Kaldor-Hicks test:

The Kaldor-Hicks test is a way to judge whether a change in production or distribution yields a potentially Pareto superior allocative result. If the people made worse off by an adjustment could theoretically be compensated by the people made better off so that no one would lose because of the adjustment, then the contemplated change passes the Kaldor-Hicks test. Note, however, that actual compensation is not required. See also Pareto superior.

Kantorovich, Leonid:

Leonid V. Kantorovich (1912-1986), a Russian mathematical economist who developed aspects of linear programming, shared the 1975 Nobel Prize in Economics with Tjalling C. Koopmans. See an autobiographical sketch of Leonid Kantorovich here.

Karl Marx:

The German philosopher Karl Marx (1818-83) is best known for being the founder of modern communism. His best known works are The Communist Manifesto (coauthored with Friedrich Engels in 1848), and the three volumes of Das Kapital (1867-1894) in which Marx critiqued the nature of capitalism, theorized about the historical stages of economic development, and predicted the decline and fall of capitalism. See also this brief biographical sketch of Karl Marx and this summary of his theory of economic development.

key currency:

A key currency is an international medium of exchange. Use of the U.S. dollar as an international medium of exchange has been one reason that the U.S. has been able to run persistently large deficits in the current account of its balance of payments since 1951. The primacy of the dollar in international trade is now being challenged by the euro.

Keynes effect:

In his General Theory (1936), John Maynard Keynes conceded that declining prices and wages would reduce the nominal demand for money and the nominal interest rate, thereby restoring a market economy to full employment in the long run. This long run adjustment is classical in its orientation, but it is called the Keynes effect. See also Keynes effect II [immediately below], real balance (Pigou) effect, Fisher effect, debt-deflation effect, debt burden effect, Mundell-Tobin effect, expected inflation effect, and expected deflation effect.

Keynes effect II:

For Keynes effect II, see liquidity effect.

Keynes, John Maynard:

John Maynard Keynes (1883-1946) was the most influential economist of the twentieth century. See the biographical sketch of John Maynard Keynes here.

Keynes, John Neville:

Not to be confused with his son John Maynard Keynes, John Neville Keynes formalized the distinctions between ‘positive’ (scientifically testable) economics ‘normative’ economics, which hinges on value judgments. Positive economics, at least theoretically, makes descriptive claims entailing hypotheses that are, at least theoretically, verifiable. Value based normative economics hinges on ideals, or how things ought to be. This distinction hastened the eveolution of “moral philosophy” into the separate discipline now known as economics.

Keynes’ fundamental psychological law of consumption:

Keynes’ fundamental psychological law of consumption asserts that consumption expenditures and saving both increase as income rises.

Keynesian beauty contest:

The Keynesian beauty contest is the view that much of investment is driven by expectations about what other investors think, rather than expectations about the fundamental profitability of a particular investment. John Maynard Keynes, the most influential economist of the 20th century, believed that investment is volatile because investment is determined by the herd-like “animal spirits” of investors. Keynes observed that investment strategies resembled a contest in a London newspaper of his day that featured pictures of a hundred or so young women. The winner of the contest was the newspaper reader who submitted a list of the top five women that most clearly matched the consensus of all other contest entries. A naïve strategy for an entrant would be to rely on his or her own concepts of beauty to establish rankings. Consequently, each contest entrant would try to second guess the other entrants’ reactions, and then sophisticated entrants would attempt to second guess the other entrants’ second guessing. And so on. Instead of judging the beauty of people, substitute alternative investments. Each potential entrant (investor) now ignores fundamental value (i.e., expected profitability based on expected revenues and costs), instead trying to predict “what the market will do.” The results are (a) that investment is extremely volatile because fundamental value becomes irrelevant, and (b) that the most successful investors are either lucky or masters at understanding mob psychology – strategic game playing. “Animal spirits” are now known as “irrational exuberance,” and this beauty contest model is an explanation for such phenomena as stock market bubbles. Contrast this model with efficient markets and present value.

Keynesian equlibrium:

Keynesian equilibrium is achieved when Aggregate Output and Income (on the horizontal axis) precisely equals planned Aggregate Expenditures (on the vertical axis).

Keynesian fiscal policy:

Policies designed to combat the problems associated with inadequate Aggregate Demand.

Keynesian government growth ratchet:

The Keynesian government growth ratchet is the tendency for government to grow because policymakers cut taxes and expand spending during economic downturns but tend not to raise taxes or cut spending during prosperity or episodes of inflation.

Keynesian investment schedule:

The idea that investment demand is insensitive to movements of the interest rate, but that it is very sensitive to changes in expectations about sales revenue and profitability.

Keynesian liquidity preference:

See liquidity preference.

Keynesian model:

The Keynesian “cross” model is a framework used to describe how output responds to changes in Aggregate Demand. The simplest Keynesian models of an economy stuck in a depression ignore price level changes.

