Flashcards form Glossary
ability to pay principle
the idea that taxes should be levied on a person according to how well that person can shoulder the burden
abnormal profit
the profit over and above normal profit
absolute advantage
exists where a producer can produce a good using fewer factor inputs than another
absolute poverty
a level of poverty where an individual does not have access to the basics of life – food - clothing and shelter
accounting profit
total revenue minus total explicit cost
actual spending - saving or investment
the realized or ex post outcome resulting from actions of households and firms
ad valorem tax
a tax levied as a percentage of the price of a good
adaptive expectations
a model which states that individuals and organizations base their expectations of inflation in the future on past actual inflation rates adverse selection
aggregate supply curve
a curve that shows the quantity of goods and services that firms choose to produce and sell at each price level allocative efficiency
automatic stabilizers
changes in fiscal policy that stimulate AD when the economy goes into a recession - without policymakers having to take any deliberate action
autonomous spending or autonomous expenditure
spending which is not dependent on income/output
average fixed cost
fixed costs divided by the quantity of output
average revenue
total revenue divided by the quantity sold
average tax rate
total taxes paid divided by total income
average total cost
total cost divided by the quantity of output
average variable cost
variable costs divided by the quantity of output
balance of payments
the official account of international payments for the import and export of goods - services and capital
balanced budget
where the total sum of money received by a government in tax revenue and interest is equal to the amount it spends - including on any debt interest owing
balanced trade
a situation in which exports equal imports
bargaining process
an agreed outcome between two interested and competing economic agents barriers to entry
benefits principle
the idea that people should pay taxes based on the benefits they receive from government services
birth rate
the number of people born per thousand of the population bond
budget constraint
the limit on the consumption bundles that a consumer can afford budget deficit
business cycle
fluctuations in economic activity such as employment and production
capital
the equipment and structures used to produce goods and services
capital flight
a large and sudden reduction in the demand for assets located in a country
capitalist economic system
a system which relies on the private ownership of factors of production to produce goods and services which are exchanged through a price mechanism and where production is operated primarily for profit
cartel
a group of firms acting in unison catch-up effect
ceteris paribus (other things being equal)
a term used to describe analysis where one variable in the model is allowed to vary while others are held constant
choice set
the set of alternatives available to the consumer
classical dichotomy
the theoretical separation of nominal and real variables club goods
common resources
goods that are rival but not excludable
comparative advantage
the comparison among producers of a good according to their opportunity cost. A producer is said to have a comparative advantage in the production of a good if the opportunity cost is lower than that of another producer
comparative statics
the comparison of one initial static equilibrium with another
compensating differential
a difference in wages that arises to offset the non-monetary characteristics of different jobs
competitive advantage
the advantages a firm has over rivals which are both distinctive and defensible
competitive market
a market in which there are many buyers and sellers so that each has a negligible impact on the market price
complements
two goods for which an increase in the price of one leads to a decrease in the demand for the other
compounding
the accumulation of a sum of money in - say - a bank account - where the interest earned remains in the account to earn additional interest in the future
concentration ratio
the proportion of total market share accounted for by a particular number of firms
constant returns to scale
the property whereby long-run average total cost stays the same as the quantity of output changes
constrained discretion
a monetary policy framework which acknowledges a clear goal (or target) but allows policymakers the freedom to respond to economic - financial and political shocks using all the data available and their collective judgement
Consumer Prices Index
a measure of the overall prices of the goods and services bought by a typical consumer
consumer surplus
a buyer’s willingness to pay minus the amount the buyer actually pays
consumption
spending by households on goods and services - with the exception of purchases of new housing
contestable market
a market in which entry and exit are free and costless
contraction
when real output is lower than the previous time period
copyright
the right of an individual or organization to own things they create in the same way as a physical object - to prevent others from copying or reproducing the creation
cost
the value of everything a seller must give up to produce a good
cost-benefit analysis
a study that compares the costs and benefits to society of providing a public good
cost of living
how much money people need to maintain standards of living in terms of the goods and services they can afford to buy
cost-push inflation
a short-run cause of accelerating inflation due to higher input costs of firms which are passed on as higher consumer prices
countercyclical
