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


Tax cuts
Reductions in tax rates. They may be either cuts in direct or indirect taxes.

Tariffs
Taxes generally on goods imported into a country.

Tax and price index
Measures average household purchasing power, including the effects of changes in direct taxes as well as prices

Targets
On leaving the ERM in 1992, the government set an inflation target of 1-4% and since then we have had inflation targets. Since giving the Bank of England operational independence in 1997 the government have set an inflation target that the Bank of England have to meet. Other variables could also be targeted including the money supply or exchange rate.

Target return policy
When an organisation sets price to produce the target profit it is seeking.

Target variables
Variables through which the government attempts to achieve its objectives. On leaving the ERM in 1992, the government set an inflation target of 1-4% and since then we have had inflation targets. Since giving the Bank of England operational independence in 1997 the government have set an inflation target that the Bank of England have to meet. Other variables could also be targeted including the money supply or exchange rate.

Tall Organisational Structure
An organisation where there is greater distance between the higher and lower levels within the hierarchy. This involves a longer chain of command and usually, a narrower span of control.

Takeover
When one company buys a controlling interest in a second against the wishes of that company's directors.

Systemic risk
One of the Core Purposes of the Bank of England is to maintain the stability of the financial system as a whole. When looking at this they are looking for things that may cause systemic risk. That is the risk that an event or the failure of a financial institution may cause a risk to other perfectly healthy institutions because of the links between them. In other words - risks to the whole system.

Symmetrical target
A symmetrical target for inflation is one where the aim is to achieve the exact rate. If inflation was under the target policies would aim to expand the economy, whereas if inflation was over the target policies would aim to restrain the level of demand to reduce inflation. The target for inflation set by the government for the Bank of England is a symmetrical target. This is in contrast with a target for inflation that may be '...% or less'.

Symmetry
Symmetry is implied when data values are distributed in the same way above and below the middle of the sample.

Sustainable growth
Sustainable growth is economic growth that can continue over the long-term without non-renewable resources being used up.

Sweezey model
The kinked demand curve operating under conditions of oligopoly.

Sustainable development
Development where consideration is given to the quality of life of future as well as current generations.

Survey
The collection of information about characteristics of interest from some or all units of a population, using well-defined concepts, methods and procedures, and the compilation of such information into a useful summary form.

Supply side economics
The branch of economies concerned with the productive potential of the economy and how to increase it.

Supply side policy
Government policies which create incentives for individuals and firms to increase their productivity. Supply-side policies are policies that improve the workings of markets. In this way they improve the capacity of the economy to produce and so shift the aggregate supply curve to the right. This should enable the economy to grow in a non-inflationary way. Supply-side policies are usually advocated by classical and monetarist economists who believe that free markets are the most important factor determining economic growth. Supply-side policies may include improving education and training, reducing the power of trade unions, removing regulations and so on.

Supply side
Factors affecting aggregate supply.

Supply shock
An unplanned change in supply usually occurring because of changes in weather conditions or an external change outside the control of the company or economy.

Supply lag
A time lag between a good or service being demanded and the actual supply of that good or service.

Supply Curve - movements along
A change in price results in a movement along a supply curve, resulting in a change in the quantity supplied.

Supply curve
A curve showing the relationship between the price of a good and the quantity of the good supplied by producers (firms). The curve is upward sloping due to the higher price being an incentive to supply more. A supply curve can be applied to the individual firm, groups of firms, a market or markets.

Supply
The amount of a good which producers are both willing and able to sell at a given price.

Substitution effects
The substitution effect occurs when the price of a good falls and the consumer substitutes more of this product for others

Substitution
When one good is bought in place of another.

Substitution effect
This occurs when a change in the relative price of a good causes the consumer to review how much they consume. For instance, if the price rises then this will reduce the relative income of an individual who does not change their consumption patterns.

Subsistence
The minimum income needed to survive.

Subsistence farming
Farming where output is produced for consumption of the farmer and its family members and not for cash sale.

Substitutes
Substitute goods are often termed as having competitive demand. The consumer can swap between the two goods and maintain the same degree of satisfaction. Some goods have very close substitutes, while others do not. An indication of the goods being substitutes is the cross price elasticity of demand. If the CPED is positive then the two goods are substitutes. If the value is greater than one, then they are close substitutes.

Subsidies
Payments to producers or consumers designed to encourage an increase in output.

