- Industry: Economy; Printing & publishing
- Number of terms: 15233
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A Paris-based club for industrialized countries and the best of the rest. It was formed in 1961, building on the Organization for European Economic Co-operation (OEEC), which had been established under the Marshall plan. By 2003, its membership had risen to 30 countries, from an original 20. Together, OECD countries produce two-thirds of the world’s goods and services. The OECD provides a policy talking shop for governments. It produces forests-worth of documents discussing public policy ideas, as well as detailed empirical analysis. It also publishes reports on the economic performance of individual countries, which usually contain lots of valuable information even if they are rarely very critical of the policies implemented by a member government.
Industry:Economy
As good as it gets, given the constraints you are operating within. For the concept of optimum to mean anything, there must be both a goal, say, to maximize economic welfare, and a set of constraints, such as an available stock of scarce economic resources. Optimizing is the process of doing the best you can in the circumstances.
Industry:Economy
A geographical area within which it would pay to have a single currency. An optimal currency area can come in many sizes. Some may span several countries and others may be smaller than an individual country. The benefits of having one currency are lower foreign exchange and currency hedging costs and more transparent pricing (because every price is expressed in the same currency). But unless the single currency is used within an optimal currency area, these benefits may be dwarfed by the costs. A single currency means a single monetary policy and no opportunity for one part of the currency area to change its exchange rate with the other parts. This can be a big problem if a country or region is likely to suffer from asymmetric shocks that affect it differently from the rest of the single-currency area, because it will no longer be able to respond by loosening its national monetary policy or devaluing its currency. This may not be an insuperable problem if workers in the affected country are able and willing to move freely to other countries; if wages and prices are flexible and can adjust to the shock; or if fiscal policy can shift resources to areas hurt by a shock from areas that are not hurt. For a currency area to be optimal, ideally asymmetric shocks should be rare, implying that the economies involved are on similar business cycles and have similar structures. Moreover, the single monetary policy should affect all the constituent parts in the same way (an interest rate cut should not, say, reduce unemployment in one part and increase inflation in another). There should be no cultural, linguistic or legal barriers to labor mobility across frontiers; there should be wage flexibility; and there should be some system for transferring resources to regions that are suffering. In practice, few of the parts of the world that have a single currency are optimal currency areas, probably including the Euro zone, although having a single currency often makes them become gradually more alike and thus more optimal.
Industry:Economy
The true cost of something is what you give up to get it. This includes not only the money spent in buying (or doing) the something, but also the economic benefits (utility) that you did without because you bought (or did) that particular something and thus can no longer buy (or do) something else. For example, the opportunity cost of choosing to train as a lawyer is not merely the tuition fees, price of books, and so on, but also the fact that you are no longer able to spend your time holding down a salaried job or developing your skills as a footballer. These lost opportunities may represent a significant loss of utility. Going for a walk may appear to cost nothing, until you consider the opportunity forgone to use that time earning money. Everything you do has an opportunity cost (see shadow price). Economics is primarily about the efficient use of scarce resources, and the notion of opportunity cost plays a crucial part in ensuring that resources are indeed being used efficiently.
Industry:Economy
Central banks buying and selling securities in the open market, as a way of controlling interest rates or the growth of the money supply. By selling more securities, they can mop up surplus money; buying securities adds to the money supply. The securities traded by central banks are mostly government bonds and treasury bills, although they sometimes buy or sell commercial securities.
Industry:Economy
An economy that allows the unrestricted flow of people, capital, goods and services across its borders; the opposite of a closed economy.
Industry:Economy
Where the usual rules of a person or firm’s home country do not apply. It can be literally offshore, as in the case of investors moving their money to a Caribbean island tax haven. Or it can be merely legally offshore, as in the case of certain financial transactions that take place within, say, the City of London, which are deemed for regulatory purposes to have taken place offshore.
Industry:Economy
When a few firms dominate a market. Often they can together behave as if they were a single monopoly, perhaps by forming a cartel. Or they may collude informally, by preferring gentle non-price competition to a bloody price war. Because what one firm can do depends on what the other firms do, the behavior of oligopolists is hard to predict. When they do compete on price, they may produce as much and charge as little as if they were in a market with perfect competition.
Industry:Economy
A description of what happens to unemployment when the rate of growth of GDP changes, based on empirical research by Arthur Okun (1928–80). It predicts that if GDP grows at around 3% a year, the jobless rate will be unchanged. If it grows faster, the unemployment rate will fall by half of what the growth rate exceeds 3% by; that is, if GDP grows by 5%, unemployment will fall by 1 percentage point. Likewise, a lesser, say 2%, increase in GDP would be associated with a half a percentage point increase in the jobless rate. This relationship is not carved in stone, as it merely reflects the American economy during the period studied by Okun. Even so, in most economies Okun’s Law is a reasonable rule of thumb for estimating the likely impact on jobs of changes in output.
Industry:Economy
A statement that is being put to the test. In econometrics, economists often start with a null hypothesis that a particular variable equals a particular number, then crunch their data to see if they can prove or disprove it, according to the laws of statistical significance. The null hypothesis chosen is often the reverse of what the experimenter actually believes; it may be put forward to allow the data to contradict it.
Industry:Economy
