- Industry: Economy; Printing & publishing
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The cost of borrowing, which compensates lenders for the risk they take in making their money available to borrowers. Without interest there would be little lending and thus a lot less economic activity. The charging of interest is contrary to Sharia (Islamic) law, being considered usury. Some American states also have usury laws, imposing tough conditions on the terms set by lenders, although not actually prohibiting interest. Yet, as the recent rise of a substantial banking industry in Islamic Middle Eastern countries shows, when economic growth is a priority, ways can usually be found to pay lenders to lend.
Industry:Economy
When the supply or demand for something is insensitive to changes in another variable, such as price. (See elasticity. )
Industry:Economy
Products that are less in demand as consumers get richer. For normal goods, demand increases as consumers have more to spend.
Industry:Economy
Taxes that do not come straight out of a person’s pay packet or assets, or out of company profit. For example, a consumption tax, such as value-added tax (see expenditure tax). Contrast with direct taxation, such as income tax. Indirect taxation has become increasingly popular with politicians because it may be less noticeable to people paying it than income tax and is harder to avoid paying.
Industry:Economy
A curve that joins together different combinations of goods and services that would each give the consumer the same amount of satisfaction (utility). In other words, consumers are indifferent to which of the combinations they get.
Industry:Economy
Keeping pace with inflation. In many countries, wages, pensions, unemployment benefits and some other sorts of income are automatically raised according to recent movements in the consumer price index. This allows these different sorts of income to retain their value in real terms.
Industry:Economy
A much quoted, great British economist, not famous for holding the same opinion for long. Born in 1883, he studied at Cambridge but came to reject much of the classical economics and Neo-classical economics associated with that university. Keynes helped set up the Bretton Woods framework, but he is best known for his General Theory of Employment, Interest and Money, published in 1936 in the depths of the Great Depression. This invented modern macroeconomics. It argued that economies could sometimes be stable (in equilibrium) even when they did not have full employment, but that a government could remedy this under-employment problem by increasing public spending and/or reducing taxation, thereby increasing the level of aggregate demand in the economy. Many politicians picked up on these ideas. As President Richard Nixon observed in 1971, “We are all Keynesians now. ” However, it is much debated whether Keynes would have supported the way many of them put his thoughts into practice. Keynes identified the economic importance of animal spirits. Making and losing fortunes in the financial markets led him to refer to the “casino capitalism” of the stock market. He also noted that “there is nothing so dangerous as the pursuit of a rational investment policy in an irrational world”. He had an amusingly accurate view of the impact and transmission of economic ideas: “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. ” As for the frequency with which his opinions would evolve: “When the facts change, I change my mind – what do you do, sir?” “In the long run we are all dead,” he said. For him, the long run was 1946.
Industry:Economy
Economists love to compile indices aggregating lots of individual data, so they can analyze broad trends in the behavior of an economy. Inflation is measured by an index of consumer (retail) prices. There are indices of all sorts of things that are bought and sold of which perhaps the best known are share price indices like the Dow Jones Industrial Average or FTSE-100. The main challenges in compiling an index are what, exactly, to include in it and what weight to give the different things that are included. A particularly tricky question is how to change an index over time. Measures of inflation are based on the price of a basket of things bought by a typical consumer. As the quality and choice of products in the basket change over time, the inflation index ought to take this into account. How, exactly, is much debated.
Industry:Economy
A much-loathed method of taxation based on earnings. It was first collected in 1797 by the Dutch Batavian Republic. In the UK it was introduced in 1799 as a “temporary” measure to finance a war against Napoleon, abolished in 1816 and reintroduced, forever, in 1842. In most countries, people do not pay it until their income exceeds a minimum threshold, and richer people pay a higher rate of income tax than poorer people. Since the 1980s, the unpopularity with voters of high rates of income tax and concern that high rates discourage valuable economic activity have led many governments to reduce income-tax rates. However, this has not necessarily reduced the amount of total revenue collected in income tax (see Laffer curve). Nor do governments that have reduced income tax rates always cut other sorts of taxes; on the contrary, they have often increased them sharply to make up for any revenue lost as a result of lower rates of income tax.
Industry:Economy
The flow of money to the factors of production: wages to labor; profit to enterprise and capital; interest also to capital; rent to land. Wages left for spending after paying taxes is known as disposable income. For countries, see national income.
Industry:Economy