Subsidy
Money given to producers to reduce costs hence the market price of a good or service.

Structural unemployment
Those out of work because of a permanent decline in the demand for an industry's product.

Structural surpluses
Supply exceeding demand because of the imposition of a minimum price above the equilibrium.

Structural adjustment programmes
A programme of free market and supply side reforms that multilateral agencies such as the IMF lay down as conditions for lending funds.

Stop-go cycles
Fluctuations in economic activity caused by contractionary and expansionary government policy.

Store of value
Money is used to hold wealth, i.e. any medium for saving.

Stratified sampling
There may often be factors which divide up the population into sub-populations (groups / strata) and we may expect the measurement of interest to vary among the different sub-populations. This has to be accounted for when we select a sample from the population in order that we obtain a sample that is representative of the population. This is achieved by stratified sampling. A stratified sample is obtained by taking samples from each stratum or sub-group of a population.

Stock value
An amount at a given moment in time, e.g. wealth

Stockpiling
Building up a stock of goods. This may be involuntary (caused by overproduction e.g. coal) or a matter of policy e.g. in industries where demand is highly seasonal or in defence industries. Stockpiles represent costs that have been incurred but not recover

Stocks
Raw materials, work in progress and unsold consumer goods.

Stock figure of unemployment
The number of people without a job seeking employment at a given moment in time.

Stock appreciation
The increase in the value of inventories brought about by inflation

Statistics
Used in the singular - the area of study that has as its object the collection and arrangement of numerical facts or data, whether relating to human affairs or natural phenomena. Used in the plural - numerical facts or data collected and classified.

Statistical inference
Statistical inference makes use of information from a sample to draw conclusions (inferences) about the population from which the sample was taken.

Standard economic regions
UK is divided into eleven standard economic regions

Standard error
Standard error is the standard deviation of the values of a given function of the data (parameter), over all possible samples of the same size.

Standard for deferred payments
Money is used to enable people to borrow and lend agreed amounts.

Standard regions
The 11 government defined regions of the UK e.g. the South East, Wales and Yorkshire and Humberside.

Standards of living
A measure of economic welfare e.g. of real per capita income

Stars
A product that has a high or rising market share within an expanding market.

Statistic
Real valued function whose value may vary with different outcomes of a certain experiment. This value must be computable for any given outcome of the experiment. Example of a statistic: the sample mean, the median of a sample, etc.

Standard deviation
Standard deviation is a measure of the spread or dispersion of a set of data.

Stakeholders
Individuals and organisations with an interest in the activities of a company. A firm's stakeholders include employees, consumers, the community and government.

Stagnation
This term refers to a negative level of economic growth - the economy shrinking. If this only happens in the short-term it may be called a recession, but if it lasts longer, then it may be referred to as stagnation.

Speculative demand
The desire to hold wealth as money in order to take advantage of changes in the price of bonds or any other asset thought likely to appreciate rapidly.

Speculative motive
The desire to hold idle balances to take advantage of changes in the price of bonds.

Spillover effects
Positive and negative externalities.

Spot exchange rate
The spot rate is the exchange rate existing in the market at any given moment in time. It is the rate you would be able to buy foreign currency at 'now'. This is in contrast to the forward rate which is a predicted rate for a time in the future.

Spot market
That part of the foreign exchange market concerned with the buying and selling of currencies for immediate use.

Stagflation
This was a term coined in the 1970's for the twin economic problems of stagnation and inflation. Previously these two had not appeared together, it had been one or the other. Keynesian policy had no solution for this problem at the time.

Specific tax
A fixed tax per unit. A specific tax will have the effect of shifting a supply curve vertically upwards by the amount of the tax.

Speculation
The act of taking action in anticipation of an event taking place, e.g. buying dollars in anticipation that their foreign exchange value will rise, selling shares in anticipation of a fall in their prices and possibly with a view to buying them back later

Sole Trader
Where one person owns a private business. The sole trader may employ other people, but bears the financial risks of the business alone.

Span of Control
The number of staff working under a supervisor or manager.

Spare capacity
When a firm or economy is able to produce more with existing resources

Special deposits
The compulsory loans which the Bank of England can call for from the retail banks thereby reducing their liquid assets

Special drawing rights
See SDRs

Specialisation
Concentrating in the production of one good or service

Sole proprietor
The person owns a private business. Sometimes called a 'sole trader'. The sole trader may employ other people, but alone bears the financial risks of the business.

