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G

G7, G8, G10, G21, G22, G26

I don't want to belong to any club that will accept me as a member, quipped Groucho Marx. But the world's politicians are desperate to join the economic clubs that are the Group of Seven (G7), G8, G10 and so on. Being a member shows that, economically speaking, your country matters. Alas, beyond making politicians feel good, there has not been much evidence in recent years that they do anything useful, apart from letting government officials and journalists talk to each other about economics and politics, usually in beautiful locations with lots of fine food and drink on hand.

In 1975, six countries, the world's leading capitalist countries, ranked by gdp, were represented in France at the first annual summit meeting: the United States, the UK, Germany, Japan and Italy, as well as the host country. The following year they were joined by Canada and, in 1977, by representatives of the european union, although the group continued to be known as the G7. At the 1989 summit, 15 developing countries were also represented, although this did not give birth to the G22, which was not set up until 1998 and swiftly grew into G26. At the 1991 G7 summit, a meeting was held with the Soviet Union, a practice that continued (with Russia) in later years. In 1998, although it was not one of the world's eight richest countries, Russia became a full member of the G8. Meetings of the IMF are attended by the GIO, which includes 11 countries--the original members of the G7 as well as representatives of Switzerland, Belgium, Sweden and the Netherlands. In 2003, 21 developing countries, representing half of the world's population and two-thirds of its farmers, formed the G21 to lobby for more free trade in [economics-term KEY-"AGRICULTURE"]agriculture[/economics-term].

Game theory

How to win at Twister? No, but maybe at monopoly. Game theory is a technique for analysing how people, firms and governments should behave in strategic situations (in which they must interact with each other), and in deciding what to do must take into account what others are likely to do and how others might respond to what they do. For instance, competition between two firms can be analysed as a game in which firms play to achieve a long-term competitive advantage (perhaps even a monopoly). The theory helps each firm to develop its optimal strategy for, say, pricing its products and deciding how much to produce; it can help the firm to anticipate in advance what its competitor will do and shows how best to respond if the competitor does something unexpected. It is particularly useful for understanding behaviour in monopolistic competition.

In game theory, which can be used to describe anything from wage negotiations to arms races, a dominant strategy is one that will deliver the best results for the player, regardless of what anybody else does. One finding of game theory is that there may be a large first-mover advantage for companies that beat their rivals into a new market or come up with an innovation. One special case identified by the theory is the zero-sum game, where players see that the total winnings are fixed; for some to do well, others must lose. Far better is the positive-sum game, in which competitive interaction has the potential to make all the players richer. Another problem analysed by game theorists is the prisoners' dilemma. (See also nash equilibrium.)

GDP

Gross domestic product, a measure of economic activity in a country. It is calculated by adding the total value of a country's annual output of goods and services. GDP = private consumption + investment + public spending + the change in inventories + (exports - imports). It is usually valued at market prices; by subtracting indirect tax and adding any government subsidy, however, GDP can be calculated at factor cost. This measure more accurately reveals the income paid to factors of production. Adding income earned by domestic residents from their investments abroad, and subtracting income paid from the country to investors abroad, gives the country's gross national product (GNP).

The effect of inflation can be eliminated by measuring GDP growth in constant real prices. However, some economists argue that hitting a nominal gdp target should be the main goal of macroeconomic policy. This is because it would remind policymakers to take into account the effect of their decisions on inflation, as well as on growth. GDP can be calculated in three ways. The income method adds the income of residents (individuals and firms) derived from the production of goods and services. The output method adds the value of output from the different sectors of the economy. The expenditure method totals spending on goods and services produced by residents, before allowing for depreciation and capital consumption. As one person's output is another person's income, which in turn becomes expenditure, these three measures ought to be identical. They rarely are because of statistical imperfections. Furthermore, the output and income measures exclude unreported economic activity that takes place in the black economy but that may be captured by the expenditure measure.

GDP is disliked as an objective of economic policy by some because it is not a perfect measure of welfare. It does not include aspects of the good life such as some leisure activities. Nor does it include economically valuable activities that are not paid for, such as parents teaching their children to read. But it does include some things that lower the quality of life, such as activities that damage the environment.

General Agreement on Tariffs and Trade

Or GATT, the vehicle for promoting international free trade, through a series of rounds of negotiations between the governments of trading countries. The first GATT round began in 1945. The last led to the establishment of the world trade organisation in 1995.

General equilibrium

Economic perfection. This is when demand and supply are in balance (the market is in equilibrium) for each and every good and service in the economy. Nobody thinks that real-world economies can ever be that perfect; at best there is "partial equilibrium". But most economists think that general equilibrium is something worth aspiring to.