Hidden economy: Economic activity that is not reported for tax purposes and is not included in official government statistics. Also known as the black market, underground economy, shadow economy, informal economy, and parallel economy.
Hidden employed: Workers in the underground economy. This employment does not show up in the official employment statistics.
Hidden unemployed: Discouraged workers and underemployed workers. They are not counted as unemployed in the unemployment statistics.
Homogeneous products: Products of different firms that have no differences in the minds of consumers. Consumers do not prefer the products of one firm over another. The products are considered to be perfect substitutes. Also known as identical products and standardized products.
Household sector: The sector of the economy that represents the final consumers of goods and services, and also provides the factors of production to the business sector.
Hyperinflation: A situation in which the rate of inflation accelerates to the point where the entire economy breaks down.
Identical products: Products of different firms that have no differences in the minds of consumers. Consumers do not prefer the products of one firm over the products of another firm. The products are considered to be perfect substitutes. Also known as homogeneous products and standardized products.
Implicit costs: Costs for which no actual payment takes place. In economics, implicit costs generally refer to opportunity costs.
Import quota: A trade restriction in which the government limits the amount of a good, or the amount of goods from a specific country that can be imported.
Imports: Transactions in which the products purchased have been produced in another country.
Increase in demand: A change in a determinant of demand which causes the quantity demanded to increase at every potential price. This is represented on a supply and demand diagram as a rightward shift in the demand curve.
Increase in supply: A change in a determinant of supply which causes the quantity supplied to increase at every potential price. This is represented on a supply and demand diagram as a rightward shift in the supply curve.
Increasing opportunity costs: The concept that as more and more resources are devoted to a particular activity, the marginal cost becomes increasingly higher. This concept explains the bowed-out (convex) shape of the PPC.
Income: Payments received (earnings) by the factors of production.
Income account: The portion of the current account in the balance of payments that includes transactions involving income between countries. Investment income and wages earned in another country is a positive (credit). Investment income and wages earned from domestic activity by foreigners is a negative (debit).
Income approach: A method of calculating GDP by adding up the income received by the factors of production. The formula is: GDP = compensation of employees + net interest + rent + profits (proprietors’ income + corporate profits) + indirect business taxes + capital consumption allowance (or depreciation) – net factor income from abroad.
Income elasticity of demand: A measurement of the responsiveness of quantity demanded to a change in income.
Indicators: Variables that tend to change as the phase of the business cycle changes. Also known as economic indicators. Indicators can be leading indicators, coincident indicators, or lagging indicators.
Indifference curve: A graph plotting all combinations of the quantities of two goods for which a consumer has no preference.
Indifference analysis: A simplified, graphical economic model that helps to explain consumer choices.
Indifference map: A graph showing various indifference curves as well as a budget line.
Indirect business taxes: Taxes collected through businesses that are not related to the amount of income. Indirect business taxes include sales taxes and excise taxes.
Industry: A sector of the economy in which firms use similar resources to produce similar products. In economics, industry is often used interchangeably with market.
Inelastic: A variable that is relatively unresponsive to changes in another variable. Elasticity with an absolute value of less than one.
Infant industry: An industry that currently cannot compete with more efficient foreign competition, but is believed to be capable of becoming competitive if the government imposes trade restrictions to protect the industry while it grows.
Inferior good: A good for which demand changes in the opposite direction as income.
Inflation: A sustained rise in the average level of prices. Alternatively, a sustained decline in the purchasing power of the currency.
Inflation rate: The percentage change in the average price level from one year to the next.
Informal economy: Economic activity that is not reported for tax purposes and is not included in official government statistics. Also known as the black market, underground economy, hidden economy, shadow economy, and parallel economy.
Infrastructure: Basic public institutions and facilities including an education system and a system of roads and bridges.
Inputs: The use of factors of production. Used interchangeably with the term resources.
Interest: Payment made for the use of somebody else’s money.
Interest rate: The amount of interest, as an annualized percentage of the principle amount of a loan.
Interest rate effect: A price factor of aggregate demand. As the price level increases, more money is needed for purchases. This increases the transaction demand for money, and lowers the demand for other financial assets such as bonds. A lower demand for bonds will decrease the price of bonds, increasing interest rates. Higher interest rates will create a decrease in aggregate investment spending.
Intermediate goods: Goods that are produced for use in producing other goods.
Intermediate target: A goal for which another goal is the real aim. For example, the Fed uses a target level of the money supply in order to achieve another goal, which is a desired level of real output and prices.
International cartel: A cartel composed of firms from different countries.
International sector: The sector of the economy that involves other countries. This would be the import and export components of the economy.
International trade effect: A price factor of aggregate demand. Changes in the relative prices of foreign and domestic goods will cause changes in net exports. These changes will change the overall price level, creating a movement along the aggregate demand curve.
Intersection: On a graph, the point where two curves cross, usually indicating a point of equilibrium.
Inventory: Goods that have been produced/purchased but not yet sold.
Investment: In economics, investment generally refers to physical investment, which is spending by firms, or the business sector of the economy; as opposed to financial investment, which refers to spending by people on financial assets for the purpose of earning a profit.
Key resource: A scarce resource for which there are no close substitutes.
Keynes, John Maynard: Economist who developed Keynesian Economics, which challenged classical economic thinking during the Great Depression by advocating for targeted government activism.
Keynesian Economics: The economic school of thought that developed as a result of the theories of John Maynard Keynes. This school of thought has evolved over time and is no longer identical to the actual theories of Keynes.
Kinked demand curve: In oligopoly theory, a demand curve composed of different segments of two demand curves with different elasticity and slopes, thus forming a kink at the point where the two curves are joined