a variable that is below trend when GDP is above trend
counterfactual
analysis is based on a premise of what would have occurred if something had not happened
creative destruction
the process where new technologies replace old ones and new skills are needed which render existing skills obsolete
credit default swap
a means by which a bondholder can insure against the risk of default
credit risk
the risk a bank faces in defaults on loans
cronyism
a situation where the allocation of resources in the market is determined in part by political decision-making and favours rather than by economic forces cross-price elasticity of demand
cross-subsidies
a situation where a firm is willing to accept lower profits or losses on some products to deter competition where these lower profits or losses are subsidized by higher profits made on other products in that same market
crowding out
a decrease in investment that results from government borrowing
currency
the paper banknotes and coins in the hands of the public
cyclical deficit
a situation when government spending and income is disrupted by the deviations in the ‘normal’ economic cycle
cyclical unemployment
the deviation of unemployment from its natural rate
dead labour
labour used in the past to produce capital goods and raw materials used in the production of a good
deadweight loss
the fall in total surplus that results from a market distortion - such as a tax
death rate
the number of deaths per thousand of the population
deflation
a fall in the price level over a period occurring when the inflation rate is less than 0 per cent deflationary gap or output gap
demand schedule
a table that shows the relationship between the price of a good and the quantity demanded
de-merit goods
goods that are over-consumed if left to the market mechanism and which generate both private and social costs which are not taken into account by the decision maker
depreciation
a decrease in the value of a currency as measured by the amount of foreign currency it can buy
depression
a severe recession derived demand
diminishing marginal product
the property whereby the marginal product of an input declines as the quantity of the input increases diminishing marginal utility
direct taxes
a tax levied on income and wealth discount rate
discrimination
the offering of different opportunities to similar individuals who differ only by race - ethnic group - gender - age or other personal characteristics diseconomies of scale
disinflation
the reduction in the rate of inflation
diversification
the reduction of risk achieved by replacing a single risk with a large number of smaller unrelated risks
dominant strategy
a strategy that is best for a player in a game regardless of the strategies chosen by the other players
double coincidence of wants
a situation in exchange where two parties each have a good or service that the other wants and can thus enter into an exchange
economic activity
how much buying and selling goes on in the economy over a period of time
economic agents
an individual - firm or organization that has an impact in some way on an economy
economic growth
the increase in the amount of goods and services in an economy over a period of time
economic mobility
the movement of people among income classes
economic profit
total revenue minus total cost - including both explicit and implicit costs
economic rent
the amount a factor of production earns over and above its transfer earnings
economic system
the way in which resources are organized and allocated to provide for the needs of an economy’s citizens
economically inactive
people who are not in employment or unemployed due to reasons such as being in full-time education - being full-time carers and raising families
economics
the study of how society manages its scarce resources
economies of scale
the property whereby long-run average total cost falls as the quantity of output increases
economies of scope
a situation where a firm’s average cost of production is reduced as a result of the production of a variety of products which can share factor inputs
economy
all the production and exchange activities that take place
effective demand
the amount that people are not only willing to buy at different prices but what they can and do actually purchase
efficiency
the property of a resource allocation efficiency wages
endogenous growth theory
a theory that the rate of economic growth in the long run - is determined by the rate of growth in total factor productivity and this total factor productivity is dependent on the rate at which technology progresses
endogenous variable
a variable whose value is determined within the model
endowment effect
where the value placed on something owned is greater than on an identical item not owned
Engel curve
a line showing the relationship between demand and levels of income
entry limit pricing
a situation where a firm will keep prices lower than they could be in order to deter new entrants
equilibrium or market price
the price where the quantity demanded is the same as the quantity supplied
equilibrium quantity
the quantity bought and sold at the equilibrium price
equity
the property of distributing economic prosperity fairly among the members of society
European Central Bank
the overall central bank of the 19 countries comprising the European Monetary Union
European Economic and Monetary Union
the European currency union that has adopted the euro as its common currency
European Union
a family of democratic European countries committed to working together for peace and prosperity
eurosystem
the system made up of the ECB plus the national central banks of each of the 19 countries comprising the European Monetary Union
excludable
