Ad valorem: Value added. An example of an ad valorem tax would be VAT.
 

Advances: Loans given by financial institutions.
 

Appreciation: An increase in the value of an asset.
 

Arbitrage: Movements of funds to take advantage of differences in exchange or interest rates, and this quickly eliminates any such differences.
 

Average cost pricing: Setting price equal to average cost.
 

Average propensity to consume: The proportion of disposable income spent:
APC = C/Y
 

Amortization: Writing down the value of an asset in a company's books to reflect its loss of value through age and use. Called depreciation in the UK. Amortization is also an accounting term to pay off a loan in gradual increments.

Barter: The direct exchange of goods and services without the use of money
 

Birth rate: The number of live births per thousand of the population in a year
 

Black economy: Unrecorded production.
 

Backward integration: Occurs when a company joins with a firm that is involved at an earlier stage of the production chain.
 

Balance of payments: Statement of a country's net financial transactions with other countries. Current account measures balance of imports and exports and payments and receipts for services such as shipping, banking and tourism. Capital account measures movements of capital (bank deposits, securities, shares, property).
 

Balance of trade: The difference between the value of visible exports and visible imports
 

Black markets: Created when buyers and sellers meet to negotiate the exchange of a prohibited or illegal good. More generally any unofficial market in which prices are inordinately high.
 

Bull market: Period of rising share prices; an optimistic state of affairs; the opposite of a bear market.
 

Buyer's market: The quantity of goods for sale exceeds the amount consumers are willing and able to buy at the current market price; characterised by low prices
 

Bonds: Certificate of debt issued to raise funds. It normally has a fixed rate of interest and is repayable at a fixed date. See also convertible bonds, mortgage-backed securities.
 

Break-even: When a firm's short-run total revenue equals its short-run total cost
 

Bretton Woods system: An arrangement of fixed exchange rates which operated between 1945 and 1971.
 

Capital gains: The difference between the sale and purchase price of an asset.
 

Ceteris paribus: All other influencing factors are held constant.
 

Call option: The right but not the obligation to buy a security at a specified price at a specified date in the future.

Call rates: The interest rate on money loaned overnight. Also known as the overnight rate. Widely used measure of money market rates.
 

Consumer surplus: This occurs when people are able to buy a good for less than they would be willing to pay. They enjoy more utility than they had to pay for.
 

Closed economy: An economy which does not engage in international trade.
 

Collusion: Agreements between firms to restrict competition.
 

Complementary goods: Two goods consumed at the same time, e.g. cars and petrol
 

Corporation tax: A tax on a firms' profits.
 

Consumer's price index: Measure of the change in the cost of consumer goods and services. It is used as an indicator of a nation's inflation rate.
 

Cost benefit analysis: A method of assessing investment projects which takes into account social costs and benefits.
 

Cost of living: The general level of prices in the economy, usually measured by the retail price index.
 

Cost plus pricing: Setting prices by adding a profit margin to average cost.
 

Cost push inflation: When a cost of production (e.g. wages) increases and firms put up prices to maintain profits.
 

Credit creation: The ability of the banking sector to create money by giving advances.
 

Crowding out: A decline in private sector spending resulting from a rise in public sector expenditure.
 

Current account: Usually taken to mean the current account of the balance of payments.
 

Current account balance: A record of a country's earnings from the sale of visible and invisible items minus its expenditure on visible and invisible items from abroad.
 

Current account deficit: When a country spends more on visible and invisible items from abroad than it earns from the sale of visible and invisible items.
 

Death rate: The number of deaths per thousand of the population in a year.
 

Debentures: Long-term fixed interest loans to companies.
 

Demand pull inflation: Occurs when aggregate demand exceeds aggregate supply.
 

Depreciation of sterling: When market forces lower the value of the sterling (£) from one fixed rate to another.
 

De-merging: One company splits up to form two new firms. These new firms are frequently companies which used to be separate prior to the initial merger.
 

Demand curve: A graph which shows the amount of a good consumers are willing and able to buy at various prices.
 

Demand-pull inflation: This occurs when the excess of aggregate demand over aggregate supply causes an increase in the general level of prices.
 

Deregulation: The removal of controls on a particular market, e.g. abandonment of a licensing system for taxis.
 

Devaluation of sterling: Occurs when the UK Government lowers the value of the sterling (£) from one fixed rate to another.
 

Developed countries: Countries with high levels of real national income per head and relatively large tertiary sectors.
 

Developing countries: Countries with low levels of real national income per head and relatively large primary sectors.
 

Direct taxation: Taxes on income and wealth.
 

Discounting: Future costs and benefits are difficult to measure. The present value (P) of future benefits less costs is found by discounting.
 

Disequilibrium: A state of imbalance in which there is tendency for change.
 

Double counting: Including transfer payments, intermediate expenditures or outputs and stock appreciation in national accounts.
 

Dumping: The sale of goods in a foreign country at a price below what cost in the home market.
 

Engel curve: A curve showing the relationship between income and consumption.
 

Economies of scale: A reduction in long-run unit costs which arise form an increase in production.
 

Elasticity of demand: The responsiveness of demand to a given change in price or income.
 

Elasticity of supply: The responsiveness of supply to a given change in price.
 

Earnings per share: Net income of a company; net of preferred dividends divided by a weighted average of total shares outstanding for the period. One of the most widely watched indicators of the profitability of a company.
 

Exchange rate: The price of one currency in terms of another currency. More generally, the price at which any good is being traded for another good.
 

Exchange rate mechanism (ERM): A system operated by some members of the European Union where the Central Banks of members intervene to stabilise the exchange rate of currencies within agreed limits.

Factor cost: The value of output measured in terms of the cost of the factors of production used to produce it.
 

Factor incomes: Rewards to the factors of production, e.g. labour receives wages.
 

Fisher`s quantity theory of money: The view that changes in the money supply have a direct and proportionate effect on the price level.
 

Forward market: A market in forward contracts of a commodity or currency, which are agreements to buy or sell the commodity or currency at a future date. The contracts are not negotiable.

Free goods: A good in unlimited supply at zero price, e.g. air
 

Free trade area: A group of countries which removes tariff barriers between member countries but allows each member to decide on its own tariff policy towards non-members

GDP: The total value of all goods and services produced domestically each year by a country. It equals gross national product minus income from abroad. Most countries use this definition; US official statistics use gross national product.
 

GNP: The total value of goods and services produced each year by a country. Real growth in GNP measures the increase in output after subtracting the effect of inflation.
 

Giffen good: An increase in income results in a fall in demand for the good.
 

Gross domestic fixed capital formation: Total spending on fixed investment, e.g. machines, factories, offices.
 

Horizontal integration: Two companies merge in the same industry and at the same stage of production.
 

Human development index: An index devised by the UN to assess comparative levels of development in countries. Its three main matrices are literacy, life expectancy, and purchasing power parity (PPP)-adjusted income.