R’s

Welcome to the SwiftEconomics.com Glossary! Each word will come to life using witty jokes, satire, and colorful examples. The glossary is meant to amuse and educate; not to be traditional or academic. The SwiftEconomics.com team wants to hammer home a few vital ideas throughout the vocabulary lesson. For example, keep an eye on asymmetric information’s effect on health insurance. Please share the SwiftEconomics.com Glossary with colleagues, friends, and family!

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Rational Expectations

Probably the weakest assumption made by classical economic models proposing that people form their expectations rationally. People are rational…oh sure.

People are said to achieve rational expectations by using all information available to them, in the most optimal way possible, while (here’s the kicker) learning from their past mistakes. Did these economists look around during the holidays at their family members? Did they interact with humans in day-to-day life? Evidently not or they might have noticed few red flags.


Real

Keepin’ it real all weekend long, in real terms. Real values adjust for inflation and reflect actual purchasing power of money, actual interest rate returns, and forces numbers into the real world.


Reciprocity

Just as in relationships, economic agents sometimes demand reciprocation. Certain actions are returned from one party to another.


Recession

Anti-recessants haven’t been developed for the economy either. R & D departments at pharmaceutical companies should get to work. A recession is low-lighted by two consecutive quarters of decreasing GDP.


Regressive Tax

High income people are taxed at a lesser rate than lower income individuals. Western economies typically view this tax method as unfair.


Regulation

May be self-imposed or government-appointed. Capitalists don’t always promote social welfare in their pursuit of the almighty dollar. Unfortunately, regulatory groups sometimes need regulation themselves. Cronies regulating fellow cronies can yield crummy results for the people.


Reservation Wage

The lowest wage motivating a person to get out of bed and work. “I like not putting pants on until noon. You best do better than that.”


Reserve Currency

Foreign currency held by Central Banks and governments as part of reserves. Global oil transactions, for example, are denominated in U.S. dollars (USD). It makes it worthwhile for other countries to hold USD in reserve for oil transactions.

Transaction costs would occur to convert domestic currency into dollars every time an oil transaction was made. If a country has a popular reserve currency, they can borrow money at more favorable interest rates as well. The gap between the USD and the euro as “most popular global reserve currency” is closing.


Reserve Requirements

A percentage of the total deposit pool at a bank must be held in reserve (not loaned out or spent). This is increasingly important as over 95% of the U.S. money supply is electronic, not physical greenbacks. Banks that underwrite a glut of bad loans and don’t hold sufficient reserves face insolvency…unless taxpayers bail them out.


Revealed Preference

Talk is cheap. People say all sorts of things. True preferences are only revealed in actions.


Risk Aversion

It’s gettin’ very scary in here. Risk averse people are both scared of risk and wish to hedge against risky outcomes. The foundation of the insurance industry is built upon the belief that most people are risk averse and wish to hedge themselves against risky outcomes.


Risk Premium

Investors want to earn greater returns for assets with greater risk. A risk premium is the additional return investors demand to hold an asset. Treasury Bills are traditionally considered “risk-free” assets for investors to hold but that will likely be challenged in the future. The U.S. government is totally good for all their debt…

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