# Economics

### Liquidity Trap

**Liquidity trap** is a situation in which prevailing interest rates are low and savings rates are high. Liquidity trap makes monetary policy ineffective.

Liquidity trap also means that bank cash-holdings are rising and banks cannot find sufficient number of qualified borrowers even at extraordinary low rates of interest.

### Pigou Effect

The **Pigou Effect** is an economics term that describes what happens in the economy, particularly with the aggregate consumption, if prices fall. It is an effect that deals with economic wealth.

### Prisoner's Dilemma

The **Prisoner's Dilemma** is a favorite example in the game theory and social sciences that shows why co-operation is difficult to achieve even when it is mutually beneficial.

The base thesis behind the prisoner's dilemma is two prisoners having been arrested for the same offence and being held in different cells.

### Purchasing Power Parity (PPP)

The **Purchasing Power Parity** (PPP) is a theory of exchange rate determination and a way to compare the average costs of goods and services between countries.

PPP is the rate of currency conversion that equalize the purchasing power of different currencies by eliminating the differences in price levels between countries.

### Big Mac Index

The **Big Mac Index** is an informal way of measuring the purchasing power parity (PPP) between two currencies. It provides a view of the extent to which market exchange rates deviate from their true values.

### Robin Hood Index

The **Robin Hood Index** is conceptually one of the simplest measures of inequality used in econometrics. It is equal to the portion of the total community income that would have to be redistributed (taken from the richer half of the population and given to the poorer half) for the society to live in perfect equality.

### Phillips Curve

The **Phillips Curve** is a graphical representation of the inverse, or negative, economic relationship between the rate of unemployment (or more precise, the rate of change in unemployment) and the percentage rate of change in money wages.

### Laffer Curve

The **Laffer Curve** is a curve which suggests that for a given economy there is an optimal income tax level to maximize tax revenues. The Laffer Curve shows the relationship between tax rates and tax revenue collected by governments.

### Gini Coefficient

The **Gini Coefficient** is a way to measure equity and is derived from the Lorenz curve.

The Gini coefficient is defined graphically as a ratio of two surfaces involving the summation of all vertical deviations between the Lorenz curve and the perfect equality line (A) divided by the difference between the perfect equality and perfect inequality lines (A+B).

### Lorenz Curve

The **Lorenz Curve** is a graphical representation of the proportionality of a distribution. It represents a probability distribution of statistical values, and is often associated with income distribution calculations and commonly used in the analysis of inequality.