- Industry: Economy; Printing & publishing
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Taxation that takes a larger proportion of a taxpayer’s income the higher the income is. (See vertical equity. )
Industry:Economy
When economists make a number of simplified assumptions about how the economy, or some part of it, behaves, and then see what this implies in various different scenarios. Milton Friedman argued that economic models should not be judged on the basis of the validity of their assumptions, but on the accuracy of their predictions. An expert billiards player, he said, may not know the laws of physics, but acts as if he knows such laws. So his behavior could be predicted accurately with a model that assumes he knows the laws of physics. Likewise, the behavior of people making economic decisions may be accurately predicted by a model that assumes their goal is, say, profit Maximization, even if they are not actually conscious of this being their goal. The more complex the thing being modeled, the harder it is to get right. Economic forecasting has a poor overall track record. The more micro¬economic the thing being modeled, the more likely it is that a model can be designed that will deliver accurate predictions.
Industry:Economy
Not putting all your eggs in one basket. Investors are encouraged to do this by modern portfolio theory, as holding several different shares and other assets helps to reduce risk. At the sharp end of business, however, diversification is somewhat out of fashion. Economic studies of diversifying corporate mergers have found that these often hurt the shareholders of the acquiring firm; by contrast, diversified firms that have sold off non-core businesses have typically made their shareholders much better off.
Industry:Economy
There are lies, damned lies and statistics, said Benjamin Disraeli, a British prime minister. Certainly, even if the result of number crunching is statistically significant, it does not actually mean it is true. But it does mean it is much more likely to be true than false. Statistical significance means that the probability of getting that result by chance is low. The most commonly used measure of statistical significance is that there must be a 95% chance that the result is right and only a 1 in 20 chance of the result occurring randomly.
Industry:Economy
Economics abounds with propensities to do various things: consume, save, invest, import, and so on. In each case, it is important to distinguish between the average propensity and the marginal one. The average propensity to consume is simply total consumption divided by total income. The marginal propensity to consume measures how much of each extra dollar of income is consumed: the percentage change in consumption divided by the percentage change in income. The value of the marginal propensity to consume, which determines the multiplier, is harder to predict than the value of the average propensity to consume.
Industry:Economy
The easier it is for the factors of production to move to where they are most valuable, the more efficient the allocation of the world’s scarce resources is likely to be and the faster GDP will grow. Apart from continental drift, land is immobile. Capital has long been extremely mobile within countries, and, with the rise of globalization, it is now able to move easily around the world. Enterprise is mobile, although to what extent depends on the particular entrepreneur. Some members of the labor market zoom around the world to work; others will not move to the next town. Capital controls are the main obstacle to capital mobility, and these have been mostly removed or reduced since 1980. The sources of labor immobility are more numerous and complex, including immigration controls, transport costs, language barriers and a reluctance to move away from family or friends. Workers are far more mobile within the United States than they are within the European Union or within individual EU countries. Some economists reckon that the willingness of workers to move to where the work is helps to explain the stronger economic performance and lower unemployment of the United States. Can you sometimes have too much mobility? Certainly, some developing countries have suffered from hot money rushing into and then out of their markets. In general, the possibility that a factor of production may suddenly move elsewhere can create serious economic problems. For instance, an employer may think twice about investing in training an employee if it fears that the employee may suddenly take a job with another firm. Similarly, entrepreneurs are unlikely to take the risk of pursuing a new idea if they fear that their capital may disappear at any moment, hence the importance of having access to long-term capital, such as by issuing bonds and equities.
Industry:Economy
Cutting out the middleman. Disintermediation has become a buzz word in financial services in particular, as competitive and technological changes have done away with the need for established intermediaries. Banks have seen much of their business slip away, such as lending to companies that now tap capital markets direct. New economy ¬theorists argued that many retailers would be disintermediated as the internet enabled customers to transact directly with producers without needing to visit a shop. But this has happened more slowly than they predicted.
Industry:Economy
When a government or central bank buys or sells some of its reserves of foreign currency this can affect the country’s money supply. Selling reserves decreases the supply of the domestic currency; buying reserves increases the domestic money supply. Governments or central banks can sterilize (that is, cancel out) this effect of foreign exchange intervention on the money supply by buying or selling an equivalent amount of securities. For example, if the government increases reserves by buying foreign currency the domestic money supply will increase, unless it sells securities such as treasury bills to mop up the extra demand.
Industry:Economy
A market economy in which both private-sector firms and firms owned by government take part in economic activity. The proportions of public and private enterprise in the mix vary a great deal among countries. Since the 1980s, the public role in most mixed economies declined as nationalization gave way to privatization.
Industry:Economy
