- Industry: Economy; Printing & publishing
- Number of terms: 15233
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Regulations governing the minimum amount of reserves that a bank must hold against deposits.
Industry:Economy
Money in the hand, available to be used to meet planned future payments or if some other need arises. Firms may put their reserves in a bank, as a deposit. For a bank, reserves are those deposits it retains rather than lending them out.
Industry:Economy
When you buy an asset you become exposed to a bundle of different risks. Many of these risks are not unique to the asset you own but reflect broader possibilities, such as that the stock market average will rise or fall, that interest rates will be cut or increased, or that the growth rate will change in an entire economy or industry. Residual risk, also known as alpha, is what is left after you take out all the other shared risk exposures. Exposure to this risk can be reduced by diversification. Contrast with systematic risk.
Industry:Economy
A general term for anything done by a firm, or firms, to inhibit competition. Generally against the law. (See antitrust and cartel. )
Industry:Economy
The rewards for doing business. Returns usually refer to profit and can be measured in various ways (see rate of return and total returns).
Industry:Economy
An example of a popular joke among economists: two economists see a Ferrari. “I want one of those,” says the first. “Obviously not,” replies the other. To get a smile out of this it is necessary (but not, alas, sufficient) to know about revealed preference. This is the notion that what you want is revealed by what you do, not by what you say. Actions speak louder than words. If the economist had really wanted a Ferrari he would have tried to buy one, if he did not own one already. Economists have three main approaches to modeling demand and how it will change if prices or incomes change. * The cardinal approach involves asking consumers to say how much utility they get from consuming a particular good, aggregating this across all goods and services, and calculating how demand would change on the assumption that people will consume the combination of things that maximizes their total utility. * The ordinal approach does not require consumers to say how much utility they get in absolute terms from consuming a particular good. Instead, it asks them to indicate the relative utility they get from consuming one item compared with another, that is, to say if they prefer one basket of goods to another, or are indifferent between them. * The third approach is revealed preference. To model demand it is only necessary to be able to compare an individual’s consumption decisions in situations with different prices and/or incomes and to assume that consumers are consistent in their decisions over time (that is, if they prefer wine to beer in one period they will still prefer wine in the next).
Industry:Economy
The controversial idea, suggested by David Ricardo, that government deficits do not affect the overall level of demand in an economy. This is because taxpayers know that any deficit has to be repaid later, and so increase their savings in anticipation of a tax bill. Thus government attempts to stimulate an economy by increasing public spending and/or cutting taxes will be rendered impotent by the private-sector reaction.
Industry:Economy
The chance of things not turning out as expected. Risk taking lies at the heart of capitalism and is responsible for a large part of the growth of an economy. In general, economists assume that people are willing to be exposed to increased risks only if, on average, they can expect to earn higher returns than if they had less exposure to risk. How much higher these expected returns need to be depends partly on the probability of an undesirable outcome and partly on whether the risk taker is risk averse, risk neutral or risk seeking. During the second half of the 20th century, economists greatly improved their understanding of risk and developed theories of risk management, which suggest when it makes sense to use insurance, diversification or hedging to change risk exposures. In financial markets the most commonly used measure of risk is the volatility (or standard deviation) of the price of, or more appropriately the total returns on, an asset. Often added to the risk profile are other statistical measures such as skewness and the possibility of extreme changes on rare occasions. (See stress testing, scenario analysis and value at risk. )
Industry:Economy
Someone who thinks risk is a four-letter word. Risk-averse investors are those who, when faced with two investments with the same expected return but two different risks, prefer the one with the lower risk.
Industry:Economy
The process of bearing the risk you want to bear, and minimizing your exposure to the risk you do not want. This can be done in several ways: not doing things that carry a particular risk; hedging; diversification; and buying insurance.
Industry:Economy