Soft loan
A loan made to a country on a concessionary basis such as a lower rate of interest.

Soil erosion
Loss of topsoil often resulting from deforestation and wind or water erosion.

Social welfare
The well being of a society.

Socially efficient output
This occurs when the full opportunity cost of the extra unit equal the value placed by society on its consumption.

Social marginal cost
The full costs to society of one extra unit.

Social responsibility
The impact of a firm or organisation's actions on the rest of society. These impacts can be social or environmental.

Social security payments
Benefits paid to low income groups e.g. the unemployed, disabled, pensioners.

Social audit
A process which measures the social impact of a firm or organisation's actions on the rest of society.

Social benefits
The total benefits of an economic activity to both the individual and the spillover effects to third parties. Social benefits are the total of private benefits and any external benefits.

Social capital
The stock of society's assets which provide a service.

Social costs
The total costs of an economic activity on both the individual and the spillover effects on third parties. Social costs are the total of private costs and any external costs.

Smoothing
Smoothing techniques are used to reduce irregularities (random fluctuations) in time series data. They provide a clearer view of the true underlying behaviour of the series.

Small firms
Companies which employ a relatively low number of workers.

Skimming pricing
When a firm charges a high initial price where some consumers are prepared to pay more for a new product. Eventually price is lowered to extend demand.

Slumpflation
Occurs when there is high inflation, high unemployment and negative growth.

Skewness
Skewness is defined as asymmetry in the distribution of the sample data values. Values on one side of the distribution tend to be further from the 'middle' than values on the other side.

Skimming
A pricing policy sometimes used by companies introducing a new product. A high price is set to ensure large profits are made before the competitors are able to produce a similar product.

Sir John Richard Hicks (1904-89)
Sir John Hicks is one of an elite group - a Nobel prize winner in Economics. He shared the award of the prize with Professor J.K. Arrow in 1972. He lectured at the London School of Economics from 1926 - 1935. He then carried on touring the UK anti-clockwise working at Cambridge for 3 years and then Manchester where he was the Chair of Political Economy. He waited a further 8 years before completing the circle and moving back to Oxford as an Official Fellow of Nuffield College, Oxford. Much of the work he did was on microeconomics and he developed the analytical tool of indifference curve analysis. He also spent time developing a macroeconomic framework to model the economy. This framework is known as IS-LM analysis, and is still a very useful tool in macroeconomics.

Single currency
A situation in which separate countries agree to use the same currency.

Single market
The single market came into effect in January 1993 and guarantees the free movement of people, goods, services and capital in the EU.

Simple linear regression
Simple linear regression aims to find a linear relationship between a response variable and a possible predictor variable by the method of least squares.

Simple random sampling
Simple random sampling is the basic sampling technique where we select a group of subjects (a sample) for study from a larger group (a population). Each individual is chosen entirely by chance and each member of the population has an equal chance of being included in the sample. Every possible sample of a given size has the same chance of selection; that is, each member of the population is equally likely to be chosen at any stage in the sampling process.

Signals
Any sign or indication of something. Key economic indicators act as pointers to where an economy is heading. Buyers and sellers also give signals, e.g. very low attendance at football matches are a signal to suppliers that consumers want something better.

Significance level
The significance level of a statistical hypothesis test is a fixed probability of wrongly rejecting the null hypothesis H0, if it is in fact true.

Sight deposit
A sight deposit is a deposit of money in a bank or other financial institution that can be withdrawn without notice.

Short term liquidity ratios
Short term liquidity ratios look at how well the company is managing the funds it has and needs in the short term. They include the current ratio and the acid test ratio and measure how easily the company can meet its short-term financial commitments like paying its bills.

Short-termism
An overemphasis on the level of immediate as opposed to future levels of profit

Shortage
To maintain the interest rate set by the Monetary Policy Committee, the Bank of England ensure that each day there is a shortage of liquidity in the money markets. They then relieve this shortage through 'repos' - sale and repurchase agreements.

Shock
Any unforeseen or unanticipated event or occurrence that impinges on the normal working of an economic system.

Short run
The period of time in which at least one factor of production is fixed.

Shares
Securities issued by companies as a way of raising long term capital. Holders are owners of the company.