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race to the bottom:
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Critics of outsourcing and globalization describe as a
“race to the bottom” the tendency for manufacturing processes to be moved to nations
with low wages, and what the critics view as inadequate labor laws and
environmental standards.
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racism:
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Racism is economic or personal discrimination based on the
race or ethnic origin of an individual.
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Rand, Ayn:
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A Russian émigré, Ayn Rand (1905-1982) developed a
philosophy she called “objectivism” closely akin to social Darwinism that
rejected the idea that anyone had any obligation to ever provide aid to
anyone else. Her ideas were expressed in numerous polemics and in three
noteworthy novels, Anthem, The Fountainhead and Atlas Shrugged. Rand helped popularize
the economic theories of Henry Hazlitt and Ludwig von Mises through her
staunch advocacy of free markets and, at most, limited government.
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random selection:
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Random selection is an allocative mechanism that determines economic
decisions by chance. Random selection is inefficient in most cases where a choice
must be made; such as who is assigned to certain careers. A lottery is an
example of random selection.
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random walk:
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A variable such
as changes in the relative price of a good or financial instrument follows a “random walk” when no aspect
of any subsequent change in the variable is systematically related to any
previous changes in the variable.
The random walk hypothesis for financial assets is based in the theory of efficient
markets.
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random walk:
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A variable follows a random walk if
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range:
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The range is the y values of a function, or the
interval (the difference between the highest and lowest values) over which a
data set spreads. For instance, if the data were a census of world
population, the range of ages might be from 1 minute to 118 years old
(perhaps).
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ratchet effect:
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A ratchet effect is a process by which the response to a stimulus is
extremely different in one direction than the response to the same stimulus
in the opposite direction. In the
economic arena, for example, unions may be quick to fight for higher wages
when the economy is booming but slow to agree to lower wages when the economy
is in a recession. Government growth is often argued to illustrate a ratchet
effect. See Keynesian government groth ratchet for discussion of this issue.
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rate base:
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The rate base is value of a
regulated firm’s capital stock to which an acceptable, or fair, rate of
return applies. Usually refers to a public utility, such as a provider of
natural gas or electricity.
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rate of return:
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A rate of return is the
annualized average size of the income stream per time period as a percentage
of the dollar outlay for an investment.
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rate of return regulation:
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Rate of return regulation occurs when a government
agency sets rates for such natural monopolies as natural gas or electric
utilities with the goal of permitting the firm’s stockholders to earn only a
normal rate of return, based on the riskiness of their investments. See also
block pricing and natural monopoly.
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rate risk:
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People
in banking use the term rate risk to refer to the potential decline in the
value of a portfolio of fixed-rate loans or other fixed rate assets that
would occur if interest rates increase. See also interest rate risk.
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rate structure:
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A rate structure is a list of prices and quantities
combinations that apply for a good or service. Rate structures for utility
companies are usually set by a governmental regulatory commission. Ideally,
these rate structures are adjusted by the regulator so that total revenue
exceeds operating costs and includes only a normal profit.
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ration:
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The verb “to ration” is a synonym for the verb “to
allocate.” Allocative mechanisms are also called rationing devices, and
include government, tradition, brute force, random selection, merit, queuing,
and prices and markets.
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rational choice:
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A rational choice is a decision expected to be consistent
with one’s goals (e.g., maximization
of utility or profit), given the information available about alternatives.
The assumption that people are rational is one of the foundations of standard
economic theory. Rational choices are determined by opportunity costs—preferences,
budgets, and relative prices. Contrast with arational preferences or irrational
choices.
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rational
expectations:
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The theory of rational expectations suggests that consumer and
investor decisions affected by, e.g., government regulations, inflation, or
changes in prices, will be based on the best information and forecasting
models available. This theory concludes that competitive markets operate so
efficiently that policy goals (e.g., low rates of unemployment or interest)
inconsistent with market outcomes cannot be achieved, even in the short run,
unless the timing and the effects of demand‑management policies come as
surprises to the public. In financial markets, the theory of rational
expectations is known as the theory of efficient markets. See also adaptive expectations and static expectations.