the property of a good whereby a person can be prevented from using it when they do not pay for it
exogenous variable
a variable whose value is determined outside the model
expected utility theory
the idea that preferences can and will be ranked by buyers
explicit costs
input costs that require an outlay of money by the firm
exports goods produced domestically and sold abroad leading to an inflow of funds into a country
external economies of scale
the advantages of large-scale production that arise through the growth and concentration of the industry
externality
the cost or benefit of one person’s decision on the well-being of a bystander (a third party) which the decision maker does not take into account when making the decision
falsifiability
the possibility of a theory being rejected as a result of the new observations or new data
fiat money
money without intrinsic value that is used as money because of government decree
financial economy
that part of the economy associated with the buying and selling of assets on financial markets
financial intermediaries
financial institutions through which savers can indirectly provide funds to borrowers
financial markets
financial institutions through which savers can directly provide funds to borrowers
financial system
the group of institutions in the economy that help to match one person’s saving with another person’s investment
fiscal federalism
a fiscal system for a group of countries involving a common fiscal budget and a system of taxes and fiscal transfers across countries
Fisher effect
the one-for-one adjustment of the nominal interest rate to the inflation rate
fixed costs
costs that are not determined by the quantity of output produced
foreign direct investment
capital investment that is owned and operated by a foreign entity
foreign portfolio investment
investment that is financed with foreign money but operated by domestic residents
framing effect
the differing response to choices dependent on the way in which choices are presented
free rider
a person who receives the benefit of a good but avoids paying for it
frictional unemployment
unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills
full employment
a point where those people who want to work at the going market wage level are able to find a job
fundamental analysis
the study of a company’s accounting statements and future prospects to determine its value
future value
the amount of money in the future that an amount of money today will yield - given prevailing interest rates
game theory
the study of how people behave in strategic situations
GDP at constant prices
gross domestic product calculated using prices that existed at a particular base year which takes into account changes in inflation over time
GDP at current or market prices
gross domestic product calculated by multiplying the output of goods and services by the price of those goods and services in the reporting year
GDP deflator
a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100
general equilibrium
a theory where all markets in an economy are in equilibrium and the millions of individual decisions aggregate to balance supply and demand and result in an efficient allocation of resources
generalization
the act of formulating general concepts or explanations by inferring from specific instances of an event or behaviour
geographical immobility
where people are unable to take work because of the difficulties associated with moving to different regions
Giffen good
a good for which an increase in the price raises the quantity demanded
gig economy
a labour market in which workers have short-term - freelance or zero hours contracts with employers and where workers are more akin to being self-employed than employed
Gini coefficient
a measure of the degree of inequality of income in a country
gold standard
a system in which the currency is based on the value of gold and where the currency can be converted to gold on demand
government deficit
a situation where a government spends more than it generates in tax revenue over a period
government failure
a situation where political power and incentives distort decision-making so that decisions are made which conflict with economic efficiency
government spending
spending on goods and services by local - state and national governments
Great Moderation (The)
the period of economic stability characterized by relatively low inflation - high employment - low unemployment and stable and persistent growth
gross domestic product (GDP)
the market value of all final goods and services produced within a country in a given period of time
gross domestic product per capita
the market value of all goods and services produced within a country in a given period of time divided by the population of a country to give a per capita figure
gross value added
the contribution of domestic producers - industries and sectors to an economy
heterodox economics
a term which represents an array of different schools of thought in economics that are outside what may be considered the mainstream or orthodox economics
heuristics
short cuts or rules of thumb that people use in decision-making
horizontal equity
the idea that taxpayers with similar abilities to pay taxes should pay the same amount
human capital
the accumulation of investments in people - such as education and on-the-job training
hyperinflation
a period of extreme and accelerating increase in the price level
hypothesis
an assumption - tentative prediction - explanation - or supposition for something
hysteresis
the lagging effects of past economic events on future ones
idiosyncratic risk
risk that affects only a single economic actor
imperfect competition
exists where firms are able to differentiate their product in some way and so can have some influence over price implicit costs
