Flashcards form Glossary
1
Q
ability to pay principle
A
the idea that taxes should be levied on a person according to how well that person can shoulder the burden
2
Q
abnormal profit
A
the profit over and above normal profit
3
Q
absolute advantage
A
exists where a producer can produce a good using fewer factor inputs than another
4
Q
absolute poverty
A
a level of poverty where an individual does not have access to the basics of life – food - clothing and shelter
5
Q
accounting profit
A
total revenue minus total explicit cost
6
Q
actual spending - saving or investment
A
the realized or ex post outcome resulting from actions of households and firms
7
Q
ad valorem tax
A
a tax levied as a percentage of the price of a good
8
Q
adaptive expectations
A
a model which states that individuals and organizations base their expectations of inflation in the future on past actual inflation rates adverse selection
9
Q
aggregate supply curve
A
a curve that shows the quantity of goods and services that firms choose to produce and sell at each price level allocative efficiency
10
Q
automatic stabilizers
A
changes in fiscal policy that stimulate AD when the economy goes into a recession - without policymakers having to take any deliberate action
11
Q
autonomous spending or autonomous expenditure
A
spending which is not dependent on income/output
12
Q
average fixed cost
A
fixed costs divided by the quantity of output
13
Q
average revenue
A
total revenue divided by the quantity sold
14
Q
average tax rate
A
total taxes paid divided by total income
15
Q
average total cost
A
total cost divided by the quantity of output
16
Q
average variable cost
A
variable costs divided by the quantity of output
17
Q
balance of payments
A
the official account of international payments for the import and export of goods - services and capital
18
Q
balanced budget
A
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
19
Q
balanced trade
A
a situation in which exports equal imports
20
Q
bargaining process
A
an agreed outcome between two interested and competing economic agents barriers to entry
21
Q
benefits principle
A
the idea that people should pay taxes based on the benefits they receive from government services
22
Q
birth rate
A
the number of people born per thousand of the population bond
23
Q
budget constraint
A
the limit on the consumption bundles that a consumer can afford budget deficit
24
Q
business cycle
A
fluctuations in economic activity such as employment and production
25
capital
the equipment and structures used to produce goods and services
26
capital flight
a large and sudden reduction in the demand for assets located in a country
27
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
28
cartel
a group of firms acting in unison
catch-up effect
29
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
30
choice set
the set of alternatives available to the consumer
31
classical dichotomy
the theoretical separation of nominal and real variables
club goods
32
common resources
goods that are rival but not excludable
33
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
34
comparative statics
the comparison of one initial static equilibrium with another
35
compensating differential
a difference in wages that arises to offset the non-monetary characteristics of different jobs
36
competitive advantage
the advantages a firm has over rivals which are both distinctive and defensible
37
competitive market
a market in which there are many buyers and sellers so that each has a negligible impact on the market price
38
complements
two goods for which an increase in the price of one leads to a decrease in the demand for the other
39
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
40
concentration ratio
the proportion of total market share accounted for by a particular number of firms
41
constant returns to scale
the property whereby long-run average total cost stays the same as the quantity of output changes
42
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
43
Consumer Prices Index
a measure of the overall prices of the goods and services bought by a typical consumer
44
consumer surplus
a buyer’s willingness to pay minus the amount the buyer actually pays
45
consumption
spending by households on goods and services - with the exception of purchases of new housing
46
contestable market
a market in which entry and exit are free and costless
47
contraction
when real output is lower than the previous time period
48
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
49
cost
the value of everything a seller must give up to produce a good
50
cost-benefit analysis
a study that compares the costs and benefits to society of providing a public good
51
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
52
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
53
countercyclical
a variable that is below trend when GDP is above trend
54
counterfactual
analysis is based on a premise of what would have occurred if something had not happened
55
creative destruction
the process where new technologies replace old ones and new skills are needed which render existing skills obsolete
56
credit default swap
a means by which a bondholder can insure against the risk of default
57
credit risk
the risk a bank faces in defaults on loans
58
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
59
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
60
crowding out
a decrease in investment that results from government borrowing
61
currency
the paper banknotes and coins in the hands of the public
62
cyclical deficit
a situation when government spending and income is disrupted by the deviations in the ‘normal’ economic cycle
63
cyclical unemployment
