BCS Written Economics flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Price elasticity of demand

Percentage change in quantity demanded divided by percentage change in price. Absolute value greater than one means elastic demand; less than one means inelastic.

Consumer equilibrium condition

Utility is maximized when marginal utility per taka spent is equal across goods: MUx/Px = MUy/Py. The indifference curve is tangent to the budget line.

Monopoly deadweight loss

The welfare loss from monopoly output below competitive level. It equals the area between demand and marginal cost from monopoly quantity to competitive quantity.

Returns to scale

In Cobb-Douglas Q = AL^αK^β, α+β>1 gives increasing returns, α+β=1 constant returns, and α+β<1 decreasing returns to scale.

GDP expenditure identity

Gross domestic product equals consumption plus investment plus government spending plus net exports (exports minus imports). It measures final output produced within a country.

Simple Keynesian multiplier

The multiplier k equals 1 divided by one minus the marginal propensity to consume, or 1 divided by the marginal propensity to save. It shows total income change from an initial spending change.

Okun's law

A rule of thumb stating that for every one percentage point the unemployment rate exceeds the natural rate, GDP falls about two percent below potential GDP.

Phillips curve

A relationship showing inflation falling when unemployment rises above the natural rate. In the long run the curve is vertical at the natural rate of unemployment.

Human Development Index

A composite index using the geometric mean of normalized indices for life expectancy, education (mean and expected years), and GNI per capita adjusted for purchasing power parity.

Gini coefficient

A measure of income inequality ranging from zero (perfect equality) to one (perfect inequality). It is derived from the Lorenz curve as the area between the curve and the diagonal.

Harrod-Domar growth model

A model where the growth rate equals the saving rate divided by the capital-output ratio. Higher saving or lower capital intensity raises growth.

Lewis dual-sector model

A development model where surplus labor moves from a low-productivity traditional sector to a modern industrial sector. Growth continues until the labor surplus is exhausted.

Tax incidence

The distribution of a tax burden between buyers and sellers. The burden falls more heavily on the side of the market that is less elastic.

Laffer curve

A curve showing tax revenue rising with the tax rate up to a peak and then falling. Beyond the peak, reducing the tax rate can increase revenue.

Crowding out

A reduction in private investment caused by government borrowing that raises interest rates. It weakens the expansionary effect of fiscal policy.

Primary budget deficit

The government budget deficit excluding interest payments on public debt. It shows whether current revenue covers current non-interest spending.

Money multiplier

The ratio of the money supply to the monetary base. In the simple case it equals one divided by the reserve ratio; with currency drain it is (1+c)/(r+c).

Quantity theory of money

The equation MV = PY states that money supply times velocity equals the price level times real output. It implies inflation approximately equals money growth minus output growth.

Liquidity trap

A situation where nominal interest rates are near zero and money demand becomes perfectly elastic. Conventional monetary policy loses effectiveness because bonds and money are near-perfect substitutes.

Taylor rule

A monetary policy rule setting the policy rate as the neutral rate plus inflation plus weighted gaps of inflation from target and output from potential.

Comparative advantage

The ability to produce a good at a lower opportunity cost than another country. It explains gains from trade even when one country has absolute advantage in all goods.

Marshall-Lerner condition

Currency depreciation improves the trade balance only if the sum of the absolute price elasticities of exports and imports exceeds one.

J-curve effect

After a currency depreciation, the trade balance first worsens because quantities adjust slowly, then improves as export and import volumes respond to new prices.

Balance of payments identity

The current account plus the capital and financial account plus errors and omissions equals zero, with official reserve changes balancing any residual.

Bangladesh RMG exports

Ready-made garments account for more than eighty percent of Bangladesh's merchandise exports. This concentration exposes the economy to external demand and compliance shocks.

Bangladesh remittances

Money sent home by Bangladeshi workers abroad. Remittances are a major source of foreign exchange, supporting the current account and household consumption.

Bangladesh LDC graduation

Bangladesh is scheduled to graduate from least developed country status in 2026. Graduation will phase out trade preferences and require adjustment in export competitiveness and aid access.

Demographic dividend

Economic growth potential arising when a large share of the population is of working age and dependency ratios are low. Realizing it requires education, skills, and job creation.

OLS estimator

The ordinary least squares coefficient estimate equals (X'X)^-1 X'y. It minimizes the sum of squared residuals in a linear regression model.

Gauss-Markov theorem

Under linearity, exogeneity, homoskedasticity, and no autocorrelation, ordinary least squares is the best linear unbiased estimator, having minimum variance among linear unbiased estimators.

Adjusted R-squared

A goodness-of-fit measure that penalizes additional regressors. Unlike R-squared, it can fall when a new variable adds little explanatory power.

Instrumental variable validity

An instrument must be relevant, correlated with the endogenous regressor, and exogenous, uncorrelated with the error term. Both conditions are needed for consistent estimation.