income elasticity of demand
a measure of how much quantity demanded of a good responds to a change in consumers’ income - computed as the percentage change in quantity demanded divided by the percentage change in income
indexed
the automatic correction of a money amount for the effects of inflation by law or contract
indifference curve
a curve that shows consumption bundles that give the consumer the same level of satisfaction
indirect tax
a tax levied on the sale of goods and services
inference
a conclusion or explanation derived from evidence and reasoning inferior good
inflation
an increase in the overall level of prices in the economy
inflation rate
the percentage change in the price index from the preceding period inflation tax
inflationary gap
the difference between full employment output and actual expenditure when actual expenditure is greater than full employment output informationally efficient
interest elasticity of demand and supply
the responsiveness of the demand and supply of loanable funds to changes in the interest rate
internal economies of scale
the advantages of large-scale production that arise through the growth of the firm
internalizing an externality
altering incentives so that people take account of the external effects of their actions
intertemporal choice
where decisions made today can affect choices facing individuals in the future
intertemporal substitution effect
the response of economic actors to changes in the interest rate by changing consumption and savings decisions
interventionist supply-side policies
policies focused on improving the working of markets through investing in infrastructure - education and research and development
investment
spending on capital equipment - inventories and structures - including household purchases of new housing
investment or mutual fund
an institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds
involuntary unemployment
where people want work at going market wage rates but cannot find employment
isocost line
a line showing the different combination of factor inputs which can be purchased with a given budget
job search
the process by which workers find appropriate jobs given their tastes and skills
labour
the human effort - both mental and physical - that goes into production
labour force
labour force the total number of workers - including both the employed and the unemployed
labour force participation rate (or economic activity rate)
the percentage of the adult population that is in the labour force
Laffer curve
the relationship between tax rates and tax revenue
lagging indicator
an indicator whose changes occur after changes in economic activity have occurred land
leading indicator
an indicator which can be used to foretell future changes in economic activity leveraging
libertarianism
the political philosophy according to which the government should punish crimes and enforce voluntary agreements but not redistribute income life cycle
living wage
an hourly rate set independently - based on an estimation of minimum household needs which provide an ‘acceptable’ standard of living in the UK logrolling
lump-sum tax
a tax that is the same amount for every person
macroeconomics
the study of economy-wide phenomena - including inflation - unemployment and economic growth
macroprudential policy
policies designed to limit the risk across the financial sector by focusing on improving ‘prudential’ standards of operation that enhance stability and reduce risk
marginal abatement cost
the cost expressed in terms of the last unit of pollution not emitted (abated) marginal changes
marginal product of labour
the increase in the amount of output from an additional unit of labour
marginal propensity to consume
the fraction of extra income that a household consumes rather than saves
marginal propensity to save
the fraction of extra income that a household saves rather than consumes
marginal rate of substitution
the rate at which a consumer is willing to trade one good for another
marginal rate of technical substitution
the rate at which one factor input can be substituted for another at a given level of output
marginal revenue
the change in total revenue from an additional unit sold
marginal revenue product
the extra revenue a firm gets from hiring an additional unit of a factor of production
marginal tax rate
the extra taxes paid on an additional unit of income
marginal utility
the addition to total utility as a result of consuming one extra unit of a good
mark to market
an accounting procedure which records the ‘fair value’ of an asset on financial institutions’ balance sheets
market
a group of buyers and sellers of a particular good or service
market economy
an economy that addresses the three key questions of the economic problem by allocating resources through the decentralized decisions of many firms and households as they interact in markets for goods and services
market failure
a situation where scarce resources are not allocated to their most efficient use
market for loanable funds
the market in which those who want to save supply funds - and those who want to borrow to invest demand funds
market-orientated supply-side policies
policies designed to free up markets to improve resource allocation through more effective price signals
market power
the ability of a single economic agent (or small group of agents) to have a substantial influence on market prices or output
market segments
the breaking down of customers into groups with similar buying habits or characteristics
market share
the proportion of total sales in a market accounted for by a particular firm
maximin criterion
the claim that the government should aim to maximize the well-being of the worst-off person in society