the deviation of unemployment from its natural rate
64
dead labour
labour used in the past to produce capital goods and raw materials used in the production of a good
65
deadweight loss
the fall in total surplus that results from a market distortion - such as a tax
66
death rate
the number of deaths per thousand of the population
67
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
68
demand schedule
a table that shows the relationship between the price of a good and the quantity demanded
69
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
70
depreciation
a decrease in the value of a currency as measured by the amount of foreign currency it can buy
71
depression
a severe recession
derived demand
72
diminishing marginal product
the property whereby the marginal product of an input declines as the quantity of the input increases
diminishing marginal utility
73
direct taxes
a tax levied on income and wealth
discount rate
74
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
75
disinflation
the reduction in the rate of inflation
76
diversification
the reduction of risk achieved by replacing a single risk with a large number of smaller unrelated risks
77
dominant strategy
a strategy that is best for a player in a game regardless of the strategies chosen by the other players
78
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
79
economic activity
how much buying and selling goes on in the economy over a period of time
80
economic agents
an individual - firm or organization that has an impact in some way on an economy
81
economic growth
the increase in the amount of goods and services in an economy over a period of time
82
economic mobility
the movement of people among income classes
83
economic profit
total revenue minus total cost - including both explicit and implicit costs
84
economic rent
the amount a factor of production earns over and above its transfer earnings
85
economic system
the way in which resources are organized and allocated to provide for the needs of an economy’s citizens
86
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
87
economics
the study of how society manages its scarce resources
88
economies of scale
the property whereby long-run average total cost falls as the quantity of output increases
89
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
90
economy
all the production and exchange activities that take place
91
effective demand
the amount that people are not only willing to buy at different prices but what they can and do actually purchase
92
efficiency
the property of a resource allocation
efficiency wages
93
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
94
endogenous variable
a variable whose value is determined within the model
95
endowment effect
where the value placed on something owned is greater than on an identical item not owned
96
Engel curve
a line showing the relationship between demand and levels of income
97
entry limit pricing
a situation where a firm will keep prices lower than they could be in order to deter new entrants
98
equilibrium or market price
the price where the quantity demanded is the same as the quantity supplied
99
equilibrium quantity
the quantity bought and sold at the equilibrium price
100
equity
the property of distributing economic prosperity fairly among the members of society
101
European Central Bank
the overall central bank of the 19 countries comprising the European Monetary Union
102
European Economic and Monetary Union
the European currency union that has adopted the euro as its common currency
103
European Union
a family of democratic European countries committed to working together for peace and prosperity
104
eurosystem
the system made up of the ECB plus the national central banks of each of the 19 countries comprising the European Monetary Union
105
excludable
the property of a good whereby a person can be prevented from using it when they do not pay for it
106
exogenous variable
a variable whose value is determined outside the model
107
expected utility theory
the idea that preferences can and will be ranked by buyers
108
explicit costs
input costs that require an outlay of money by the firm
109
exports goods produced domestically and sold abroad leading to an inflow of funds into a country
110
external economies of scale
the advantages of large-scale production that arise through the growth and concentration of the industry
111
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
112
falsifiability
the possibility of a theory being rejected as a result of the new observations or new data
113
fiat money
money without intrinsic value that is used as money because of government decree
114
financial economy
that part of the economy associated with the buying and selling of assets on financial markets
115
financial intermediaries
financial institutions through which savers can indirectly provide funds to borrowers
116
financial markets
financial institutions through which savers can directly provide funds to borrowers
117
financial system
the group of institutions in the economy that help to match one person’s saving with another person’s investment
118
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
119
Fisher effect
the one-for-one adjustment of the nominal interest rate to the inflation rate
120
fixed costs
costs that are not determined by the quantity of output produced
121
foreign direct investment
capital investment that is owned and operated by a foreign entity
122
foreign portfolio investment
investment that is financed with foreign money but operated by domestic residents
123
framing effect
the differing response to choices dependent on the way in which choices are presented
124
free rider
a person who receives the benefit of a good but avoids paying for it