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rational
ignorance:
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Rational ignorance is a result of cost effective choices
about how much information to pursue. Decisionmaking
based on perfect information is an unrealistic dream. Decision makers will
search for information only as long as the expected benefit exceeds the
expected cost and, thus, may choose to be rationally ignorant of much
information. Click on the link for a look into the bewildering maze of
choices in the market today and why we choose to be rationally
ignorant
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rationality:
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One standard economic
assumption about human behavior is rationality, which means that people are
assumed to have logically consistent preferences, that they accurately
perceive and then store and retrieve information relevant for optimizing such
preferences, and that the cognitive processes that underpin their behavior
are consistent with accomplishing their objectives. Contrast with anomalies.
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rationing device:
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See allocative mechanism.
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Reaganomics:
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Reaganomics refers to the
supply-side orientation of the policies of President Ronald Reagan, which
entailed attempts to stimulate economic growth via deregulation, significant
cuts in tax rates, and plans to reduce government spending. Income tax rates
were cut by 30 percent during 1981-1983, but government spending grew
throughput the Reagan Administration, and the federal budget deficit soared.
Although Reaganomics was partially successful, the United States had been the
world’s largest creditor nation in 1981 at the beginning of his
administration, but the burden of soaring national debt made the U.S. the
world’s largest debtor nation by 1988. See supply-side economics, trickle-down theory, and the Laffer curve, consider the absorption problem, and contrast with Rubinomics.
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real balance effect:
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The real balance effect is the
based on the positive effect of falling prices on the purchasing power of
money-denominated financial assets. An increase in the “real” money supply
(the purchasing power of each dollar in the hands of the public) accompanies
any decline in the price level, and thus was expected by Arthur C. Pigou [1877-1959] to
result in an increase in spending. Pigou argued that, contrary to John Maynard Keynes, declining
prices would inevitably increase “real” spending, and consequently, income
and employment. The real balance effect is sometimes called the Pigou effect,
and is central to the monetary theories of Milton Friedman, among others.
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real business cycles:
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Many new
classical macroeconomists embrace the theory of real business cycles, which
assumes (a) that external shocks do not emerge from erratic changes in
aggregate demand, and (b) that shocks to aggregate supply are permanent, and
do not merely represent temporary departures from long run trends for
economic growth. These theorists reject active demand-management policies as
ineffective and inefficient, and perceive changes in aggregate demand as
affecting only the price level.
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real exchange
rates:
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Real exchange rates are nominal exchange
rates after adjustments for changes in the relative price levels of different
countries. Efficient markets theory concludes that real exchange rates and
nominal exchange rates will be identical if governments do not intervene in
the markets for foreign exchange.
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real GDP:
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Real GDP is
a country’s gross domestic product (measure of all goods and services in the
economy during a period) after adjusting for changes in the price level. See
also deflating and nominal GDP.
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real money
balances:
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The
purchasing power of the money a person holds is termed “real money balances” and
is computed by dividing face values of money assets by the average price
level (or, to adjust for scale, 1% of, e.g., the CPI).
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real rate of interest:
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The real rate of
interest is the annual percentage premium of purchasing power paid by a
borrower to a lender for the use of money. The supply of saving is determined
by the amount of extra goods, expressed in percentage terms, that can be
enjoyed if consumption is delayed; and investors’ demands for the loanable
funds saved is investment are determined by the rate of return expected form.
The real rate of interest (ѓ) is computed by
adjusting the nominal interest rate (i)
for the rate of general price change [ѓ = i – Þ]. For more discussion, see the market for loanable funds.
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real values:
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Real values are
the current dollar value of economic variables (e.g., wages, real estate, or
gross domestic product) after adjustment for price level changes. See also deflating.
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real wage:
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The real wage is
the purchasing power of the wage rate. The nominal wage rate must be adjusted
for the price level to calculate the real wage rate.
