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Bized - Glossary of finance
Category: Economy and Finance
Date & country: 14/09/2007, UK
Words: 1332

Voluntary unemployment
Voluntary unemployment exists when people have chosen not to work because they do not feel that wages at the existing equilibrium are high enough to justify them working. They may prefer instead to receive benefits. Classical economists argued that any unemployment remaining in the long-term would be voluntary as the economy would automatically tend towards full-employment. The level of voluntary unemployment is shown in the diagram below: The actual supply represents those people who are willing to work at the existing wage, whereas the potential is all those of working age who are available to work. The distance shown by the arrow between the two represents voluntary unemployment - those who have chosen not to work at the equilibrium wage.

Voluntary export agreements
Either an agreement between a producer and the government to limit the export of a good that is required for the home market, or, more usually, an agreement between one country and another to limit their exports to each other of certain goods.

Voluntary sector
The voluntary sector is generally made up of two groups: charities and non-profit making organisations. In this sector, organisations exist in order to benefit the public or specific groups within society. Working in this sector, however, does not automatically mean that positions are unpaid. Many positions are salaried, while a significant number of volunteer posts also exist.

Vertical merger
Two firms at different stages of production join together.

The deliberate selection of someone to bear the cost of something or to be denied the benefit of something for no obviously valid reason. Anyone who feels 'picked on' or 'by-passed' feels that they have been victimised.

Visible balance
The difference between a country's income and expenditure on goods such as cars.

Visible trade
The value of tangible export minus tangible imports i.e. balance of trade.

Vertical integration
Vertical integration is where firms at different stages of the production chain merge together.

Vertical equity
Justice or fairness in how individuals who are in different circumstances are treated e.g. in linking the amount of tax paid to personal income.

Velocity of circulation
The velocity of circulation is the number of times on average each pound is spent on transactions. So if, for example, there was spending in an economy of £400m and there was a money supply of £100m, then each pound must have been used on average 4 times. The velocity of circulation is 4. The velocity of circulation is an important part of the Fisher Equation of Exchange.

See value added tax (VAT).

Veblen good
A Veblen good (named after an American economist - Thorstein Bunde Veblen) is a good that may have an upward-sloping demand curve because of conspicuous consumption. In other words people may buy more of the good because it is more expensive.

Economic items which change and take different values.

A measure of dispersion expressed in terms of squared average deviations as opposed to the original units from some measure of central tendency such as the mean.

Variable pricing
When a firm offers the same goods at different prices for different market sectors.

Variable costs
Production expenses (costs) that are dependent on the level of output. In other words, if output increases then the variable costs will increase.

Variable factor
A variable factor is a factor of production whose quantity can be varied in the short run. We would normally expect labour and raw materials to be variable factors.

A characteristic that may assume more than one set of values to which a numerical measure can be assigned, for example, income, age, weight.

The difference between the value of final goods minus the cost of buying raw materials and intermediate goods.

Urban development corporations
Special agencies which seek to improve inner city areas.

Urban policy
Policy towards the development of town and city areas.

The economic and demographic processes involved in the growth of towns and cities.

Uruguay Round
The final round of trade negotiations of the General Agreement on Tariffs and Trade.

A system of land tenure where land is communally owned and people have free access to use it.

Utils are used to measure satisfaction

Unfilled jobs.

Value added tax (VAT)
A tax on the value added at each stage of production, that is on the difference between the value of final goods minus the cost of buying raw materials and intermediate goods.

Urban areas
Town and city districts.

Unlimited liability
Owners of a business may have to sell off some or all of their personal possessions to meet the debts of the business because there is no limit to the amount of claims that can be made against them.

Unit cost
Average cost i.e. total cost divided by output.

Unit of account
A measurement of value e.g. £ and $.

Unforeseen circumstances
Unexpected events affecting supply or the outcome of government policy.

When production is below the socially optimum level..

The number of workers without a job who are willing and able to work

Unemployment rate
The number of workers without a job who are willing and able to work, expressed as a percentage of the working population.

Unemployment trap
A situation where people are worse off when they gain employment.

