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

Planned investment
Intended spending on capital goods.

A placebo is an inactive treatment or procedure. It literally means 'I do nothing'. The 'placebo effect' (usually a positive or beneficial response) is attributable to the patient's expectation that the treatment will have an effect.

Planned economies
Economies in which the state decides what goods are produced, the methods of production, and who gets the goods.

Planned injections
Additions to income which include exports, government spending and investment.

Place marketing
Place marketing employs marketing principles and techniques to advance the appeal and viability of a place (town, city, state, region or nation) to tourists, businesses, investors and residents. The use of publicity and marketing to 'sell' towns and regions. As with products and services, places can also be branded, through creating and communicating a place identity, which increases a place's attraction.

Pie chart
A pie chart is a way of summarising a set of categorical data. It is a circle which is divided into segments. Each segment represents a particular category. The area of each segment is proportional to the number of cases in that category.

A chart giving statistics in pictorial form. For example using a dollar bill in increasing size to represent the increase in the purchasing power over time.

Physical Quality of Life Index
A composite indicator of development composed from life expectancy, literacy rate, and infant mortality.

Phillips curve
The Phillips Curve was a relationship between unemployment and inflation discovered by Professor A.W.Phillips. He found that there was a trade-off between unemployment and inflation, so that any attempt by governments to reduce unemployment was likely to lead to increased inflation. This relationship was seen by Keynesians as a justification of their policies. However, in the 1970's the curve began to break down as the economy suffered from unemployment and inflation rising together (stagflation).

Perverse demand curve
A perverse demand curve is one which slopes upwards from left to right. Therefore an increase in price leads to an increase in demand. This may happen where goods are strongly affected by price expectations or in the case of Giffen goods.

Persuasive advert
Any advert that uses images, humour, famous people as a means of promoting a product.

Periphery regions
Geographical areas on the outskirts of key economic activity.

Permanent income hypothesis
The permanent income hypothesis was developed by Milton Friedman and it says that people will look at long-run (permanent) income when deciding how much to consume. Where actual income is unusually high people realise this isn't permanent and they will save correspondingly. On the other hand where income is lower they may still consume at a higher level using up savings. In other words Milton Friedman argued that spending is based on average lifetime income.

Perfectly contestable market
the costs of entry and exit into and from an industry are zero

Performance related pay
The income of a worker is adjusted according to their performance. Exceeding set targets can result in a bonus.

Perfectly competitive markets
A market made up of a large number of firms producing identical products with total freedom of entry to and exit from the market e.g. wheat.

Perfect competition
An industry made up of a large number of small firms, each selling homogeneous (identical) products to a large number of buyers.

Percentage frequency
This is derived by multiplying each of the relative frequency values by 100.

Percentiles are values that divide a sample of data into one hundred groups containing (as far as possible) equal numbers of observations. For example, 30% of the data values lie below the 30th percentile.

Penetration pricing
A pricing policy used to enter a new market, usually by setting a very low price.

Payback period
Payback period is an investment appraisal technique that looks at the amount of time it takes an investment project to recover the initial money that was laid out. For example, if an investment of £300,000 generates annual revenue of £60,000, the payback period will be 6 years.

Pareto optimal
A situation in which economic welfare is maximised. In other words when no one can be made better off without someone else being made worse off, following a reorganisation of production or distribution.

Paris Club
A group formed by certain industrialised countries that are owed substantial amounts of debt by less developed countries.

Participation rate
The percentage of the population of working age in the labour force.

A firm owned by between 2-20 people who share the profits and usually have unlimited liability for the debts of the firm.

An Italian economist who was concerned with welfare economies.

Pareto criteria
A reallocation of resources is desirable only if someone gains and no one loses.

Paper money
Bank notes. Sometimes also used to describe notes and coins.

Paradox of thrift
A situation whereby an increase in saving results in a fall in national income.

Parallel economy
The production that takes place outside of the declared and formal circular flow of income.

Parameters are functions of the study variable values. They are unknown, quantitative measures (e.g., total revenue, mean revenue, total yield, number of unemployed) for the entire population or for specified domains which are of interest to the investigator

Hours of work undertaken above the standard working hours.

The person, people or institution who legally possesses an item.

The use of colour, shape, size or material to market a product.

When a reduction in population size would increase output per head i.e. it is above the optimum population.

When production is above the socially optimum level.

Overseas aid
Assistance given to overseas countries.

Overseas investment
The purchase of overseas financial and physical assets.

The employment of more labour than is needed to produce a given output.

Outward oriented development
Government policy that attempts to achieve development by encouraging free trade and the unrestricted movement of labour and capital.

Output method
A way of calculating GDP by adding up the output of the different industrial sectors.

Output per worker
Total output divided by the number of workers employed i.e. productivity.

The goods and services produced as a result of economic activity.

Output gap
The output gap is the difference between what the economy is actually producing and what it could potentially produce. A positive output gap means that we are producing less than we potentially could, while a negative one means that we are stretching our resources to the limit and producing more than our potential.

In a set of data, a value so far removed from other values in the distribution that its presence cannot be attributed to the random combination of chance causes.

Optimum output
When average cost is minimised.

Optimum population
When productivity (output per person) is highest

Ordinal data
A set of data is said to be ordinal if the values / observations belonging to it can be ranked (put in order) or have a rating scale attached.You can count and order, but not measure, ordinal data.

Organic growth
When a company grows, the growth may be either organic or inorganic. Organic growth means that the company itself has grown from its own business activity, while inorganic growth means that the company has grown by merger or take-over. Organic growth is also sometimes known as internal growth and inorganic as external growth.

An organisation is a body which is set up to meet a set of needs.

Opportunity cost
The decision to produce or consume a product involves giving up another product. The real cost of an action is the next best alternative forgone.