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real-income
costs of inflation:
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The
real-income costs of inflation are the declines in standards of living
resulting from inflation which causes reductions in productive and
distributive efficiency.
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recession:
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A recession is a
relatively moderate version of a depression. The National Bureau of Economic
Research defines a recession to exist if
there are two consecutive quarters of negative GDP growth.
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recessionary gap:
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A recessionary
gap is the deficiency in autonomous expenditure in a Keynesian cross model
that, if filled, would be multiplied so that full employment output was
achieved. See also inflationary gap and GDP gap.
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reciprocal:
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Finding the
reciprocal of a number entails converting the number to a fraction (e.g., 2
converts to 2 ∕ 1) and “flipping” it to exchange the numerator and
denominator. For example, the reciprocal of 2 ∕ 3 is 3 ∕ 2, or
1.5.
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reciprocity:
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Reciprocity is an allocative mechanism
in which the receipt of a “gift” (a good or service or favor) creates in the
recipient a duty to reciprocate by providing a good or service or favor,
normally to the original giver. The market system can be
viewed as a subset of a reciprocity system, and usually entails a
simultaneous quid pro quo exchange
of items or services, or the exchange of money for an item or service.
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recognition lag:
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The recognition
lag arises because policymakers’ perceptions about current economic
conditions are clouded, and time and effort are required to gather, compile,
process, and interpret data to gain some feeling for any widespread changes
in economic activity; applies equally to both monetary and fiscal policies.
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recovery:
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The recovery
phase of the business cycle lasts from a trough until overall economic
activity returns to the level it reached at the previous peak.
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recovery rule:
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Investment decisions are sometimes naively based on a
recovery rule, according to which a project will be undertaken if the firm
anticipates that its initial costs are likely to be recouped recoup within a
specified number of years (the recovery period), but the project will be
rejected if this criteria is not met. While convenient, the recovery rule is
seriously flawed: this criterion does not discount the project’s future cash
flows, and it does not factor in cash flows received after the recovery
period.
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redistribution:
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Redistribution occurs when (a) the ownership of
non-human resources is reassigned or (b) income is taxed, usually by
government, and conveyed from people who provide resources for production to
other people, based on their perceived needs, or on attempts to achieve equity
by at least somewhat equalizing income and wealth, or because the recipients
are favored for some other reason by the entity in control of redistribution.
See also special interest groups, vertical equity, horizontal
equity, transfer payments, welfare, negative income tax, and property
rights.
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redlining:
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Redlining refers to informal agreements that financial institutions
will adhere to certain informal standards (heuristics) in extending loans or
providing other financial services. When applied to real estate financing,
redlining refers to denials of mortgage loans and banking services to people
living in certain neighborhoods (a redlined neighborhood). This form of
credit rationing violates anti-discrimination laws when based on race,
ethnicity, or religion, and contributes to ‘environmental racism’. See also credit rationing.
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reductionism:
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The term reductionism is usually used pejoratively to
suggest that a causal model is oversimplified and that it consequently
ignores numerous factors, especially human sensibilities and behaviors, which
may be germane for understanding the specific events being analyzed or
discussed. In philosophy, belief that a complex system can be fully explained
as interactions between the components of the system is commonly referred to
as reductionism. See also abstraction.
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reference dependence:
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Reference dependence broadly refers to the contextual
nature of people’s evaluations of their wellbeing. Subjective evaluations may
hinge on an individual’s circumstances relative to the situations of other
people, or on the direction of change in the individual’s circumstances. For
example, people’s overall satisfaction seems to depend strongly on whether
they perceive their circumstances as improving in quality or deteriorating,
and not merely on the level of their wealth or income or consumption, as standard
economic theory supposes. The idea that a person’s sense of wellbeing depends
on the first derivative of their real income or wealth is known as the peak-end rule.
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reflation:
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Reflation refers to the increases
in rates of growth of Aggregate Demand (e.g., faster monetary growth) in
response to the tendencies towards recession that sometimes accompany
attempts to reduce inflationary pressure.