medium of exchange
an item that buyers give to sellers when they want to purchase goods and services menu costs
minimum wage
the lowest price an employer may legally pay to a worker
model of aggregate demand and aggregate supply
the model that many economists use to explain short-run fluctuations in economic activity around its long-run trend
monetary neutrality
the proposition that changes in the money supply do not affect real variables
monetary policy
the set of actions taken by the central bank in order to affect the money supply
money
the set of assets in an economy that people regularly use to buy goods and services from other people
money market
the market in which the commercial banks lend money to one another on a short-term basis
money stock
the quantity of money circulating in the economy
money supply
the quantity of money available in the economy
monopolistic competition
a market structure in which many firms sell products that are similar but not identical
monopoly
a firm that is the sole seller of a product without close substitutes monopsony
moral hazard
the tendency of a person who is imperfectly monitored to engage in dishonest or otherwise undesirable behaviour multiplier effect
Nash equilibrium
a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen
national debt
the accumulation of the total debt owed by a government
national saving (saving)
the total income in the economy that remains after paying for consumption and government purchases
natural monopoly
a monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms
natural rate hypothesis
the claim that unemployment eventually returns to its normal - or natural - rate - regardless of the rate of inflation
natural rate of output
the output level in an economy when all existing factors of production (land - labour - capital and technology resources) are fully utilized and where unemployment is at its natural rate
natural rate of unemployment
the normal rate of unemployment around which the unemployment rate fluctuates
natural resources
the inputs into the production of goods and services that are provided by nature - such as land - rivers and mineral deposits
negative externality
the costs imposed on a third party of a decision
negative income tax
a tax system that collects revenue from high-income households and gives transfers to low-income households
neo-classical synthesis
the idea that markets can be slow to adjust in the short run due to sticky prices and sticky wages but revert to long-run classical principles which could be aided by appropriate use of fiscal and monetary policies
net capital outflow
the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners
net exports
spending on domestically produced goods and services by foreigners (exports) minus spending on foreign goods by domestic residents (imports)
nominal exchange rate
the rate at which a person can trade the currency of one country for the currency of another
nominal GDP
the production of goods and services valued at current prices
nominal interest rate
the interest rate as usually reported without a correction for the effects of inflation
nominal variables
variables measured in monetary units
non-accelerating inflation rate of unemployment
the rate of unemployment in the long run - consistent with a stable rate of inflation non-stationary data
normal profit
the minimum amount required to keep factors of production in their current use normative statements
objective well-being
measures of the quality of life using specified indicators.
occupational immobility
where workers are unable to easily move from one occupation to another
Okun’s law
a ‘law’ which is based on observations that in order to keep the unemployment rate steady - real GDP needs to grow at or close to its potential
oligopoly
competition amongst the few – a market structure in which only a few sellers offer similar or identical products and dominate the market
open market operations
the purchase and sale of non-monetary assets from and to the banking sector by the central bank
opportunity cost
whatever must be given up to obtain some item; the value of the benefits foregone (sacrificed)
optimum currency area
a group of countries for which it is optimal to adopt a common currency and form a currency union
outright open market operations
the outright sale or purchase of non-monetary assets to or from the banking sector by the central bank without a corresponding agreement to reverse the transaction at a later date
Pareto improvement
when an action makes at least one economic agent better off without harming another economic agent
patent
the right conferred on the owner to prevent anyone else making or using an invention or manufacturing process without permission
payoff matrix
a table showing the possible combination of outcomes (payoffs) depending on the strategy chosen by each player
peak
a point where related economic variables begin to decline
perfect complements
two goods with right-angle indifference curves perfect price discrimination
perfect substitutes
two goods with straight line indifference curves
permanent income
a person’s normal income
permanent income hypothesis
a theory which suggests that consumers will smooth consumption over their lifetime in relation to their anticipated long-term average income
Phillips curve
a curve that shows the short-run trade-off between inflation and unemployment Pigovian tax
positive statements
claims that attempt to describe the world as it is poverty line
poverty rate
the percentage of the population whose family income falls below an absolute level called the poverty line
Prebisch–Singer hypothesis