Type II error
In a hypothesis test, a type II error occurs when the null hypothesis H0, is not rejected when it is in fact false. For example, in a clinical trial of a new drug, the null hypothesis might be that the new drug is no better, on average, than the current drug; that is H0: there is no difference between the two drugs on average. A type II error would occur if it was concluded that the two drugs produced the same effect, that is, there is no difference between the two drugs on average, when in fact they produced different ones.

Underlying rate of inflation
The rate of inflation having allowed for one-off, abnormal or distorting factors. The underlying rate of inflation is an adjusted measure of inflation that removes some of the distortions in the Retail Price Index. It is also known as RPIX. See RPIX for more detail on this.

Type I error
In a hypothesis test, a type I error occurs when the null hypothesis is rejected when it is in fact true; that is, H0 is wrongly rejected. For example, in a clinical trial of a new drug, the null hypothesis might be that the new drug is no better, on average, than the current drug; that is H0: there is no difference between the two drugs on average. A type I error would occur if we concluded that the two drugs produced different effects when in fact there was no difference between them. A type I error is often considered to be more serious, and therefore more important to avoid, than a type II error. The hypothesis test procedure is therefore adjusted so that there is a guaranteed 'low' probability of rejecting the null hypothesis

Trickle down
The process whereby the economic gains from economic growth pass down throughout the entire society eventually giving rise to development.

Two sample t-test
A two sample t-test is a hypothesis test for answering questions about the mean where the data are collected from two random samples of independent observations, each from an underlying normal distribution.

We want to increase our understanding of a time series by picking out its main features. One of these main features is the trend component. Descriptive techniques may be extended to forecast (predict) future values. Trend is a long term movement in a time series. It is the underlying direction (an upward or downward tendency) and rate of change in a time series, when allowance has been made for the other components.

Treaty of Amsterdam
The Treaty of Amsterdam has been in force since May 1st 1999 and it modified significantly previous treaties. It granted new and important responsibilities to the European Parliament and widened the scope of decisions which can be taken by the Council of Ministers.

Treasury bill tender
The sale of treasury bills.

Treasury bills
Short term (3 month) loans to the government. Treasury Bills are therefore a form of short-term government borrowing. When the government is a little short of funds temporarily they will make a Treasury Bill issue. The size of the issue depends on how much they need. The Bills are a promise to pay (an IOU) and usually mature after 91 days. They are offered to the money markets by a weekly tender.

Treaties of Rome
These were the treaties that led to the formation of the EEC (European Economic Community) and EURATOM (European Atomic Energy Community). There were originally six countries who signed; France, Belgium, Germany, Italy, Luxembourg and Holland. They came into force on Jan.1st 1958.

Transmissions mechanism
The link between a change in an economic variable and economic activity.

Transnational corporations
A business organisation operating in a number of countries.

Means by which people and goods are moved.

Transition period
This is the period between Jan.1st 1999 and Dec.31st 2001. After Dec.31st 2001 the Euro will begin to circulate physically in the countries taking part. During the transition period the use of the Euro is possible only for transactions that do not involve cash. During the transition period people in the countries concerned can either use the Euro or their national currency.

Transformation curve
Another name for a production possibility curve.

Transfer pricing
Setting internal prices to charge other branches of the same company. The practice that multinational enterprises adopt of organising their accounting practices so as to declare high incomes and profits in geographical areas with low taxation rates.

Transactions demand
The desire to keep money to make every day purchases.

Transactions motive
The desire to keep money to make everyday purchases

Transfer earnings
The minimum payment needed to keep a factor of production in its current employment.

Transfer payments
Transfer payments are payments for which no good or service is exchanged. In other words, money has simply been transfeered from one person in society to another. This includes things like benefits, pensions and lottery payments. A significant proportion of government expenditure is on transfer payments.

Transaction costs
All the costs associated with buying and selling a good e.g. the cost of finding out information.

Trading bloc
A regional group of countries co-operating together to liberalise trade between each other.

Percentage of quotas which IMF members are permitted to borrow.

Trade liberalisation
The removal of barriers to trade such as import quotas and tariffs.

Trade mark
A brand or part of a brand given legal protection.

Trade union
An organisation of workers representing their interests and seeking improvements for its members.

Trade war
A situation where countries retaliate against import restrictions imposed on them by increasing their import restrictions against the countries concerned.

What has to be sacrificed in order to obtain a good, it is equivalent to opportunity cost.