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reflection effect:
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The reflection effect refers to
research results from cognitive psychology that people are often risk averse
when presented with alternatives with positive expected values, i.e. they tend
to choose less risky alternatives, but they are risk seeking (risk loving or
loss averse) when confronted by alternatives with equivalent but negative
expected values; i.e., they tend to choose the riskier alternative. For
example, an individual could play a bet in which the individual could win
fifty dollars with a probability of seven-eighths or lose twenty dollars with
a probability of one eighth. Thus, winning fifty dollars and losing twenty
dollars are opposite in sign. People exhibit a reflection effect if they
are risk averse when presented with alternatives with the same positive
expected values, i.e. they tend to choose less risky alternatives, but they
are risk seeking (risk loving) when confronted by alternatives with the
equivalent – but negative – expected values; i.e., they tend to choose the
riskier alternative. See the prospect
theory link for elaboration of this effect.
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regional economic integration:
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Regional economic integration
occurs when neighboring groups of countries sign agreements and adopt common
economic policies, which tear down trade barriers between the countries. The
European Union is a major example of regional integration. All trade that
occurs between the countries party to the agreement reduce barriers
restricting trade and flows of labor and capital. Regional economic
integration may be a small step towards free trade throughout the world.
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regression fallacy:
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The regression fallacy is the tendency to view sequential
events as causally related even though no causal connection exists. See also post hoc ergo propter hoc fallacy, of
which the regression fallacy is a variant.
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regressive taxes:
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Regressive taxes
effective marginal tax rates that reduce the tax burden relative to income as
income rises.
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regulation:
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Laws and regulations are legal
mechanisms by which government controls resource allocations and the behavior
of consumers and firms. Efficient regulation tends to increase real national income,
but citizens often overpay for the benefits of inefficient regulations
through reduced real income, without explicit tax increases.
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Regulation D.
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Regulation D is a federal law that
limits the number of transfers businesses can make from interest-bearing
transaction accounts to demand accounts. This severely reduces the amounts of
interest that firms can receive from their bank deposits. Similar regulations
limiting transfer activities by consumers have been rescinded.
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Regulation Q:
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Regulation Q is a federal law that
prohibits the payment of interest on demand deposits. However, since 1987,
banks have been permitted to pay interest on money market accounts, which are
effectively demand deposits.
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Regulation T:
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Regulation T of the Securities and
Exchange Act [1934] authorizes the Board of Governors of the Federal Reserve
System to limit the amounts of credit that may be extended to investors in
financial securities. The use of credit to buy securities is commonly termed
“buying on margin.” Regulation T has been set at 50% of the value of the
purchased securities for decades. See also margin requirements.
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regulatory barriers:
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Regulatory barriers are laws or
government regulations that limit competition in a market. See also barriers to entry.
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regulatory capture:
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Regulatory capture refers to a regulatory environment in which a
regulatory agency is dominated by the regulated industry so that the industry interest theory of regulation
is reasonably accurate. A theory to explain regulatory capture was first
elaborated by Nobel Prize winner George Stigler [1911-1994]. See also industry
interest theory of regulation. Contrast with public interest theory of regulation.
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regulatory risk:
|
The risk firms
take that new laws or regulations might damage their business or shrink their
profits is known as regulatory risk.
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reindustrialization:
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See industrial policy.
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relative
abundance:
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Much of the theory of international
trade focuses on the relative abundance of resources – the ratios of
the productive resources available. For example, a nation with relatively
large amounts of capital per worker (high K/L à low L/K) is described as
abundantly endowed with capital , and nations with relatively little
capital per worker (low K/L à high L/K) are described as
abundantly endowed with labor. Open the link to Heckscher-Ohlin theory for
elaboration.
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relative income:
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Relative income is a measure of the extent to which
a person’s income diverges from median income for the country. Some analysts
identify low relative income as half the average income in a population, high
relative income as income that is twice the median income, and medium
relative income as more than half but less than double the relevant
population’s median income. |
