Income tax: Tax levied by the government on wages, rent, interest and dividends
 

Indifference curves: Curves which show the different combinations of two goods which give equal satisfaction.
 

Index: A benchmark against which financial or economic performance is measured, such as the FTSE 100 or a consumer price index. Created by statistical sampling of broad set of data. To reflect the importance of the biggest companies, stock market indices tended to be weighted either by price, e.g. the Dow Jones Industrial Average or market capitalisation, e.g. the S&P500 and most European stock indices.

Index funds: Mutual fund that aims to track the performance of a specific stock market index. Such funds are passively managed and thus tend to have lower charges than actively managed funds.
 

Indirect taxation: A surcharge on price imposed on the sale of goods and services by the government.
 

International Monetary Fund (IMF): An organisation established to encourage international cooperation in the monetary field, the stabilisation of exchange rates and the removal of foreign exchange restrictions.
 

International Bank for Reconstruction and Development: More commonly known as the World Bank. It gives long-term loans to member countries for high priority infrastructure, agricultural, industrial and educational projects.
 

IS-LM: A model of income determination that integrates the goods market (represented by investment and saving) and the money market (demand and supply of money)
 

J effect: The tendency for a fall in the value of the currency to worsen the balance of trade before it improves the position.
 

Keynes: UK economist who urged state intervention to achieve full employment.

Liabilities: Money owed.
 

Limited companies: Companies which have limited liability.
 

Liquidity ratio: The proportion of a commercial bank's assets which can be converted into cash quickly.
 

Liquidity trap: When the rate of interest is so low (and the price of bonds is so high) that everyone anticipates a future fall in the price of bonds.
 

Long-run: Period of time when all factor inputs, including capital, can be changed.
 

Lorenz curve: A curve showing the proportion of income earned by a cumulative percentage of the population.
 

Macroeconomic policies: Policies designed to influence the level of employment, the price level, economic growth and the balance of payments.
 

Marginal cost curve: A curve showing the addition to total cost resulting from producing one more unit.
 

Most favoured nation (MFN): US trade policy that gives to a trading partner the same customs and tariff treatment as the most favoured nation.
 

Multi Fibre Agreement (MFA): Provision of GATT governing international trade in textiles that lets a country apply numerical restrictions on textile imports when it considers them necessary to prevent market disruption. MFA provides a framework for regulating international trade in textiles and apparel. It covers wool, man-made (synthetic) fibers, silk blends and other vegetable fiber textiles and apparel.
 

Marginal propensity to consume: The proportion of each extra pound of disposable income spent by households.
 

Marginal propensity to save: The proportion of each extra pound of disposable income not spent by households.
 

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.
 

Monopsony: A market where there is only a single buyer.
 

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

Microeconomics: The behaviour of an individual consumer, firm and industry.
 

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

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

Mutual Fund: US name for an open-ended managed fund not quoted on a stock exchange, equivalent to a unit trust in the UK. Mutual funds are a popular way for individuals to spread the risk of investing in bonds and equities and are much used for retirement savings.
 

NASDAQ: Started in the US, 1971, as an automated over-the-counter securities quotes system — the acronym stands for National Association of Securities Dealers' Automated Quotation. Nasdaq evolved into the world's first electronic stock market.
 

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

Net asset value (NAV): The market value of a fund share, usually calculated daily after the close of trading.
 

North American FreeTrade Agreement (NAFTA): Free trade agreement involving Canada, the US and Mexico entered into in January 1994. It progressively eliminates almost all bilateral trade barriers between the three countries.
 

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

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

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.
 

OECD: The Organisation for Economic Cooperation and Development.
 

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.
 

OTC (over the counter): Trading in shares away from organised exchanges; it is usually carried out over the telephone or via a computer network.
 

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

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

Phillips curve: Shows the relationship between the rate of unemployment and the rate of inflation.
 

Price discrimination: When the same product is sold in different markets for different prices.
 

Price elasticity of demand: Measures the responsiveness of demand to a given change in price.
 

Price elasticity of supply: Measures the responsiveness of supply to a given change in price.
 

Primary sector: That part of the economy concerned with agriculture and the extraction of raw materials.
 

Primary markets: The placing of new stocks, shares, bonds, etc. Existing securities are traded in the secondary market.
 

Producer surpluses: The difference between the minimum price a producer would accept to supply a given quantity of a good and the price actually received.
 

Progressive income tax: A tax which takes a higher percentage of the income of the rich than the poor.
 

Purchasing power parity theory: Suggests that the prices of goods in countries will tend to equate under floating exchange rates so that people would be able to purchase the same quantity of goods in any country for a given sum of money.
 

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

Repo rate: The interest rate at which a central bank will lend against the security of its government's paper.
 

SDRs (special drawing rights): A form of international money created by the IMF which is acceptable in settlement of debts among the countries.
 

Secondary sector: That part of the economy concerned with the manufacture of goods.
 

Shadow prices: Estimated prices in situations where market prices do not exist.
 

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

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

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

Subsistence: The minimum income needed to survive.
 

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

Tertiary sector: That part of the economy concerned with the provision of services.
 

Trade-off: What has to be sacrificed in order to obtain a good, it is equivalent to opportunity cost.
 

Transfer pricing: Setting internal prices to charge other branches of the same company.
 

VAT: Value Added Tax.
 

Zero based budgeting: Setting a budget in which all spending must be justified each year, not just amounts in excess of the previous year.