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

Net exports
Net exports represent what is left after you subtract imports from exports. They may therefore take a positive or negative value. Positive net exports means that a country exported more than it imported.

Net asset turnover ratio
The net asset turnover ratio measures the ability of management to use the net assets of the business to generate sales revenue. A well-managed business will be making the assets work hard for the business by minimising idle time for machines and equipment. Too high a ratio may suggest over-trading, that is too much sales revenue with too little investment. Too high a ratio may suggest under-trading and the inefficient management of resources. Net Asset Turnover is calculated by Sales Revenue divided by Capital Employed which gives a figure of x times.

Negative externality
A cost on third parties resulting from the activity of others.

Neo-classical Theory
The view that markets operate efficiently and that the way to increase output and employment is to raise aggregate supply.

Negative equity
When the value of a house is less than the home owner's mortgage.

Negative externalities
Impacts on 'outsiders' that are disadvantageous to them and for which they receive no compensation. The externalities are occurring where the actions of firms and individuals have an effect on people other than themselves. In the case of negative externalities the external effects are costs on other people. They are also known as external costs. There may be external costs from both production and consumption. If these are added to the private costs we get the total social costs. An example of negative externalities would be the side effects of production processes e.g. the pollution (noise, dust, vibration) endured by people living next to a quarry.

NedCo is a committee of the non-executive directors of the Bank of England. NedCo was established by the Bank of England Act 1998, and is responsible for reviewing the Bank's performance in relation to its objectives and strategy. They also determine the pay and conditions of the Governor, Deputy Governors and the four independent members of the Monetary Policy Committee.

Natural resources
Non man made resources.

Natural rate of unemployment
The level of unemployment that is associated with a constant rate of inflation. The natural rate of unemployment is also the level of unemployment that still exists in the economy when the labour market is in equilibrium. This will usually be equivalent to the level of voluntary unemployment as at equilibrium everyone who wants a job has got one. Friedman argued that the only way to reduce the natural rate would be to use supply-side policies.

Natural change in population
The difference between the number of births and deaths in a year.

Natural rate of population growth
The growth in population due to changes in the birth and death rates.

Natural advantages
The benefits of a location which occur naturally e.g. a good climate.

National income accounts
The system used to measure the value of national income, output and expenditure.

National income
The value of goods and services created by a country in one year.

National expenditure
National expenditure is the total level of expenditure in an economy. It will also be equivalent to the total level of output and the total level of income in the economy.

National debt
The total amount owed by central government which has accumulated over time. The National Debt is therefore the total amount of borrowing accumulated by the government that is still outstanding. It is the total amount that the government owes to individuals and institutions. Each year the National Debt will rise by the amount of the PSNCR, and fall by the amount of debt that is paid off. In the past the National Debt was managed by the Bank of England, but since the Bank of England Act 1998 it has been done by a new agency called the Debt Management Office.

Narrow money
Narrow measures of money include just the most liquid forms of money. The main measure of narrow money in the UK is M0. M0 includes notes and coins and banks balances at the bank of England.

This is the Fisher Equation of Exchange.

Mutual Organisation
A business that is owned by its members, who are customers, not shareholders.

Multiplier effect
The overall effect of an increase in investment on national income.

Multilateral aid
Aid channelled through international organisations.

A large company operating in a number of countries and owning facilities outside the country of its origin.

Multinational corporation (MNC)
A company which produces in more than one country

Multinational corporations
Companies which produce in more than one country.

The multiplier is concerned with how national income changes as a result of a change in an injection, for example investment. The multiplier was a concept developed by Keynes that said that any increase in injections into the economy (investment, government expenditure or exports) would lead to a proportionally bigger increase in National Income. This is because the extra spending would have knock-on effects creating in turn even greater spending. The size of the multiplier would depend on the level of leakages. It can be measured by the formula 1/(1-MPC) where the MPC is the marginal propensity to consume.

Multi-Fibre Agreement
A set of bilateral quotas imposed by industrialised countries on the exports of textiles from less developed countries.

Multi-stage sampling
This refers to the process of selecting a sample in two or more successive stages. It involves a hierarchy of different types of units. Each 'first-stage' unit is potentially divisible into 'second-stage' units and so on.

Monopoly profits
Supernormal profits earned by monopoly producers. They can also be called abnormal profits.

A market where there is only a single buyer of a good.

Moving average smoothing
A moving average is a form of average which has been adjusted to allow for seasonal or cyclical components of a time series. Moving average smoothing is a smoothing technique used to make the long term trends of a time series clearer.