125
frictional unemployment
unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills
126
full employment
a point where those people who want to work at the going market wage level are able to find a job
127
fundamental analysis
the study of a company’s accounting statements and future prospects to determine its value
128
future value
the amount of money in the future that an amount of money today will yield - given prevailing interest rates
129
game theory
the study of how people behave in strategic situations
130
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
131
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
132
GDP deflator
a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100
133
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
134
generalization
the act of formulating general concepts or explanations by inferring from specific instances of an event or behaviour
135
geographical immobility
where people are unable to take work because of the difficulties associated with moving to different regions
136
Giffen good
a good for which an increase in the price raises the quantity demanded
137
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
138
Gini coefficient
a measure of the degree of inequality of income in a country
139
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
140
government deficit
a situation where a government spends more than it generates in tax revenue over a period
141
government failure
a situation where political power and incentives distort decision-making so that decisions are made which conflict with economic efficiency
142
government spending
spending on goods and services by local - state and national governments
143
Great Moderation (The)
the period of economic stability characterized by relatively low inflation - high employment - low unemployment and stable and persistent growth
144
gross domestic product (GDP)
the market value of all final goods and services produced within a country in a given period of time
145
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
146
gross value added
the contribution of domestic producers - industries and sectors to an economy
147
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
148
heuristics
short cuts or rules of thumb that people use in decision-making
149
horizontal equity
the idea that taxpayers with similar abilities to pay taxes should pay the same amount
150
human capital
the accumulation of investments in people - such as education and on-the-job training
151
hyperinflation
a period of extreme and accelerating increase in the price level
152
hypothesis
an assumption - tentative prediction - explanation - or supposition for something
153
hysteresis
the lagging effects of past economic events on future ones
154
idiosyncratic risk
risk that affects only a single economic actor
155
imperfect competition
exists where firms are able to differentiate their product in some way and so can have some influence over price
implicit costs
156
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
157
indexed
the automatic correction of a money amount for the effects of inflation by law or contract
158
indifference curve
a curve that shows consumption bundles that give the consumer the same level of satisfaction
159
indirect tax
a tax levied on the sale of goods and services
160
inference
a conclusion or explanation derived from evidence and reasoning
inferior good
161
inflation
an increase in the overall level of prices in the economy
162
inflation rate
the percentage change in the price index from the preceding period
inflation tax
163
inflationary gap
the difference between full employment output and actual expenditure when actual expenditure is greater than full employment output
informationally efficient
164
interest elasticity of demand and supply
the responsiveness of the demand and supply of loanable funds to changes in the interest rate
165
internal economies of scale
the advantages of large-scale production that arise through the growth of the firm
166
internalizing an externality
altering incentives so that people take account of the external effects of their actions
167
intertemporal choice
where decisions made today can affect choices facing individuals in the future
168
intertemporal substitution effect
the response of economic actors to changes in the interest rate by changing consumption and savings decisions
169
interventionist supply-side policies
policies focused on improving the working of markets through investing in infrastructure - education and research and development
170
investment
spending on capital equipment - inventories and structures - including household purchases of new housing
171
investment or mutual fund
an institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds
172
involuntary unemployment
where people want work at going market wage rates but cannot find employment
173
isocost line
a line showing the different combination of factor inputs which can be purchased with a given budget
174
job search
the process by which workers find appropriate jobs given their tastes and skills
175
labour
the human effort - both mental and physical - that goes into production
176
labour force
labour force the total number of workers - including both the employed and the unemployed
177
labour force participation rate (or economic activity rate)
the percentage of the adult population that is in the labour force
178
Laffer curve
the relationship between tax rates and tax revenue
179
lagging indicator
an indicator whose changes occur after changes in economic activity have occurred
land
180
leading indicator
an indicator which can be used to foretell future changes in economic activity
