- Industria: Economy; Printing & publishing
- Number of terms: 15233
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Money or assets put to economic use, the life-blood of capitalism. Economists describe capital as one of the four essential ingredients of economic activity, the factors of production, along with land, labor and enterprise. Production processes that use a lot of capital relative to labor are capital intensive; those that use comparatively little capital are labor intensive. Capital takes different forms. A firm’s assets are known as its capital, which may include fixed capital (machinery, buildings, and so on) and working capital (stocks of raw materials and part-finished products, as well as money, that are used up quickly in the production process). Financial capital includes money, bonds and shares. Human capital is the economic wealth or potential contained in a person, some of it endowed at birth, the rest the product of training and education, if only in the university of life. The invisible glue of relationships and institutions that holds an economy together is its social capital.
Industry:Economy
The amount a company or an economy can produce using its current equipment, workers, capital and other resources at full tilt. Judging how close an economy is to operating at full capacity is an important ingredient of monetary policy, for if there is not enough spare capacity to absorb an increase in demand, prices are likely to rise instead. Measuring an economy’s output gap – how far current output is above or below what it would be at full capacity – is difficult, if not impossible, which is why even the best-intentioned central bank can struggle to keep down inflation. When there is too much spare capacity, however, the result can be deflation, as firms and employees cut their prices and wage demands to compete for whatever demand there may be.
Industry:Economy
Eating people is wrong. Eating your own business may not be. Firms used to be reluctant to launch new products and services that competed with what they were already doing, as the new thing would eat into (cannibalize) their existing business. In today's innovative, technology-intensive economy, however, a willingness to cannibalize is more often seen as a good thing. This is because innovation often takes the form of what economists call creative destruction (see Schumpeter), in which a superior new product destroys the market for existing products. In this environment, the best course of action for successful firms that want to avoid losing their market to a rival with an innovation may be to carry out the creative destruction themselves.
Industry:Economy
A market in which supply seems plentiful and prices seem low; the opposite of a seller's market.
Industry:Economy
The long-run pattern of economic growth and recession. According to the Center for International Business Cycle Research at Columbia University, between 1854 and 1945 the average expansion lasted 29 months and the average contraction 21 months. Since the Second World War, however, expansions have lasted almost twice as long, an average of 50 months, and contractions have shortened to an average of only 11 months. Over the years, economists have produced numerous theories of why economic activity fluctuates so much, none of them particularly convincing. A Kitchin cycle supposedly lasted 39 months and was due to fluctuations in companies' inventories. The Juglar cycle would last 8—9 years as a result of changes in investment in plant and machinery. Then there was the 20-year Kuznets cycle, allegedly driven by house-building, and, perhaps the best-known theory of them all, the 50-year kondratieff wave. Hayek tangled with Keynes over what caused the business cycle, and won the Nobel Prize for economics for his theory that variations in an economy's output depended on the sort of capital it had. Taking a quite different tack, in the late 1960s Arthur Okun, an economic adviser to presidents Kennedy and Johnson, proclaimed that the business cycle was "obsolete". A year later, the American economy was in recession. Again, in the late 1990s, some economists claimed that technological innovation and globalization meant that the business cycle was a thing of the past. Alas, they were soon proved wrong.
Industry:Economy
How the people who run companies feel about their organizations' prospects. In many countries, surveys measure average business confidence. These can provide useful signs about the current condition of the economy, because companies often have information about consumer demand sooner than government statisticians do.
Industry:Economy
An investor who expects the price of a particular security to rise; the opposite of a bear.
Industry:Economy
An annual procedure to decide how much public spending there should be in the year ahead and what mix of taxation, charging for services and borrowing should finance it. The budgeting process differs enormously from one country to another. In the United States, for example, the president proposes a budget in February for the fiscal year starting the following October, but this has to be approved by Congress. By the time a final decision has to be made, ideally, no later than September, there are often three competing versions: the president's latest proposal, one from the Senate and another from the House of Representatives. What finally emerges is the result of last-minute negotiations. Occasionally, delays in agreeing the budget have led to the temporary closure of some federal government offices. Contrast this with the UK, where most of what the government proposes is usually approved by parliament, and some changes take effect as soon as they are announced (subject to subsequent parliamentary vote).
Industry:Economy
When the price of an asset rises far higher than can be explained by fundamentals, such as the income likely to derive from holding the asset. The Chicago Tribune of April 13th 1890, writing about the then mania in real-estate prices, described "men who bought property at prices they knew perfectly well were fictitious, but who were prepared to pay such prices simply because they knew that some still greater fool could be depended on to take the property off their hands and leave them with a profit". Such behavior is a feature of all bubbles. Famous bubbles include tulip mania in Holland during the 17th century, when the prices of tulip bulbs reached unheard of levels, and the South Sea Bubble in Britain a century later, although there have been many others since, including the dotcom bubble in internet company shares that burst in 2000. Economists argue about whether bubbles are the result of irrational crowd behavior (perhaps coupled with exploitation of the gullible masses by some savvy speculators) or, instead, are the result of rational decisions by people who have only limited information about the fundamental value of an asset and thus for whom it may be quite sensible to assume the market price is sound. Whatever their cause, bubbles do not last forever and often end not with a pop but with a crash.
Industry:Economy
A conference held at Bretton Woods, New Hampshire, in 1944, which designed the structure of the international monetary system after the second world war and set up the IMF and the world bank. It was agreed that the exchange rates of IMF members would be pegged to the dollar, with a maximum variation of 1% either side of the agreed rate. Rates could be adjusted more sharply only if a country's balance of payments was in fundamental disequilibrium. In August 1971 economic troubles and the cost of financing the Vietnam War led the American president, Richard Nixon, to devalue the dollar. This shattered confidence in the fixed exchange rate system and by 1973 all of the main currencies were floating freely, at rates set mostly by market forces rather than government fiat.
Industry:Economy