a hypothesis suggesting that the rate at which primary products exchange for manufactured goods declines over time meaning that countries specialising in primary good production become poorer
predatory or destroyer pricing
a situation where firms hold price below average cost for a period to try and force out competitors or prevent new firms from entering the market
present value
the amount of money today that would be needed to produce - using prevailing interest rates - a given future amount of money
price ceiling
a legal maximum on the price at which a good can be sold
price–consumption curve
a line showing the consumer optimum for two goods as the price of one of the goods changes - assuming incomes and the price of the good are held constant
price discrimination
the business practice of selling the same good at different prices to different customers
price elasticity of demand
a measure of how much the quantity demanded of a good responds to a change in the price of that good - computed as the percentage change in quantity demanded divided by the percentage change in price
price elasticity of supply
a measure of how much the quantity supplied of a good responds to a change in the price of that good - computed as the percentage change in quantity supplied divided by the percentage change in price
price floor
a legal minimum on the price at which a good can be sold
price level
a snapshot of the prices of goods and services in an economy at a particular period of time
principal
a person for whom another person - called the agent - is performing some act
prisoner’s dilemma
a particular ‘game’ between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial
private goods
goods that are both excludable and rival
private saving
the income that households have left after paying for taxes and consumption private sector
privatization
the transfer of publicly owned assets to private sector ownership procyclical
producer prices index
a measure of the prices of a basket of goods and services bought by firms producer surplus
production isoquant
a function representing all possible combinations of factor inputs that can be used to produce a given level of output production possibilities frontier
productivity
the quantity of goods and services produced from each hour of a worker or factor of production’s time
progressive tax
a tax for which high-income taxpayers pay a larger fraction of their income than do low-income taxpayers
property rights
the exclusive right of an individual - group or organization to determine how a resource is used
proportional tax (or flat tax)
a tax for which high-income and low-income taxpayers pay the same fraction of income
prospect theory
a theory that suggests people attach different values to gains and losses and do so in relation to some reference point public choice theory
public goods
goods that are neither excludable nor rival
public interest
making decisions based on a principle where the maximum benefit is gained by the largest number of people at minimum cost public saving
purchasing power parity
a theory of exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries
quantity demanded
the amount of a good that buyers are willing and able to purchase at different prices
quantity equation
the equation (M x V = P x Y ) - which relates the quantity of money - the velocity of money - and the currency value of the economy’s output of goods and services
quantity supplied
the amount of a good that sellers are willing and able to sell at different prices quantity theory of money
random walk
the path of a variable whose changes are impossible to predict
rational
the assumption that decision-makers can make consistent choices between alternatives
rational expectations
the theory according to which people optimally use all the information they have - including information about government policies - when forecasting the future
rational ignorance effect
the tendency of a voter to not seek out information to make an informed choice in elections
real economy
that part of the economy which is concerned with the production of goods and services
real exchange rate
the rate at which the goods and services of one country trade for the goods and services of another
real GDP
the measure of the value of output in the economy which takes into account changes in prices over time
real interest rate
the interest rate corrected for the effects of inflation
real money balances
what money can actually buy given the ratio of the money supply to the price level M/P
real variables
variables measured in physical units real wage
recession
a period of declining real incomes and rising unemployment. The technical definition gives recession occurring after two successive quarters of negative economic growth
refinancing rate
the interest rate at which the European Central Bank lends on a short-term basis to the euro area banking sector
regressive tax
a tax for which high-income taxpayers pay a smaller fraction of their income than do low-income taxpayers
regulatory capture
a situation where regulatory agencies become unduly influenced and dominated by the industries they are supposed to be regulating
relative position
the idea that humans view their own position against a reference point which provides a means of comparison on feelings of well-being
relative poverty
a situation where an individual is not able to access what would be considered acceptable standards of living in society
relative prices
price expressed in terms of how much of one good has to be given up in purchasing another
rent seeking
where individuals or groups take actions to redirect resources to generate income (rents) for themselves or the group
repo rate
the interest rate at which the Bank of England lends on a short-term basis to the UK banking sector
repurchase agreement
