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A fall in the rate of inflation. This means a slower increase in prices but not a fall in prices, which is known as deflation.
Industry:Economy
Petrol-pump prices do not change every time the oil price changes, and holiday prices and standard hotel rates are fixed for months. Sticky prices are slow to change in response to changes in supply or demand. As a result there is, at least temporarily, disequilibrium in the market. The causes of stickiness include menu costs, inadequate information, consumers’ dislike of frequent price changes and long-term contracts with fixed prices. Prices change only when the cost of leaving them unchanged exceeds the expense of adjusting them. In financial markets, prices move all the time because the cost of quoting the wrong price can be huge. In other industries, the penalty may be much less severe. Small disequilibria in, say, the pricing of hotel rooms will not make much difference. So hotel prices are often sticky.
Industry:Economy
The sum of a country’s inflation and unemployment rates. The higher the score, the greater is the economic misery.
Industry:Economy
When supply and demand in a market are not in balance. Contrast with equilibrium.
Industry:Economy
A process that exhibits random behavior. For instance, Brownian motion, which is often used to describe changes in share prices in an efficient market (the random walk), is a stochastic process.
Industry:Economy
A minimum rate of pay that firms are legally obliged to pay their workers. Most industrial countries have a minimum wage, although certain sorts of workers are often exempted, such as young people or part-timers. Most economists reckon that a minimum wage, if it is doing what it is meant to do, will lead to higher unemployment than there would be without it. The main justification offered by politicians for having a minimum wage is that the wage that would be decided by buyers and sellers in a free market would be so low that it would be immoral for people to work for it. So the minimum wage should be above the market-clearing wage, in which case fewer workers would be demanded at that wage than would be hired at the market wage. How many fewer will depend on how far the minimum wage is above the market wage?
Some economists have challenged this simple supply and demand model. Several empirical studies have suggested that a minimum wage moderately above the free-market wage would not harm employment much and could (in rare circumstances) potentially raise it. These studies are not widely accepted among economists. Whatever it does for those in work, a minimum wage cannot help the majority of the very poorest people in most countries, who typically have no job in which to earn a minimum wage.
Industry:Economy
How much less is a sum of money due in the future worth today? The answer is found by ¬discounting the future cashflow, using an interest rate that reflects the fact that money in future is worth less than money now, because money now could be invested and earn interest, whereas future money cannot. Firms use discounted cashflow to judge whether an investment project is worthwhile. The interest rate is a means of reflecting the opportunity cost of tying up money in the investment project. To test whether an investment makes economic sense the income must be discounted so that it can be measured against the costs. If the present value of the benefits exceeds the costs, the investment is a good one.
Industry:Economy
Another term for shares. What are called ordinary shares in the UK are known as common stock in the United States. It is also another word for inventories of goods held by a firm to meet future demand.
Industry:Economy
Loved and loathed; perhaps the most influential economist of his generation. He won the Nobel Prize for economics in 1976, one of many Chicago school economists to receive that honor. He has been recognized for his achievements in the study of consumption, monetary history and theory, and for demonstrating how complex policies aimed at economic stabilization can be. A fierce advocate of free markets, Mr. Friedman argued for monetarism at a time when Keynesian policies were dominant. Unusually, his work is readily accessible to the layman. He argues that the problems of inflation and short-run unemployment would be solved if the Federal Reserve had to increase the money supply at a constant rate. Like Adam Smith and Friedrich Hayek, who inspired him, Mr. Friedman praises the free market not just for its economic efficiency but also for its moral strength. For him, freedom--economic, political and civil--is an end in itself, not a means to an end. It is what makes life worthwhile. He has said he would prefer to live in a free country, even if it did not provide a higher standard of living, than a country run by an alternative regime. However, the likelihood of a free country being poorer than an unfree one strikes him as implausible; the economic as well as the moral superiority of free markets is, he has declared, "now proven". An adviser to Richard Nixon, he was disappointed when the president went against the spirit of monetarism in 1971 by asking him to urge the chairman of the Fed to increase the money supply more rapidly. The 1980s economic policies of Margaret Thatcher and General Pinochet were inspired--and defended--by Mr. Friedman. However, in 2003, he admitted that one of those policies, the targeting of the money supply, had "not been a success" and that he doubted he would "as of today push it as hard as I once did".
Industry:Economy
The rate of interest charged by a central bank when lending to other financial institutions. It also refers to a rate of interest used when calculating discounted cashflow.
Industry:Economy
