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The main currency of the European Union, launched in January 1999 and in general circulation since 2002 (see economic and monetary union).
Industry:Economy
There are two definitions in economics. # The capital of a firm, after deducting any liabilities to outsiders other than shareholders, who are typically the legal owners of the firm’s equity. This ownership right is the reason shares are also known as equities. # Fairness. Dividing up the economic pie. Economists have been particularly interested in this with regard to how systems of taxation work. They have examined whether taxes treat fairly people with the same ability to pay (horizontal equity) and people with different abilities to pay (vertical equity). The fairness of other aspects of how the gains from economic activity are distributed through society have also been debated by economists, especially those interested in welfare economics. Some economists start with the presumption that the free-market outcome is inherently inequitable, and that equity (sharing out the pie) must be traded off against efficiency (maximizing the size of the pie). Others argue that it is inequitable to take money away from someone who has created economic value to give to people who have been less skilled or industrious.
Industry:Economy
The life and soul of the capitalist party. Somebody who has the idea and enterprise to mix together the other factors of production to produce something valuable. An entrepreneur must be willing to take a risk in pursuit of a profit.
Industry:Economy
One of the factors of production, along with land, labor and capital. The creative juices of capitalism; the animal spirits of the entrepreneur.
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
The prices charged by producers to wholesalers and retailers. Because these prices are eventually passed on to the end customer, changes in factory prices, also known as producer prices, can be a leading indicator of consumer price inflation.
Industry:Economy
Taxes levied on the income or wealth of an individual or company. Contrast with indirect taxation. In much of the world, direct tax rates fell during the 1980s and 1990s, partly because some economists argued that high rates of tax on income discouraged people from working, and that high rates of tax on profit encouraged companies to move to countries with lower rates. Furthermore, high rates of income tax were viewed as politically unpopular. Even so, although rates were cut, because both personal income and corporate profits grew steadily throughout this period the total amount collected via direct taxation continued to rise. Economists often disagree about which of direct taxes or indirect taxes are the least inefficient method of taxation.
Industry:Economy
A euphemism for the world’s poor countries, also known, often optimistically, as emerging economies. Some four-fifths of the world’s 6 billion people already live in developing countries, many of them in abject poverty. Developing countries account for less than one-fifth of total world GDP. Economists disagree about how likely--and how fast--developing countries are to become developed. Neo-classical economics predicts that poor countries will grow faster than richer ones. The reason is diminishing returns on capital. Since poor countries start with less capital, they should reap higher returns than a richer country with more capital from each slice of new investment. But this catch-up effect (or convergence) is not supported by the data. For one thing, there is, in fact, no such thing as a typical developing country. The official developing world includes the (sometimes) fast-growing Asian tigers and the poorest nations in Africa. Studies of the relationship between growth and GDP per head in rich and poor countries found no evidence that poorer countries grew faster. Indeed, if anything, poorer countries have grown more slowly. Development economics has argued that this is because poor countries have unique problems that require different policy solutions from those offered by conventional developed-world economics. But new endogenous growth theory instead argues that there is conditional convergence. Hold constant such factors as a country’s fertility rate, its human capital and its government policies (proxied by the share of current government spending in GDP), and poorer countries generally grow faster than richer ones. Since, in reality, other factors are not constant (not all countries have the same level of human capital or the same government policies), absolute convergence does not happen. Government policies seem to be crucial. Countries with broadly free-market policies – in particular, free trade and the maintenance of secure property rights--have raised their growth rates. (Although some economists argue that the Asian tigers are an exception to this free-market rule. ) Open economies have grown much faster on average than closed economies. Higher public spending relative to GDP is usually associated with slower growth. Furthermore, high inflation is bad for growth and so is political instability. The poorest countries can indeed catch up. Their chances of doing so are maximized by policies that give a greater role to competition and incentives, at home and abroad. Despite starting with a big disadvantage, there is evidence that some developing countries do not help themselves because they squander the resources they have. Institutions that produce effective governance of an economy are crucial. Those countries that use their resources well can grow quickly. Indeed, the world’s fastest-growing economies are a small subgroup of exceptional performers among the poor countries.
Industry:Economy
A sudden fall in the value of a currency against other currencies. Strictly, devaluation refers only to sharp falls in a currency within a fixed exchange rate system. Also it usually refers to a deliberate act of government policy, although in recent years reluctant devaluers have blamed financial speculation. Most studies of devaluation suggest that its beneficial effects on competitiveness are only temporary; over time they are eroded by higher prices (see j-curve).
Industry:Economy
Financial assets that “derive” their value from other assets. For example, an option to buy a share is derived from the share. Some politicians and others responsible for financial regulation blame the growing use of derivatives for increasing volatility in asset prices, and for being a source of danger to their users. Economists mostly regard derivatives as a good thing, allowing more precise pricing of financial risk and better risk management. However, they concede that when derivatives are misused the leverage that is often an integral part of them can have devastating consequences. So they come with an economists’ health warning: if you don’t understand it, don’t use it. The world of derivatives is riddled with jargon. Here are translations of the most important bits. * A forward contract commits the user to buying or selling an asset at a specific price on a specific date in the future. * A future is a forward contract that is traded on an exchange. * A swap is a contract by which two parties exchange the cashflow linked to a liability or an asset. For example, two companies, one with a loan on a fixed interest rate over ten years and the other with a similar loan on a floating interest rate over the same period, may agree to take over each other’s obligations, so that the first pays the floating rate and the second the fixed rate. * An option is a contract that gives the buyer the right, but not the obligation, to sell or buy a particular asset at a particular price, on or before a specified date. * An over-the-counter is a derivative that is not traded on an exchange but is purchased from, say, an investment bank. * Exotics are derivatives that are complex or are available in emerging economies. * Plain-vanilla derivatives, in contrast to exotics, are typically exchange-traded, relate to developed economies and are comparatively uncomplicated.
Industry:Economy