leveraging
181
libertarianism
the political philosophy according to which the government should punish crimes and enforce voluntary agreements but not redistribute income
life cycle
182
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
183
lump-sum tax
a tax that is the same amount for every person
184
macroeconomics
the study of economy-wide phenomena - including inflation - unemployment and economic growth
185
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
186
marginal abatement cost
the cost expressed in terms of the last unit of pollution not emitted (abated)
marginal changes
187
marginal product of labour
the increase in the amount of output from an additional unit of labour
188
marginal propensity to consume
the fraction of extra income that a household consumes rather than saves
189
marginal propensity to save
the fraction of extra income that a household saves rather than consumes
190
marginal rate of substitution
the rate at which a consumer is willing to trade one good for another
191
marginal rate of technical substitution
the rate at which one factor input can be substituted for another at a given level of output
192
marginal revenue
the change in total revenue from an additional unit sold
193
marginal revenue product
the extra revenue a firm gets from hiring an additional unit of a factor of production
194
marginal tax rate
the extra taxes paid on an additional unit of income
195
marginal utility
the addition to total utility as a result of consuming one extra unit of a good
196
mark to market
an accounting procedure which records the ‘fair value’ of an asset on financial institutions’ balance sheets
197
market
a group of buyers and sellers of a particular good or service
198
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
199
market failure
a situation where scarce resources are not allocated to their most efficient use
200
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
201
market-orientated supply-side policies
policies designed to free up markets to improve resource allocation through more effective price signals
202
market power
the ability of a single economic agent (or small group of agents) to have a substantial influence on market prices or output
203
market segments
the breaking down of customers into groups with similar buying habits or characteristics
204
market share
the proportion of total sales in a market accounted for by a particular firm
205
maximin criterion
the claim that the government should aim to maximize the well-being of the worst-off person in society
206
medium of exchange
an item that buyers give to sellers when they want to purchase goods and services
menu costs
207
minimum wage
the lowest price an employer may legally pay to a worker
208
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
209
monetary neutrality
the proposition that changes in the money supply do not affect real variables
210
monetary policy
the set of actions taken by the central bank in order to affect the money supply
211
money
the set of assets in an economy that people regularly use to buy goods and services from other people
212
money market
the market in which the commercial banks lend money to one another on a short-term basis
213
money stock
the quantity of money circulating in the economy
214
money supply
the quantity of money available in the economy
215
monopolistic competition
a market structure in which many firms sell products that are similar but not identical
216
monopoly
a firm that is the sole seller of a product without close substitutes
monopsony
217
moral hazard
the tendency of a person who is imperfectly monitored to engage in dishonest or otherwise undesirable behaviour
multiplier effect
218
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
219
national debt
the accumulation of the total debt owed by a government
220
national saving (saving)
the total income in the economy that remains after paying for consumption and government purchases
221
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
222
natural rate hypothesis
the claim that unemployment eventually returns to its normal - or natural - rate - regardless of the rate of inflation
223
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
224
natural rate of unemployment
the normal rate of unemployment around which the unemployment rate fluctuates
225
natural resources
the inputs into the production of goods and services that are provided by nature - such as land - rivers and mineral deposits
226
negative externality
the costs imposed on a third party of a decision
227
negative income tax
a tax system that collects revenue from high-income households and gives transfers to low-income households
228
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
229
net capital outflow
the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners
230
net exports
spending on domestically produced goods and services by foreigners (exports) minus spending on foreign goods by domestic residents (imports)
231
nominal exchange rate
the rate at which a person can trade the currency of one country for the currency of another
232
nominal GDP
the production of goods and services valued at current prices
233
nominal interest rate
the interest rate as usually reported without a correction for the effects of inflation
234
nominal variables
variables measured in monetary units
235
non-accelerating inflation rate of unemployment
the rate of unemployment in the long run - consistent with a stable rate of inflation
non-stationary data
236
normal profit
the minimum amount required to keep factors of production in their current use
normative statements
237
objective well-being
measures of the quality of life using specified indicators.
