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


Working families tax credit
A form of tax credit against income for people who are working and bringing up a child or children. It is aimed at low income earners who work on average 16 hours a week or more, and have a child under 16 (or 19 if enrolled at college). The tax credit is designed to increase the disposable family income of the household and assist in raising children. For more information on the current level of wftc see the linked web site (url)

Acid test ratio
The acid test or quick ratio is the current ratio modified to provide a more prudent measure of short-term liquidity. The acid test ratio deducts stock and work-in-progress from current assets. This approach is more cautious as it recognizes that stock is not always readily converted into cash at full value. The Acid test ratio is calculated by Current Assets - Stock divided by Current Liabilities.

Accelerator
The principle states that a given change in demand for consumer goods will cause a greater percentage change in demand for capital goods. The principle is used to help explain business cycles. The accelerator theory suggests that the level of net investment will be determined by the rate of change of national income. If national income is growing at an increasing rate then net investment will also grow, but when the rate of growth slows net investment will fall. There will then be an interaction between the multiplier and the accelerator that may cause larger fluctuations in the trade cycle.

Accuracy
The extent to which the results of a calculation or reading of an instrument approach the true values of the calculated or measured quantities and are free from error.

Absolute price
The price of a good or service, expressed in units of money.

Absorption pricing
A means by which the fixed costs are shared between all the products that are sold. The fixed costs are said to be absorbed into the price of the goods, as the price charged reflects the variable costs of each item plus a share of the fixed costs.

Absolute income hypotheses
The Keynesian view that consumption depends on current disposable income.

Absolute poverty
Experienced when income levels are inadequate to enjoy a minimum standard of living. This is contrasted with relative poverty which is where income levels are relatively too low to enjoy a reasonable standard of living in that society.

Absolute advantage
Exists when a country can produce more of a product per resource unit than another country. It is a basis for trade. A country with an absolute advantage is producing more efficiently than another.

Abnormal profits
Profits exceed the amount a firm must receive to carry on production. Also known as supernormal profit. If abnormal profits persist in an industry this will tend to attract new firms in, supply will increase, prices will fall and normal profits will be restored. If there are barriers to entry then abnormal profits may persist in the long-run.

Abnormal loss
An abnormal loss is where total revenue does not cover total cost. It is a situation where a firm is making below normal profits. If abnormal losses persist in an industry firms will tend to leave, prices will rise and normal profits will be restored.

Worker Co-operative
A worker-owned business where the employees all contribute to the running of the firm and share in its profits.

Workforce
Those who are employed, self employed, claiming benefit or in the armed forces.

Wild cards
Any product that has a low market share within an expanding market.

Withdrawals
Income not passed on by consumers in the circular flow e.g. savings, taxation or imports. Withdrawals are sometimes called leakages.

Work
The use of mental or physical effort to produce a good or service.

Work study
Analysis of a job to identify the tasks involved and the time taken to complete them, and to suggest more efficient ways of working.

Welfare loss
A situation where marginal social benefit is not equal to marginal social cost and society does not achieve maximum utility.

Welfare loss triangle
The area showing the extent of allocative efficiency.

Wholesale deposits
Wholesale banking refers to banking by institutions who deal with other financial institutions or large firms. They are often contrasted with retail banking which is 'high-street' banking. A wholesale deposit is a deposit with one of these institutions. Merchant banks would usually be considered wholesale banking institutions as they deal only with large firms and other banks and not usually with individual customers.

Weight-losing industries
Use bulky raw materials to produce a compact finished product

Welfare economics
A framework for deciding on the optimal (best) use of scarce resources.

Weight-gaining industries
Use compact raw materials to produce a bulky finished product

Wealth effects
A wealth effect refers to the effect there may be on spending when a person experiences a change in their wealth. For example, when house prices increase people may 'feel' wealthier and as a result spend more. This would be a wealth effect. Their income has not risen, but they have spent more because their wealth has risen.

Wealth
A stock of all those assets capable of earning an income. Wealth can be human or material

Wages
A payment for labour.

Wants and needs
The desire for goods and services.

Wage-wage spiral
When a wage increase in one industry sets off a series of wage claims in other industries so as to maintain differentials.

Wage drift
Traditional wage differentials between groups of workers are eroded

Wage rate
Pay per time period e.g. £s per hour

Wage-price spiral
A wage-price spiral can occur when workers demand a pay rise above inflation. This will increase the firm's costs and mean that they in turn have to put their prices up further if they are to maintain their profit margin. If prices increase faster, then that will prompt workers to put in for a yet higher wage rise. If they are successful in this then the firm will have to put prices up further still, and if they do this then .............

Wage differentials
The difference in wages between workers in different occupations, age groups, industrials, areas etc