gross national product (GNP) is the value of all output produced by resources owned by the citizens of a country. The standard measure for U.S. production until 1991. See also Gross Domestic Product.
gross private domestic investment:	Gross private domestic investment (GDPI) is the total annual investment in new capital in an economy, not counting expenditures by government in new capital goods. GDPI is used in calculating the GDP using the Aggregate Expenditure approach.
growth accounting:	Growth accounting is an attempt to categorize and separately quantify the contributions of various sources of economic growth. These sources include: (1) growth of the labor force, [2] growth of the stock of capital, and [3] technological advances. Economic growth not attributable to growth of the capital stuck or the labor force are called the Solow residual, and is usually attributed to technological change.
guest worker:	A guest worker is a citizen of a foreign country who is allowed to enter the domestic economy to temporarily fill a job for which there is a perceived shortage of labor.