238
occupational immobility
where workers are unable to easily move from one occupation to another
239
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
240
oligopoly
competition amongst the few – a market structure in which only a few sellers offer similar or identical products and dominate the market
241
open market operations
the purchase and sale of non-monetary assets from and to the banking sector by the central bank
242
opportunity cost
whatever must be given up to obtain some item; the value of the benefits foregone (sacrificed)
243
optimum currency area
a group of countries for which it is optimal to adopt a common currency and form a currency union
244
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
245
Pareto improvement
when an action makes at least one economic agent better off without harming another economic agent
246
patent
the right conferred on the owner to prevent anyone else making or using an invention or manufacturing process without permission
247
payoff matrix
a table showing the possible combination of outcomes (payoffs) depending on the strategy chosen by each player
248
peak
a point where related economic variables begin to decline
249
perfect complements
two goods with right-angle indifference curves
perfect price discrimination
250
perfect substitutes
two goods with straight line indifference curves
251
permanent income
a person’s normal income
252
permanent income hypothesis
a theory which suggests that consumers will smooth consumption over their lifetime in relation to their anticipated long-term average income
253
Phillips curve
a curve that shows the short-run trade-off between inflation and unemployment
Pigovian tax
254
positive statements
claims that attempt to describe the world as it is
poverty line
255
poverty rate
the percentage of the population whose family income falls below an absolute level called the poverty line
256
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
257
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
258
present value
the amount of money today that would be needed to produce - using prevailing interest rates - a given future amount of money
259
price ceiling
a legal maximum on the price at which a good can be sold
260
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
261
price discrimination
the business practice of selling the same good at different prices to different customers
262
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
263
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
264
price floor
a legal minimum on the price at which a good can be sold
265
price level
a snapshot of the prices of goods and services in an economy at a particular period of time
266
principal
a person for whom another person - called the agent - is performing some act
267
prisoner’s dilemma
a particular ‘game’ between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial
268
private goods
goods that are both excludable and rival
269
private saving
the income that households have left after paying for taxes and consumption
private sector
270
privatization
the transfer of publicly owned assets to private sector ownership
procyclical
271
producer prices index
a measure of the prices of a basket of goods and services bought by firms
producer surplus
272
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
273
productivity
the quantity of goods and services produced from each hour of a worker or factor of production’s time
274
progressive tax
a tax for which high-income taxpayers pay a larger fraction of their income than do low-income taxpayers
275
property rights
the exclusive right of an individual - group or organization to determine how a resource is used
276
proportional tax (or flat tax)
a tax for which high-income and low-income taxpayers pay the same fraction of income
277
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
278
public goods
goods that are neither excludable nor rival
279
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
280
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
281
quantity demanded
the amount of a good that buyers are willing and able to purchase at different prices
282
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
283
quantity supplied
the amount of a good that sellers are willing and able to sell at different prices
quantity theory of money
284
random walk
the path of a variable whose changes are impossible to predict
285
rational
the assumption that decision-makers can make consistent choices between alternatives
286
rational expectations
the theory according to which people optimally use all the information they have - including information about government policies - when forecasting the future
287
rational ignorance effect
the tendency of a voter to not seek out information to make an informed choice in elections
288
real economy
that part of the economy which is concerned with the production of goods and services
289
real exchange rate
the rate at which the goods and services of one country trade for the goods and services of another
290
real GDP
the measure of the value of output in the economy which takes into account changes in prices over time
291
real interest rate
the interest rate corrected for the effects of inflation
292
real money balances
what money can actually buy given the ratio of the money supply to the price level M/P
293
real variables
variables measured in physical units
real wage
294
recession
a period of declining real incomes and rising unemployment. The technical definition gives recession occurring after two successive quarters of negative economic growth
295
refinancing rate
the interest rate at which the European Central Bank lends on a short-term basis to the euro area banking sector
296
regressive tax
