- Industry: Economy; Printing & publishing
- Number of terms: 15233
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Economics with a heart. The study of how different forms of economic activity and different methods of allocating scarce resources affect the well being of different individuals or countries. Welfare economics focuses on questions about equity as well as efficiency.
Industry:Economy
Named after Arthur Pigou (1877–1959), a sort of wealth effect resulting from deflation. A fall in the price level increases the real value of people’s savings, making them feel wealthier and thus causing them to spend more. This increase in demand can lead to higher employment.
Industry:Economy
In 1958, an economist from New Zealand, A. W. H. Phillips (1914–75), proposed that there was a trade-off between inflation and unemployment: the lower the unemployment rate, the higher was the rate of inflation. Governments simply had to choose the right balance between the two evils. He drew this conclusion by studying nominal wage rates and jobless rates in the UK between 1861 and 1957, which seemed to show the relationship of unemployment and inflation as a smooth curve. Economies did seem to work like this in the 1950s and 1960s, but then the relationship broke down. Now economists prefer to talk about the NAIRU, the lowest rate of unemployment at which inflation does not accelerate.
Industry:Economy
Economics that tries to change the world, by suggesting policies for increasing economic welfare. The opposite of positive economics, which is content to try to describe the world as it is, rather than prescribe ways to make it better.
Industry:Economy
Trying to win business from rivals other than by charging a lower price. Methods include advertising, slightly differentiating your product, improving its quality, or offering free gifts or discounts on subsequent purchases. Non-price competition is particularly common when there is an oligopoly, perhaps because it can give an impression of fierce rivalry while the firms are actually colluding to keep prices high.
Industry:Economy
Although such groups have existed for generations (in the early 1800s, the British and Foreign Anti-Slavery Society played a powerful part in abolishing slavery laws), recent social and economic shifts have given these typically voluntary, non-profit, “issue-driven” organizations new life. The collapse of communism, the spread of democracy, technological change and economic integration (globalization, in short) have each helped NGOs grow. Globalization itself has exacerbated a host of worries about the environment, labor rights, human rights, consumer rights, and so on. Democratization and technological progress have revolutionized the way in which citizens can unite to express their disquiet. Governments have been at the sharp end of pressure from NGOs. Arguably, however, it is inter-governmental institutions such as the World Bank, the IMF, the UN agencies and the world trade organization (WTO) that have felt it more, owing to their lack of political leverage. Few parliamentarians will face direct pressure from the IMF or the WTO, but every policymaker faces pressure from citizens’ groups with special interests. Add to this the poor public image that these technocratic, faceless bureaucracies have developed, and it is hardly surprising that they are popular targets for NGO “swarms”. How governments and inter-governmental organizations respond to NGOs could have huge implications, including for the world’s economies. Equally important will be how NGOs themselves respond to greater scrutiny and to growing concern about how accountable they are, and to whom.
Industry:Economy
When a government takes ownership of a private-sector business. Nationalization was a fashionable part of the mix in countries with a mixed economy between 1945 and 1980, after which the privatization of state-owned firms became increasingly popular. The amount of public ownership in different countries has always varied considerably. Nationalization has taken place for various reasons, ranging from socialist ideology to attempts to remedy examples of market failure. The performance of nationalized firms has often, but not always, been poor compared with their private-sector counterparts. State-owned businesses often enjoy a legally protected monopoly, and the lack of competition means the firms face little pressure to be efficient. Politicians often interfere in important management decisions, making it harder to take unpopular actions on pay, factory closures and job cuts, particularly when there are strong public-sector trade unions and a union-friendly government. Politically imposed financial constraints may also force public-sector firms to underinvest. Although privatization has not been universally beneficial, on balance it has increased economic efficiency.
Industry:Economy
When average income increases, the demand for normal goods increases, too. The opposite of inferior goods.
Industry:Economy
Shorthand for the way in which a change in spending produces an even larger change in income. For instance, suppose a government loosens fiscal policy, increasing net public spending by pumping an extra $10 billion into education. This has an immediate effect by increasing the income of teachers and of people who sell educational supplies or build or maintain schools. These people will in turn spend some of their extra money, putting more cash into the pockets of others, who spend some of it, and so on. In theory, this process could continue indefinitely, in which case the multiplier would have an infinite value. In practice, most people save some of their extra income rather than spend it. How much they spend will depend on their marginal propensity to consume. The value of the multiplier can be calculated by this formula:
multiplier = 1 / (1 – marginal propensity to consume)
If the marginal propensity to consume is 0. 5 (50 cents of an extra dollar), the multiplier is 2. In practice, it is often hard to measure the multiplier effect, or to predict how it will respond to, say, changes in monetary policy or fiscal policy.
Industry:Economy
What a central bank does to control the money supply, and thereby manage demand. Monetary policy involves open-market operations, reserve requirements and changing the short-term rate of interest (the discount rate). It is one of the two main tools of macroeconomic policy, the side-kick of fiscal policy, and is easier said than done well. (See monetarism. )
Industry:Economy
