- Industry: Economy; Printing & publishing
- Number of terms: 15233
- Number of blossaries: 1
- Company Profile:
A nice little earner for the state. Fiscal drag is the tendency of revenue from taxation to rise as a share of GDP in a growing economy. Tax allowances, progressive tax rates and the threshold above which a particular rate of tax applies usually remain constant or are changed only gradually. By contrast, when the economy grows, income, spending and corporate profit rise. So the tax-take increases too, without any need for government action. This helps slow the rate of increase in demand, reducing the pace of growth, making it less likely to result in higher inflation. Thus fiscal drag is an automatic stabilizer, as it acts naturally to keep demand stable.
Industry:Economy
The early bird gets the worm. Game theory shows that being the first to enter a market or to introduce an innovation can be a huge advantage, not just because the first firm in can erect barriers to entry, but also because potential rivals may be discouraged from committing the resources necessary to compete successfully. However, this advantage may sometimes be cancelled out by the benefits enjoyed by followers, such as the chance to avoid--and learn from--the mistakes made by the first mover. (See incumbent advantage. )
Industry:Economy
For many years, economists had little interest in what happened inside firms, preferring instead to examine the workings of the different sorts of industries in which firms operate, ranging from perfect competition to monopoly. Since the 1960s, however, sophisticated economic theories of how firms work have been developed. These have examined why firms grow at different rates and tried to model the normal life cycle of a company, from fast-growing start-up to lumbering mature business. The aim is to explain when it pays to conduct an activity within a firm and when it pays to externalize it through short- or long-term arrangements with outsiders, be they individuals, exchanges or other companies. The theories also look at the economic consequences of the different incentives influencing individuals working within companies, tackling issues such as pay, agency costs and corporate governance structures.
Industry:Economy
A favorite government policy in the Keynesian-dominated 1950s and 1960s, involving frequent adjustments to fiscal policy and/or monetary policy to alter the level of demand to keep the economy growing at a steady rate. The trouble was and is, partly because of the inadequacies of economic forecasting, that these frequent adjustments were and are often mistaken, making the economy's growth path more, rather than less, erratic. In the 1990s, fine tuning was increasingly shunned by central banks and governments, which stopped trying to manage short-term demand and instead aimed to pursue long-term macroeconomic goals, which required fewer adjustments to policy. Or so they claimed. In practice, there continued to be some attempted fine tuning.
Industry:Economy
The firms and institutions that together make it possible for money to make the world go round. This includes financial markets, securities exchanges, banks, pension funds, mutual funds, insurers, national regulators, such as the Securities and Exchange Commission (SEC) in the United States, central banks, governments and multinational institutions, such as the IMF and World Bank.
Industry:Economy
A middleman. An individual or institution that brings together investors (the source of funds) and users of funds (such as borrowers). May be increasingly at risk of disintermediation.
Industry:Economy
Certificate of ownership of a financial asset, such as a bond or a share.
Industry:Economy
A place in which an above-average amount of financial business takes place. The big ones are New York, London, Tokyo and Frankfurt. Small ones such as Dublin, Bermuda, Luxembourg and the Cayman Islands also play an important part in the global financial system. Globalization and the increase in electronic trading has raised concerns about whether there will be as much need for financial centers in the 21st century as there was in the 19th and 20th centuries. So far, the evidence suggests that the biggest, at least, will remain important.
Industry:Economy
America's central bank. Set up in 1913, and popularly known as the Fed, the system divides the United States into 12 Federal Reserve districts, each with its own regional Federal Reserve bank. These are overseen by the Federal Reserve Board, consisting of seven governors based in Washington, DC. Monetary policy is decided by its Federal Open Market Committee.
Industry:Economy
Many politicians and NGOs argue that free trade is not enough; it should also be fair. On the face of it, fairness is self-evidently a good thing. However, fairness, in trade as in beauty, lies in the eye of the beholder. Frederic Bastiat, a 19th-century French satirist, once observed that the sun offered unfair competition to candle makers. If windows could be boarded up during the day, he argued, more jobs could be created making candles. American trade unions complain that Mexicans' lower wages, say, give them an unfair advantage. Mexicans say they cannot compete fairly against more productive American counterparts. Both sides are wrong. Mexicans are paid less than Americans largely because they are, in general, less productive. There is nothing unfair about that; indeed, it helps to make trade mutually beneficial. The mutual benefits of trade also disprove the fair traders' other complaint, that free trade harms poor countries. (See comparative advantage. )
Industry:Economy
