Learning economics through economic terms

Aristotle described man as a social animal, some scholars knowledgable in Greek say the Greek term he used is better translated as political animal. Whichever is correct, it is also correct to say that man is an economic animal.

The politics of today is highly influenced by the economics, the creation of wealth and its distribution. Both professionals and non professionals express their economic hopes and anxieties in economic terms. Some of these terms are vaguely understood by those who use them. It is the object of this article to give dictionary definition of terms and thereby make us understand better economic issues.

Recently, may Malawians were infuriated upon learning that the World Bank had exposed Malawi as the poorest country in the world, and allegation representatives of the World Bank have disclaimed. All the same in the definitions below we begin with the word poverty. What does it mean to be a poor person or a poor country?

Poverty

Poverty is described as an inability to afford an adequate standard of consumption. Some economists describe poverty in absolute terms when someone lives below some fixed minimum standard of livelihood. For example, has no shelter, walks poorly clad and barefoot. This type of poverty can be abolished when the economy has grown higher and every worker earns a minimum wage that can enable them to buy the minimum requirements.

Some economists define poverty in relative terms. They mean the inability to afford whan an average person enjoys. People belonging to this group are the ones whom Jesus meant when he saud the poor will always be with you. No matter how wealthy a country may be some people will be less rich than others or they will be poor compared with others.

In The Economist of February 28 to March 6 2015, we understand that the World Bank has a specific definition of “Ending Poverty.” It means that no one should be living on less than a $1.25 a day. To attain this in poor countries there must be a measure of political and economic stability

Gross Domestic  Product (GDP), Gross national Product (GNP)

The GDP and the GNP of a country gives an idea as to whether people in that country are poor or rich. In calculating the GDP activities carried on in the country by foreign companies are included but exclude activities of firms owned by residents of the country in foreign countries.

The GDP measures national economic activity. It includes residents incomes earned in foreign countries as well as at home but exclude incomes produced at home but belonging to foreigners.

A high GDP or GNP does not mean that the living standards are high throughout a country. There may be gross inequalities. During colonial days in some African countries gold, copper, diamond mines produced a lot of wealth for a few foreigners. The majority of the local people simply earned humble wages as labourers.

There has got to be a policy of distribution which rewards the entrepreneur with due respect to the social and economic welfare of the majority.

Depreciation and devaluation of a currency

These two terms are constantly uttered by people who either suffer or enjoy their impacts but do not seem to know the difference between them.

Depreciation of a currency is a fall in price in terms of other currencies, while in domestic markets we use the currency that is legal tender (the compulsory one like the kwacha in Malawi) when you want to import  goods, you will have to pay your suppliers in the currency they approve such as dollars or pounds. You have to buy the dollars or pounds at a given price depending on the ratio already agreed by the monetary authorities of your country and those of another country. This ratio may change by effects of demand and supply in the foreign exchange market. If the kwacha loses value by such automatic forces. This is known as depreciation.

The kwacha may lose value by deliberate decision of the Ministry of Finance, Economic Planning and Development and the Governor of the central bank. This is called devaluation.

Depreciation and devaluation have the same effects on imports and exports. Following depreciation and devaluation imports become expensive and they may contribute to cost push inflation. For example, if petroleum will now cost more all those who use it in their business may raise prices and new price may ramify.

Depreciation and devaluation make a countrys’ exports cheaper or more competitive. There is a tug of war between the two forces. If depreciation or devaluation enables a country to export more than it imports it will save its foreign reserves and even earn more reserves. It will therefore, have a favourable balance of payments.

But expensive imports of capital goods may contribute to slowdown in the completion of projects and as already stated may aggravate inflation. n