the sale of a non-monetary asset together with an agreement to repurchase it at a set price at a specified future date
retail banking
the core banking service of taking in deposits and making loans to households and businesses
risk
the probability of something happening which results in a loss or some degree of hazard or damage
risk averse
exhibiting a dislike of uncertainty rival
sacrifice ratio
the number of percentage points of annual output lost in the process of reducing inflation by 1 percentage point
satisficers
those who make decisions based on securing a satisfactory rather than optimal outcome
Say’s law
an argument that production or supply is a source of demand - that supply creates its own demand
scarcity
the limited nature of society’s resources Schengen area
screening
an action taken by an uninformed party to induce an informed party to reveal information securitization
shoe leather cost
the resources wasted when inflation encourages people to reduce their money holdings shortage
stagflation
a period of falling output and rising prices
standard of living
refers to the amount of goods and services that can be purchased by the population of a country. Usually measured by the inflation-adjusted (real) income per head of the population
stationary data
time-series data that has a constant mean value over time
steady-state equilibrium
the point in a growing economy where investment spending is the same as spending on depreciation and the capital–output ratio remains constant
stochastic trend
where trend variables change by some random amount in each time period
stock (or share or equity)
a claim to partial ownership and the future profits in a firm
store of value
an item that people can use to transfer purchasing power from the present to the future
strike
the organized withdrawal of labour from a firm by a union
structural deficit
a situation where a government’s deficit is not dependent on movements in the economic cycle
structural unemployment
unemployment that results because the number of jobs available in some labour markets is insufficient to provide a job for everyone who wants one
sub-prime market
individuals not traditionally seen as being part of the financial markets because of their high credit risk
subjective well-being
the way in which people evaluate their own happiness subsidy
substitution effect
the change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution
sunk cost
a cost that has already been committed and cannot be recovered
supply curve
a graph of the relationship between the price of a good and the quantity supplied
supply schedule
a table that shows the relationship between the price of a good and the quantity supplied
supply shock
an event that directly alters firms’ costs and prices - shifting the economy’s AS curve and thus the Phillips curve
surplus
a situation in which the quantity supplied is greater than the quantity demanded at the going market price
synergies
where the perceived benefits of the combined operations of a merged organization are greater than those which would arise if the firms stayed separate
systemic risk
the risk of failure across the whole of the financial sector
tacit collusion
when firm behaviour results in a market outcome that appears to be anti-competitive but has arisen because firms acknowledge that they are interdependent
tariff
a tax on goods produced abroad and sold domestically tax incidence
theory of liquidity preference
Keynes’ theory that the interest rate adjusts to bring money supply and money demand into balance
time-series data
observations on a variable over a time-period and which are ordered over time
total expenditure
the amount paid by buyers - computed as the price of the good times the quantity purchased
total revenue
the amount received by sellers of a good - computed as the price of the good times the quantity sold
total surplus
the total value to buyers of the goods - as measured by their willingness to pay - minus the cost to sellers of providing those goods
total utility
the satisfaction gained from the consumption of a good
trade balance
the value of a nation’s exports minus the value of its imports; also called net exports
trade deficit
an excess of imports over exports trade-off
trough
the point where related economic variables begin to rise
utilitarianism
the political philosophy according to which the government should choose policies to maximize the total utility of everyone in society
unemployment insurance
a government programme that partially protects workers’ incomes when they become unemployed
unemployment rate
the percentage of the labour force that is unemployed union
value
the worth to an individual of owning an item represented by the satisfaction derived from its consumption and their willingness to pay to own it
value of the marginal product
the marginal product of an input times the price of the output
variable costs
costs that are dependent on the quantity of output produced
velocity of money
the rate at which money changes hands
vertical equity
the idea that taxpayers with a greater ability to pay taxes should pay larger amounts voluntary unemployment
wealth
the total of all stores of value - including both money and non-monetary assets
welfare economics
the study of how the allocation of resources affects economic well-being
wholesale banking
that part of banking dealing with corporate finance and investment in financial instruments
willingness to pay
the maximum amount that a buyer will pay for a good
world price
the price of a good that prevails in the world market for that good
x-inefficiency
the failure of a firm to operate at maximum efficiency due to a lack of competitive pressure and reduced incentives to control costs
