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June 22, 2018 

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OPEN MARKET OPERATIONS: The Federal Reserve System's buying and selling of government securities in an effort to alter bank reserves and subsequently the nation's money supply. These actions, under the direction of the Federal Open Market Committee, are the Fed's number one, most effective, most often used tool of monetary policy. If, for example, the Fed wants to increase the money supply (termed easy money) it buy's government securities. If the Fed chooses to reduce the money supply (called tight money) it sells some government securities.

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EQUITY:

This has two, not totally unrelated, uses in economics--one of five economic goals and ownership of an asset. As an economic goal, one of the two microeconomic goals, achieving equity means that income and wealth are distributed in a fair manner. What is meant by "fair" is subject to continuing debate. As ownership, equity typically refers to the ownership of a corporation, especially corporate stock. An equity market, as such, is another term for a stock market that trades ownership stock of corporations.

Economic Goal

As an economic goal, equity is achieved when income and wealth are fairly distributed within a society. Almost everyone wants a fair distribution. However, what constitutes a fair and equitable distribution is debatable. Some might contend that equity is achieved when everyone has the same income and wealth. Others contend that equity results when people receive income and wealth based on the value of their production. Still others argue that equity is achieved when each has only the income and wealth that they need.

Distribution Standards: Equity means income or wealth is distributed according to a standard of fairness. But what is the appropriate standard? It could be equality. Or it could be the productive value of resources. Or it could be need.

The three most noted distribution standards are:

  • Equality Standard: Income is distributed equally to each person in society. With this standard, each member of society receives exactly the same income, the average level of income.

  • Contributive Standard: Income is distributed based on the value of the goods and services that a person is responsible for producing, that is, their contribution to production. The contributive standard is the primary distribution standard used in market-oriented economies. The key to this standard is the equality between wage (or resource price) and the marginal revenue product of the resource.

  • Needs Standard: Income is distributed based on the quantity of goods and services that a person needs to attain a given standard of living, that is, their needs. The needs standard is central feature of socialism and communism economic systems. The key to this standard is determine the amount of income needed to provide a particular level of consumption.

The Politics of Equity: The microeconomic goal of equity is widely acknowledged as a beneficial pursuit, however, there is a great deal of controversy over what constitutes an equitable distribution of resources, income, and wealth.

Consider the two basic political philosophies--liberals and conservatives.

  • Liberals: Those who comprise the working class and occupy the lower end of the income spectrum generally favor the equality or needs distribution standards. Both tend to redistribute income from the upper end of the income spectrum to the lower end. Liberal politicians count these folks among their core constituency.

  • Conservatives: Those who own businesses and occupy the upper end of the income spectrum generally favor the contributive distribution standards. This keeps income in the upper end of the income spectrum. Conservative politicians count these folks among their core constituency.

Ownership

As ownership, equity refers to the ownership of assets, especially such things as housing, capital, and corporate stocks. An entrepreneur, for example, might be said to have equity ownership of a small business. A financial investor buys equities (corporate stock) through an equity market (stock market). A person commonly builds up equity in a house by paying off the outstanding mortgage loan.

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Recommended Citation:

EQUITY, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: June 22, 2018].


Check Out These Related Terms...

     | economic goals | microeconomic goals | efficiency | macroeconomic goals | full employment | stability | economic growth |


Or For A Little Background...

     | three questions of allocation | distribution standards | scarcity | allocation |


And For Further Study...

     | mixed economy | seven economic rules | incentive | invisible hand | specialization | liberal | conservative | political views | market-oriented economy | socialism | communism |


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