Tradeable permits
A permit is an asset to the holder or owner of it. As such, it has value. Tradable permits can be bought and sold, e.g. an industrial permit to allow a company to dump n tonnes of chemicals into a river each year, or to import a given quantity of otherwise

Trade diversion
The decrease in trade following the formation of a trading bloc as trade with low cost non-trading bloc members is replaced by trade with relatively high cost trading bloc members.

Trade cycle
The tendency of economies to move, over time, through periods of boom and slump, and occurs when real GDP moves away from its trend path. The trade cycle is the fluctuations in the rate of economic growth that take place in the economy. These fluctuations appear to occur around every five years and have probably occurred ever since economies have occurred! It is the aim of all governments to try to dampen the effects of the trade cycle and get more balanced long-term growth, but so far they have had limited success. The peak of the trade cycle is usually referred to as a boom, and the trough as a recession or depression.

See Tax and Price Index.

Tradable permits
Licences that permit firms to pollute up to a certain level. They can be bought and sold.

Trade creation
The increased trade that occurs between member countries of trading blocs usually resulting from economies of scale following the enlargement of the market.

Total utility
The amount of satisfaction obtained by consuming units of a good.

Total revenue curve
A curve showing the total revenue earned from the sale of different levels of output.

Total product
Total output.

Total revenue
The firm's income (total revenue) received from the sale of a given level of output. It is calculated as the price of the good multiplied by the quantity sold.

Total domestic expenditure
The total amount spent in an economy in a year.

Total domestic income
The total amount earned by factors of production in a year.

Total final expenditure
Total domestic expenditure plus exports.

Total cost curve
Curves showing the total cost of producing an output.

Total costs
The amount spent on producing a given level of output. The total costs are calculated by total fixed costs plus total variable costs.

Tax on the use of cars and lorries on the road

Time lags
Delays before changes in fiscal policy take effect.

Time series
A time series is a sequence of observations which are ordered in time (or space). If observations are made on some phenomenon throughout time, it is most sensible to display the data in the order in which they arose, particularly since successive observations will probably be dependent. Time series are best displayed in a scattergram. The series value X is plotted on the vertical axis and time t on the horizontal axis. Time is called the independent variable, something over which you have little control.

Time accounts
Deposits in bank and building societies which earn interest but which are subject to a period of notice before withdrawal.

Time deposits
A time deposit is a deposit of money with a bank or other financial institution that requires notice before it can be withdrawn.

Tied aid
Bilateral Foreign aid that is given on the condition that the recipient country uses the funds to purchase goods and services from the donor country.

A system of ideas.

Theory of contestable markets
What is important is not actual but potential competition.

Tied aid
Assistance given on condition that it is spent on items produced by the donor country.

The Budget
The Budget is the annual announcement of the government's fiscal policy changes by the Chancellor of the Exchequer. It usually takes place in March of each year. In the Budget the Chancellor will announce the tax changes he proposes for the following tax year, and also how the government plan to spend that revenue. He will also give the medium-term forecast for the economy and confirm the inflation target that the Monetary policy Committee will have to meet. The Budget is then made law by the Finance Act after debate in Parliament.

Test statistic
A test statistic is a quantity calculated from our sample of data. Its value is used to decide whether or not the null hypothesis should be rejected in our hypothesis test.

Tertiary sector
That part of the economy concerned with the provision of services.

The use of the telephone to sell a product.

Terms of trade
The relationship between the weighted average price of exports and imports, expressed as an index value.

Technical efficiency
When a firm produces a given quantity of output with the minimum number of inputs.

Technology transfer
Technology transfer arises when multinational corporations bring new technologies to the countries in which they invest.

Technical economies of scale
Lower unit costs which come about when cost is not related to size on a 1:1 basis. For example, doubling the size of a lorry does not necessarily double cost.

Tax incidence
The burden of a tax.

Tax threshold
The point at which a tax begins, or ceases, to operate. Usually used in relation to taxes on income e.g. income tax is payable on incomes above £n per annum, and a higher rate of income tax is payable on income over £2n per annum.

Tax and price index (TPI)
A statistical measurement of a typical basket of goods typically purchased by people, which takes account of taxation.

Tax base
The coverage of what is taxed.