Chapter 5: Economic Policy of the State

Central Bank

a bank set up by a government to help handle its transactions, coordinate the policies of private banks, and above all, manage interest rates in the economy

Codetermination

German system by which corporations are legally required to include workers representatives n their boards of directors

Comparative advantage

A theory of international economics that says that it is better for countries to produce those goods that they are more efficient at than other countries, and then trade them for goods made more efficiently by other countries

externality

A situation in which there are social costs or benefits beyond the individual costs and benefits involved in a transaction

Gini index

An economic measure of equality where a score closer to 1 or 1% would indicate more economic equality and a score of 100 of 100% extreme inequality

Import-substitution industrialization

A policy especially followed by many states of the Third World in the 1960s and 1970s whereby the states erected high tariff barriers against imports, hoping to build their domestic industries

inflation

A situation in which most prices are rising at the same time and the value of the currency is therefore declining in real terms

labor force participation

A measurement that looks at what percentage of all potential workers in a state are employed

political economy

A subfield of political science that focuses on ways the state and the economy interact. Political Economy is concerned with how the economy affects the state (ex effects of the economy on elections) and how the state effects the economy (ex whether independent central banks reduce inflation)

political psychology

A subfield of political science that focuses on how individuals, both among political elites and ordinary citizens, make their choices in political decisions. Political psychology draws heavily on the field of psychology for insights and theory.

progressive taxation

A system of taxes that takes a greater proportion of a persons income if the income is high than if the income is low

rational choice models

Models of politics that are based on a core assumption that all who are involved act “rationally”, that is, they make their decisions to further certain specific goals. A rational choice model posits what those goals are then proceeds by deductive logic to demonstrate what political choices a person should make if those are her or his goals.

regressive taxation

A system of taxes that takes a greater proportion of a person’s income if the income is low than if the income is high

rents

transfers of money that do not relate to production (e.g) social security)