a tax for which high-income taxpayers pay a smaller fraction of their income than do low-income taxpayers
297
regulatory capture
a situation where regulatory agencies become unduly influenced and dominated by the industries they are supposed to be regulating
298
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
299
relative poverty
a situation where an individual is not able to access what would be considered acceptable standards of living in society
300
relative prices
price expressed in terms of how much of one good has to be given up in purchasing another
301
rent seeking
where individuals or groups take actions to redirect resources to generate income (rents) for themselves or the group
302
repo rate
the interest rate at which the Bank of England lends on a short-term basis to the UK banking sector
303
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
304
retail banking
the core banking service of taking in deposits and making loans to households and businesses
305
risk
the probability of something happening which results in a loss or some degree of hazard or damage
306
risk averse
exhibiting a dislike of uncertainty
rival
307
sacrifice ratio
the number of percentage points of annual output lost in the process of reducing inflation by 1 percentage point
308
satisficers
those who make decisions based on securing a satisfactory rather than optimal outcome
309
Say’s law
an argument that production or supply is a source of demand - that supply creates its own demand
310
scarcity
the limited nature of society’s resources
Schengen area
311
screening
an action taken by an uninformed party to induce an informed party to reveal information
securitization
312
shoe leather cost
the resources wasted when inflation encourages people to reduce their money holdings
shortage
313
stagflation
a period of falling output and rising prices
314
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
315
stationary data
time-series data that has a constant mean value over time
316
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
317
stochastic trend
where trend variables change by some random amount in each time period
318
stock (or share or equity)
a claim to partial ownership and the future profits in a firm
319
store of value
an item that people can use to transfer purchasing power from the present to the future
320
strike
the organized withdrawal of labour from a firm by a union
321
structural deficit
a situation where a government’s deficit is not dependent on movements in the economic cycle
322
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
323
sub-prime market
individuals not traditionally seen as being part of the financial markets because of their high credit risk
324
subjective well-being
the way in which people evaluate their own happiness
subsidy
325
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
326
sunk cost
a cost that has already been committed and cannot be recovered
327
supply curve
a graph of the relationship between the price of a good and the quantity supplied
328
supply schedule
a table that shows the relationship between the price of a good and the quantity supplied
329
supply shock
an event that directly alters firms’ costs and prices - shifting the economy’s AS curve and thus the Phillips curve
330
surplus
a situation in which the quantity supplied is greater than the quantity demanded at the going market price
331
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
332
systemic risk
the risk of failure across the whole of the financial sector
333
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
334
tariff
a tax on goods produced abroad and sold domestically
tax incidence
335
theory of liquidity preference
Keynes’ theory that the interest rate adjusts to bring money supply and money demand into balance
336
time-series data
observations on a variable over a time-period and which are ordered over time
337
total expenditure
the amount paid by buyers - computed as the price of the good times the quantity purchased
338
total revenue
the amount received by sellers of a good - computed as the price of the good times the quantity sold
339
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
340
total utility
the satisfaction gained from the consumption of a good
341
trade balance
the value of a nation’s exports minus the value of its imports; also called net exports
342
trade deficit
an excess of imports over exports
trade-off
343
trough
the point where related economic variables begin to rise
344
utilitarianism
the political philosophy according to which the government should choose policies to maximize the total utility of everyone in society
345
unemployment insurance
a government programme that partially protects workers’ incomes when they become unemployed
346
unemployment rate
the percentage of the labour force that is unemployed
union
347
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
348
value of the marginal product
the marginal product of an input times the price of the output
349
variable costs
costs that are dependent on the quantity of output produced
350
velocity of money
the rate at which money changes hands
351
vertical equity
the idea that taxpayers with a greater ability to pay taxes should pay larger amounts
voluntary unemployment
352
wealth
the total of all stores of value - including both money and non-monetary assets
353
welfare economics
the study of how the allocation of resources affects economic well-being
354
wholesale banking
that part of banking dealing with corporate finance and investment in financial instruments
355
willingness to pay
the maximum amount that a buyer will pay for a good
356
world price
the price of a good that prevails in the world market for that good
357
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