In theory, an industry where one firm produces the entire output of a market. In practice, in the UK any one firm that has 25% of a market is considered to have monopoly control.

Monopolistic competition
An industry made up of a large number of small firms who produce goods which are only slightly different from that of all other sellers.

Imperfectly competitive firms. A monopoly is a firm that dominates the market and in the case of a pure monopoly has a 100% market share.

Money supply targets
In the past governments have often set targets for the growth of the money supply to help in the fight against inflation. The reasoning behind doing this is based on the quantity theory of money. This says that increases in the money supply cause inflation.

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

Money supply
The amount of money which is in an economy at a given point in time. There is no one agreed definition of the money supply largely because money takes many different forms, not all of which are agreed to be money by all economists.

Money multiplier
Shows by how much total liabilities can increase as a result of a rise in liquid assets

Money measures
Measures of the amount of money in circulation in the economy. The two main measures are M0 and M4.

Money income
Income measured in nominal terms i.e. not adjusted for inflation.

Money markets
Markets dealing in short term loans.

Money illusion
May occur where people confuse changes in nominal balances with changes in real balances.

Money is anything that fulfils the functions required for exchanging goods and services. Money should act as a unit of account, a medium of exchange, a standard for deferred payment and a store of value if it is to be most effective.

Any item which is widely accepted as payment for products

Monetary policy targets
What monetary policy is seeking to influence.

Monetary transmission mechanism
The transmission mechanism of monetary policy is the way in which interest rate changes affect economic activity and inflation. The main impact is through the level of aggregate demand. Higher interest rates limit people's ability to spend and so reduce aggregate demand. However, there are a variety of other effects as well through expectations, asset prices and the exchange rate.

Monetary policy instruments
Tools of monetary policy including interest rate changes and open market operations.

Monetary Policy Committee (MPC)
The Monetary Policy Committee is a committee of the Bank of England chaired by the Governor that meets monthly to set the level of interest rates in the economy. They set interest rates according to the targets they have been set for inflation. If they feel inflation is set to rise they may increase interest rates and vice-versa. There are nine members of the Monetary Policy Committee - five from within the Bank and four independent members.

Monetary policy
The use by government of changes in the supply of money and interest rates to achieve desired economic policy objectives. They aim therefore to influence the level of economic activity. The government may want to use their monetary policy to either boost economic activity (if the economy is in a recession) or perhaps to reduce economic activity (if the economy is growing too fast, causing inflation). If they want to slow down the economy they may use contractionary (or deflationary) monetary policy. This is likely to mean: 1...increasing the level of interest rates 2...reducing the rate of growth of the money supply

Monetary aggregates
Measures of the money supply. Narrow money is usually measured by M0 which includes only notes and coin and banks balances at the Bank of England. Broad money is measured by M4 which includes a much wider range of less liquid financial assets.

Monetary base control
Involves the Bank of England regulating base money. The monetary base of the economy is usually taken as the stock of cash that an economy has. i.e. the level of notes and coins. The closest measure of the money supply that we have to this in the UK is M0. Some monetarists argued that the level of the money supply in the economy could be controlled by strict control of the monetary base. By tightly limiting the level of notes and coins available, financial institutions would be unable to expand their assets too quickly. They would have to be sure they had enough cash to operate. This process is known as monetary base control.

A group of economists who believe that changes in the money supply have a significant impact on the economy.

A group of economists who believe that changes in the money supply are the most effective instrument of government economic policy, and the main determinant of the price level.

Describing the behaviour of economic or business variables (influencing factors) involved

Minimum price
A price floor set by a government or other agency below which the price charged is not permitted to fall.

Minimum wage
The National Minimum Wage was introduced in the UK with effect from 1st April 1999. It is a legally guaranteed wage rate for workers aged 18 years or older. There are two levels, dependent on age. For more information visit the linked web site (url).

Mixed economy
A society where resources are owned by both private individuals and the government.

Mobility of labour
The extent to which labour can move between jobs and regions.

The mode is the most frequently occurring value in a set of discrete data. There can be more than one mode if two or more values are equally common.

Minimum lending rate
The rate, announced in advance, at which the Bank of England used to lend to the discount houses. The interest rate is now set by the Monetary Policy Committee of the Bank of England each month.

Minimum efficient plant size
The smallest size of plant needed to minimise unit cost.

Microeconomic policies
Policies designed to improve the efficiency of individual markets.

