Economic Terms
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Ad Valorem : Value added. An example of an ad valorem tax would be VAT.
Advances: Loans given by financial institutions
Appreciation: An increase in the value of an asset.
Arbitrage: Movements of funds to take advantage of differences in exchange or interest rates,and this quickly eliminates any such differences.
Average cost pricing : Setting price equal to average cost.
Average propensity to consume: The proportion of disposable income spent: apc = C/Y
Amortization: Writing down the value of an asset in a companys books to reflect its loss of value through age and use. Called depreciation in the UK. Amortization is also an accounting term to pay off a loan in gradual increments.
Barter: The direct exchange of goods and services without the use of money
Birth rate: The number of live births per thousand of the population in a year
Black economy: Unrecorded production
Backward integration: Occurs when a company joins with a firm that is involved at an earlier stage of the production chain
Balance of payments: Statement of a countrys net financial transactions with other countries. Current account measures balance of imports and exports and payments and receipts for services such as shipping, banking and tourism. Capital account measures movements of capital (bank deposits, securities, shares, property).
Balance of trade: The difference between the value of visible exports and visible imports.
Black markets: Created when buyers and sellers meet to negotiate the exchange of a prohibited or illegal good. More generally any unofficial market in which prices are inordinately high.
Bull market: Period of rising share prices; an optimistic state of affairs; the opposite of a bear market.
Buyer`s market: The quantity of goods for sale exceeds the amount consumers are willing and able to buy at the current market price. Characterised by low prices
Bonds: Certificate of debt issued to raise funds. It normally has a fixed rate of interest and is repayable at a fixed date. See also convertible bonds, mortgage-backed securities.
Break-even: When a firm`s short run total revenue equals its short run total cost
Bretton Woods system: An arrangement of fixed exchange rates which operated between 1945 and 1971.
Capital gains: The difference between the sale and purchase price of an asset.
Ceteris paribus: All other influencing factors are held constant
Call option: The right but not the obligation to buy a security at a specified price at a specified date in the future.
Call rates: The interest rate on money loaned overnight. Also known as the overnight rate. Widely used measure of money market rates.
Consumer surplus: This occurs when people are able to buy a good for less than they would be willing to pay. They enjoy more utility than they had to pay for.
Closed economy: An economy which does not engage in international trade.
Collusion: Agreements between firms to restrict competition.
Complementary goods: Two goods consumed at the same time eg cars and petrol
Corporation tax: A tax on firms` profits.
Consumers Price Index: Measure of the change in the cost of consumer goods and services. It is used as an indicator of a nations inflation rate.
Cost benefit analysis: A method of assessing investment projects which takes into account social costs and benefits.
Cost of living: The general level of prices in the economy usually measured by the retail price index.
Cost plus pricing: Setting prices by adding a profit margin to average cost
Cost push inflation: When a cost of production (e.g. wages) increases and firms put up prices to maintain profits.
Credit creation: The ability of the banking sector to create money by giving advances.
Crowding out: A decline in private sector spending resulting from a rise in public sector expenditure.
Current account: Usually taken to mean the current account of the balance of payments.
Current account balance: A record of a country`s earnings from the sale of visible and invisible items minus its expenditure on visible and invisible items from aborad.
Current account deficit: When a country spends more on visible and invisible items from aborad than it earns from the sale of visible