Optimum allocation
Occurs when it is not possible to redistribute goods to increase the welfare of any one consumer without reducing the welfare of some other consumer.

Operational independence
The Bank of England was given operational independence by the Chancellor Gordon Brown in 1997. It means that, although the Bank is still owned by government (a nationalised industry), it can now operate independently without government intervention in its affairs. The most important aspect of this is the setting of interest rates by the Monetary Policy Committee. The government can only intervene in this process in 'exceptional circumstances'.

Operational balances
Accounts which the banking sector keep at the Bank of England to settle debts and to draw on.

Open economy
An economy which engages in international trade.

Open market operations
Where the Bank of England sells short term government securities and bills, thereby reducing retail banks' liquid assets and raising interest rates. If the government sells large amounts of gilt-edged securities, this will mean a transfer of funds from the private sector to the government. This will happen as people buy securities and so have to write cheques or transfer money to the Bank of England who sold them. This means that the banks have less in the way of liquid funds available, and so they are unable to expand their loans as quickly. Selling gilt-edged securities is therefore considered to be a contractionary monetary policy.

One-sided test
A one-sided test is a statistical hypothesis test in which the values for which we can reject the null hypothesis, H0 are located entirely in one tail of the probability distribution. In other words, the critical region for a one-sided test is the set of values less than the critical value of the test, or the set of values greater than the critical value of the test.

Markets dominated by a few sellers who account for a large proportion of output.

A market dominated by a very few sellers who account for a large proportion of output.

One sample t-test
A one sample t-test is a hypothesis test for answering questions about the mean where the data are a random sample of independent observations from an underlying normal distribution.

Official exchange rate
The rate at which the Central Bank will exchange the local currency for foreign currency.

Occupational mobility
The extent to which factors of production can move between different occupations.

The Organisation for Economic Co-operation and Development

Offer curve of labour
The number of hours labour is prepared to work at different levels of income.

Occupational immobility
Occupational immobility is a situation where resources do not freely move from one purpose to another. It is particularly a problem with labour as people often find it difficult to switch rapidly from one job to another. This is usually because their skills are very specific and they will need retraining to be able to switch to a different job. It may therefore be a cause of unemployment.

Aims of government policies

Data collected for a given variable.

Not for profit
Any organisation that does not seek to make a surplus. Usually charities.

Null hypothesis
The null hypothesis, H0 represents a theory that has been put forward, either because it is believed to be true or because it is to be used as a basis for argument, but has not been proved. 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. We would write H0: there is no difference between the two drugs on average.

Based on value judgements.

Normative economics
Statements of opinion which cannot be proved or disproved, and suggests what should be done to solve economic problems

Normal goods
Goods to which the general law of demand tends to apply.

Normal profits
The minimum the amount a firm must receive to carry on production

Non-wage benefits
Rewards for labour that are received in a form other than money e.g. meal vouchers, free uniform, free travel to work.

Normal distribution
Normal distributions are important for a number of reasons. One of the main ones is that many of the important characteristics that you will want to study are normally distributed. The mean and the standard deviation define the shape of the normal distribution curve. For different standard deviations there are different shapes, but all shapes of normal distributions have in common the fact that the curve of the distribution is symmetrical about the vertical axis. This means that there are as many items in a population that deviate from the mean to the right, as there are to the left of the axis.

Non-tariff barriers
Measures other than tariffs that impede international trade and restrict the import and export of goods. Such measures include customs delays and boycotts.

Non-rival consumption
The consumption of a good does not stop others from using the good e.g. air.

Non-renewable resources
Resources which are finite i.e. not replaced.

Non-price competition
Businesses compete with other organisations within the same market through special offers, packaging etc.

Non-operational balances
Accounts kept by the banking sector at the Bank of England which are not drawn on.

Non-price competition
Methods firms use to attract customers other than price reductions e.g. advertising, free gifts.

Non-marketed output
Economic activity which is not recorded in official national income figures.

Non-exclusive benefits
Benefits that are available to all and not just to a particular group.

Nominal national income
The value of this year's output at current prices.

Nominal rate of interest
The annual return form lending money expressed as a percentage, without having taken account of the rate of inflation.

Niche market
A specialist area of the market.

Niche marketing
A niche market is a specialist area of the market. Niche marketing is therefore selling to that area of the marketing. It demands a very different approach to mass marketing of goods and services.

Nominal data
A set of data is said to be nominal if the values / observations belonging to it can be assigned a code in the form of a number where the numbers are simply labels. You can count but not order or measure nominal data. For example, in a data set males could be coded as 0, females as 1; marital status of an individual could be coded as Y if married, N if single.

Net property income from abroad
The difference between incomes earned and incomes paid abroad.

Net social benefit
The positive difference between social benefit and social cost.

Net transactions
The difference between transactions in assets and transactions in liabilities.

New Classical
A group of economists who have re-examined the classical school of economics writing by Smith, Ricardo et al.

Net national product
The technical term for national income, it is GNP minus capital consumption.

Net National Product
The technical term for national income

Net present values
The value today of a series of future incomes and expenditures

Net profit margin
The net profit margin, sometimes known as the trading profit margin measures trading profit relative to sales revenue. Thus a trading profit margin of 10% means that every £1.00 of sales revenue generates £0.10 (10p) in profit before interest and taxes. Some industries tend to have relatively low margins, which are compensated for by high volumes. Conversely, high margin industries may be low volume. Higher than average net profit margins for the industry may be an indicator of good management. The Net Profit Margin is calculated by Net Profit before Interest & taxes divided by Sales Revenue times100 to give X%.

Net migration
The difference between immigration and emigration in a year

Net investment
Gross investment less depreciation

Net migration
The positive difference between immigration and emigration

Net Domestic Product
Net National Product minus property income from abroad