The behaviour of an individual consumer, firm and industry

Migrant populations
People moving between countries.

The movement of people between countries.

Microeconomic incentives
Methods of encouraging increased effort and efficiency in individual markets.

Merit goods
A product, such as education, which consumers may undervalue but which the government believes is 'good' for consumers. Merit goods would be under-provided in a pure free-market economy. This is because they have external benefits that people would not take into account when they made their decisions about how much to consume. An example is vaccinations. As a result of people being vaccinated we keep disease out of the country, but if it was left just to the market many people might choose to take the risk and not pay for vaccinations. This could have negative effects for society.

Merchant banks
Banks which provide services mainly to companies including issuing new shares.

When the two firms agree to form a new company.

Measurable Economic Welfare
Adjusts GDP by adding the value of e.g. leisure time, D.I.Y. and unpaid housework and deducting expenditure on e.g. defence, police and road maintenance and negative externalities.

Measure of value
Money is used to compare the value of goods, services and factor rewards.

The value of the middle item when the data are arranged from lowest to highest; a measure of central tendency. If there is an even number of observations, the median is the average of the two middle observations.

Medium of exchange
Anything which is generally accepted as a means of paying a debt.

Medium Term Financial Strategy
This was introduced in 1980 by the new Conservative government led by Mrs. Thatcher. The MTFS published targets for the growth of the money supply and public borrowing (the PSNCR) for up to five years ahead. The idea was to help the operation of monetary policy and also influence people's inflation expectations.

The arithmetic average.

Means tested
The process of means-testing looks at the levels of income and wealth of an individual or household to assess if they are entitled to something. Many state benefits are means-tested. The introduction of means testing has meant that welfare payments have been targeted to those who are in most need and those on higher income levels are not entitled to receive the benefit.

Maximum price
An upper limit set by a government or other agency above which the price charged is not allowed to rise.

Land and other family assets are passed down the female line of succession.

Marshall Lerner condition
States that a devaluation (currency become weaker) will improve the current account balance (exports minus imports) if the combined price elasticities of demand for exports and imports are greater than 1

Marketing strategy
A plan based on the interrelationships of the 4Ps (Product, Price, Place, Promotion) to market a product to consumers. The plan should project targets and ensure that these can be effectively measured.

Marketing mix
The marketing mix is the balance of marketing techniques required for selling the product. It's components are often known as the four Ps: Price - the price of the product - particularly the price compared to your competitors - is a vital part of marketing. Product - targeting the market and making the product appropriate to the market segment you are trying to sell into.Promotion - this may take the form of point of sale promotion, advertising, sponsorship or other promotions. Place - this part of the marketing mix is all about how the product is distributed. Current trends are towards shortening the chain of distribution.

Market structure
Market structure refers to the number and type of firms in a particular industry.

Market supply curve
The horizontal summation of all the individual supply curves.

Marketing economies of scale
The lower unit cost of advertising and promotion that is enjoyed by a large firm and which is unavailable to smaller companies

Market share
The proportion of total sales accounted for by a particular brand or firm.

Market share
The amount of a market supplied by a firm.

Market stagnation
A market which is failing to grow.

Market penetration pricing
When a firm reduces price to increase market share

Market segment
A particular group of consumers within a market.

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

Market for loanable funds
This market is the money market. It is where companies go to borrow the money for investment, and where consumers go to put their savings away. The equilibrium in this market depend on the supply of money (from savings) and the demand for money (from investment). Where they are equal will be the equilibrium rate of interest. The Bank of England will intervene in this market to ensure that the rate of interest is maintained at the level set by the Monetary Policy Committee.

Market economy
A system where resources are owned by households: markets allocate resources through the price mechanism; and income depends upon the value of resources owned by an individual.

Market failure
Market failure occurs when the workings of the price mechanism are imperfect and result in an inefficient or grossly unfair allocation of resources from the perspective of society. Examples include, the education and defence markets.

Mark up
The profit margin on a good or service.

Mark up pricing
Price is set by adding a percentage onto costs e.g. 30%.

Market concentration
The extent to which the sale of a product is dominated by the largest firms in the industry.

Market economics
The study of economic systems where resources are allocated through markets.

Market economies
A system where markets allocate resources through the price mechanism; and income depends upon the value of resources owned by an individual.

Marginal utility
The satisfaction gained from the consumption of one extra unit of a good.

Marginal social cost
The cost incurred by both the firm and society in producing each extra unit of a good.

Marginal revenue
The income received from the sale of one extra unit