Keynesian monetary transmission mechanism:

The Keynesian monetary transmission mechanism is the idea that changes in the nominal money supply affect consumer spending only indirectly; money à interest rate à investment à income represents the chain of events emanating from a change in the money supply’s rate of growth. See Keynesian montary theory

Keynesian structuralist approach:

The Keynesian structuralist approach to Phillips curves hypothesizes that as unemployment falls and full employment is approached, it becomes increasingly costly to produce extra output; and emphasizes production bottlenecks as foundations for the Phillips curve.

Keynesian theory:

Specifies that macroeconomic adjustments involve changes in quantities below full employment and that price level changes only become the major adjustment mechanism when Aggregate Demand grows at full employment. See also asymmetric wage-price reaction functions.

Keynesians:

Traditional Keynesians subscribe to a school of thought that favors macroeconomic stabilization and management of aggregate demand by government through changes to federal spending and tax policies. See also new Keynesians, post-Keynesians, and contrast with neoclassical macroeconomics.

keystone mark-up:

A keystone markup entails a retail mark up equal to the wholesale price of a product. Thus, the retail price is simply twice the wholesale price.

kinked demand curve:

A kinked demand curve occurs when a firm operating in an oligopolistic market expects competitors to follow price cuts the firm initiates, but rivals are not expected to follow price increases. The kinked demand model predicts stickiness or rigidity of prices and may partially explain noncollusive oligopolistic behavior, but many economists now view this model as obsolete.

Kitchin cycle:

The Kitchin business cycle was the shortest of the three business cycles identified by Joseph Schumpeter. It derives from inventory changes and usually lasts about three years.

kleptocracy:

A kleptocracy [literally, “rule by thieves”] is a government controlled by corrupt officials who use their positions to amass personal wealth. Examples include Nazi regimes in the occupied countries during World War II, and the rule of Juan Peron in Argentina, Ferdinand and Imelda Marcos in the Philippines, and the Palestinian leader Yaser Arafat.

Knightian uncertainty:

Knightian uncertainty (named after Frank Knight [1885-1972]) exists when the probability functions for certain broad classes of rare or exceedingly speculative events are a matter of relatively uninformed guesswork. See the link for risk and uncertainty for more discussion. Contrast with certainty, and see also risk and uncertainty.

knock-offs:

“Knock-offs” are products produced by a firm and intended to emulate popular products produced by another firm. In some cases, the product design cannot be protected by patents, copyrights, or trademarks, but in many cases, knock-offs do violate the legal rights of the producers of the original product. See also piracy.

knowledge economy:

The concept of the knowledge economy stresses that some economics is based on the creation and application of knowledge. The knowledge economy is contrasted with economics focused on the production and consumption of tangible produced goods. Knowledge economies are, instead, centered on technologies such as industrial robots, automation, computers and the internet.

knowledge spillover:

A knowledge spillover is a positive by-product of innovative production methods wherein the new methods are integrated into a society's common knowledge. “Learning-by-doing” usually entails heavy doses of knowledge spillovers, which are one form of technological externalities. See also absorptive capacity for elaboration on this broad concept.

Kondratieff wave:

The Kondratieff or “long wave” business cycle is longest of the three business cycles identified by Joseph Schumpeter, and lasts 40 to 60 years. The Kondratieff cycle, according to Schumpeter, is caused by sweeping innovations such as electrification or jet flight.

Kondratieff, Nikolai D.:

Nikolai Dmietrievich Kondratieff (1892-1938) pioneered investigation of “long wave” business cycles, and died in a Soviet purge initiated by Joseph Stalin. Joseph Schumpeter named the longest business cycle he could document [40-60 years] the “Kondratieff cycle” or “Kondratieff wave.” A biographical sketch of N.D. Kondratieff is available here.

Koopmans, Tjalling C.:

Tjalling C. Koopmans (1910-1986) was a Dutch-born mathematical economist who developed crucial aspects of both linear programming and econometrics. While teaching at Yale University, he shared the 1975 Nobel Prize with Russia's Leonid Kantorovich. See an autobiographical sketch of Tjalling C. Koopmans here.

Kuznets curve:

A Kuznets curve measures the state of economic development (implicitly, along a time line) on the horizontal axis, and the extent of income inequality (as measured by a Gini coefficient) on the vertical axis. The Nobel Prize winning economist Simon Kuznets hypothesized that economies based heavily in agriculture initially tend have relatively even distributions of income, but that the early stages of industrialization sharpen income disparities. However, as industrialization in a country proceeds, workers increasingly acquire human capital, and the working middle class becomes larger relative to population, with the result that the distribution of income then becomes more equal once again. Thus, the Kuznets curve has a shape somewhat like ∩ along a time line. Although income has become less equally distributed in the United States in the past 30 years or so, Kuznets’ hypothesis fit the longitudinal data for the United States for the time span 1870-1975. However, in support of Kuznets hypothesis, there is some evidence that the globalization of markets is causing income to become more equally distributed in newly developing countries. See also Pareto’s law of distribution, Lorenz curve, and Gini coefficient.

Kuznets, Simon:

Russian-born but American-educated, Simon Kuznets (1901-1985) was a pioneer who won the 1971 Nobel Prize for developing protocols for and systematic estimates of the gross national product and national income accounts. A biographical sketch of Simon Kuznets is available here.