Economy and Business Terms - Charlie, your teacher of English
corporate practices, while opponents say that corporations simply pass on the tax to their
customers.
Cost of Living: Cost of living is the amount of money needed to sustain a certain level of living,
including basic expenses such as housing, food, taxes and health care. Cost of living is often used
to compare how expensive it is to live in one city versus another locality. Cost of living is tied to
wages, as salary levels are measured against expenses required to maintain a basic standard of
living throughout specific geographic regions.
Cost-benefit Analysis: A cost-benefit analysis is a process by which business decisions are
analyzed. The benefits of a given situation or business-related actions are summed, and then the
costs associated with taking that action are then subtracted. Some consultants or analysts also
build the model to put a dollar value on intangible items, such as the benefits and costs associated
with living in a certain town, and most analysts will also take into account opportunity cost into such
equations.
Deflation: It's a fall in the general level of prices - the opposite of inflation. Productivity gains in the
last century allowed businesses to make more goods more cheaply, lowering the price of the goods
and improving everybody's standard of living.
Deflation becomes damaging when people postpone spending in anticipation of cheaper prices.
When consumers postpone or no longer spend, businesses cannot sell their goods, make profits or
pay off their debts, leading them to cut production and workers. This leads to lower demand for
goods, even lower prices, and a vicious cycle develops. Historical experience has shown that once
deflation sets in, it is incredibly hard to shake off, as Japan has discovered.
Demand-Pull Inflation: In Keynesian economics, it is a significant increase in prices that occurs
when there is an increase in demand for goods and services that the increase outpaces supply. The
equivalent of demand-pull inflation can occur for any one product, but the term refers to situations
where this happens throughout the economy. Demand may increase for a number of reasons; one
example is an increase in the money supply. If persons have more money, they are more likely to
buy goods and services which, in turn, drives up prices. One way to think of demand-pull inflation is
to conceptualize it as too many dollars chasing too few products.
Demutualization: It is the process by which a mutual company becomes a publicly-traded
company. A mutual company is a company owned by its members or users for the benefit of those
members or users. In demutualization, the members give up their rights and receive shares in the
company in return, which the members may then sell. Demutualization happens most often when a
stock exchange owned by its members goes public. As an aside, a mutual company should not be
confused with a mutual fund.
Depression: Depression is a severe and prolonged downturn in economic activity. In economics, a
depression is commonly defined as an extreme recession that lasts two or more years. A
depression is characterized by economic factors such as substantial increases in unemployment, a
drop in available credit, diminishing output, bankruptcies and sovereign debt defaults, reduced trade
and commerce, and sustained volatility in currency values. In times of depression, consumer
confidence and investments decrease, causing the economy to shut down.
11