The Routledge Companion to Global Economics

Robert Beynon

• Publisher: Routledge
• Year: 2003
• Print ISBN: 9780415243056
• eBook ISBN: 9781134545759
• Edition: 2
• Topic: Business
• Subtopic: Economic Theory
• Index: Business

Combining the in-depth background coverage of an encyclopedia, with the quick look-up convenience of a dictionary, this new work is an invaluable resource for anyone concerned with international economics.
The only reference work to cover the latest theories in the vital field of global economics, The Routledge Companion to Global Economics explores new economic thought from A-Z, and offers full-length survey discussions by the most respected experts in the field.

IV A–Z OF KEY THEMES AND MAJOR FIGURES

GROUPED LIST OF A–Z ENTRIES

To make the A–Z section easier to use, we include below a grouped list of all the entries. The asterisked entries are definitions of the broader topics covered in this dictionary. Entries with an asterisk at the head of individual lists are intended as subject headings for that particular grouping.

MICROECONOMICS

*Theory of production costs

*Theory of consumer demand

Supply curve

Demand curve

Revenue (total, marginal, average)

Engel’s law

Utility

Opportunity cost

Upward sloping demand curve (Veblen effect)

Kinked demand curve

Giffen good

Price effect/wealth effect

Diminishing marginal returns

Elasticities

Economies of scale

*Factors of production

Production function

Wages (labour theory of value)

Value added

Cobweb theorem

Scarcity

Surplus

*Perfect competition

*Monopoly

X-inefficiency

Nationalization

*Oligopoly

*Pricing practice

Revenue (company)

Turnover

Consumer

Money

*Management theories of the firm

*Business strategy (mergers and acquisitions)

Williamson trade-off model

Integration

Capital intensive

Market structure Product

Research and development

Just in time

Product life cycle

*Shares/share capital

Dividends

*Asset

Asset stripping

*Debt

Gearing

Credit

Junk bonds

*Accounts

Off balance-sheet financing

Profit

Profit sharing

Valuation

Risk capital

*Governance

*Regulation

MACROECONOMICS

*Keynes *Monetarism

IS/LM

Inflation

Quantity theory of money

Cambridge equation

Interest rate

Bonds

Keynes—money demand

Money supply

Bank credit multiplier

Money supply/aggregate demand linkages

*Circular flow of national income

GDP/GNP

Accelerator

Multiplier

Automatic stabilizers

Leakages

Taxation

Savings

Paradox of thrift

Investment

Consumption function

*Business cycles

Endogenous growth theory

Kondratieff cycle

Harrod-Domar growth model

Solow growth model

Normative/positive/welfare economics

Infrastructure/social costs

Long/short-run

*Employment

Stagflation

Wage–price spiral

Structural unemployment

Minimum wage

Phillips curve

Expectations-adjusted

Phillips curve

*Fiscal policy

Transfer payments

Budget deficit

Public debt

Laffer

Curve

PSBR/PSDR

Black economy

*Monetary policy

*Supply-side economics

*Theory (benefits) of trade

Comparative advantage/gains from trade

Heckscher-Ohlin factor proportions theory

Balance of payments

Exchange rate policy Fixed/floating exchange rates

Currency

Gold standard

Edgeworth Box

Technological gap theory

Devaluation/revaluation

Marshall-Lerner Condition

J-curve

Most favoured nation

Bretton Woods system

IMF

Trade bodies

Hot money

EMU

PPP

*Stock market

Bulls

Bears

Share price index

Securities

New issue market

Insider trading

Institutional investors

Tap issue

Underwriting Unit trust/mutual fund

*Bank

Building society/thrift

Clearing bank

Central bank Merchant bank

Venture capital

LIBOR

*Derivatives

Futures

Options/calls/puts

Swaps

LIFFE

Commodities markets

*Econometrics

Game theory

Regression

Probability

Concentration measures

Gini coefficient

Pareto

Lorenz Curve

*Classical economics

*Neo-Classical economics

*Neo-Keynesian economics

Gresham’s

Law Walras’s Law

Galbraith

Malthus

Marshall

Marx

Mercantilism

Mill

Pigou

Ricardo

Say

Schumpeter

Smith

Modigliani

Hicks

Cambridge school

Austrian school

A

ACCELERATOR

The accelerator is the principle that investment varies in direct proportion to output, or GDP , but that it is more volatile to changes. And since investment is an input to the circular flow of income , it works with the multiplier to cause further increases in output.

The accelerator’s operation can be expressed as:

Change in I=a (change in output), where I is the level of investment, and a is the accelerator.

The accelerator principle that the level of investment is more volatile than the actual change in demand can be explained in the following simple example.

Suppose a firm uses 20 machines to produce 100 units each, selling 2,000 units each year. It replaces two of the machines each year. Now suppose demand rises by 500, to 2,500 units. That’s an increase of 25 per cent. The firm is going to need another five machines in the year in question, an increase from two to seven. That’s an increase of 250 per cent. That will feed through into the machine-making sector, and in turn bring about greater increases in output via the multiplier.

Now suppose that the same firm believed that instead of increasing, demand was liable to fall by 200 units in the following year, from 2,000 units to 1,800. The firm would simply not replace two of its old machines that year, which would mean that its requirement for new machines would be zero, even though demand for its own product had fallen only a little. Again, this will have a feed-through effect on the circular flow via the multiplier.

Keynes argued that the working of the multiplier and the accelerator together could explain the fluctuations of national income which are characteristic of the business cycle . In particular, for the accelerator there is a tendency at the bottom of the cycle for demand to be stimulated simply by the most basic replacement of worn-out capital. In our example the firm which reduced its spending on new machines to zero in one year would (assuming there was some demand for its products) eventually have to replace some of its machines.

There is a similar accelerator effect on stock inventories, which are increased or decreased depending on expectations of future demand (our firm which expected a reduction in demand might simply run down its stocks, not ordering anything more from suppliers, whilst during an anticipated boom it would want to build up its stocks, increasing the demand from suppliers at a greater level than the initial increase in demand).

ACCOUNTS

Accounts are the financial statements of a business, prepared from a system of recorded financial transactions. They provide essential information such as liquidity, profit margins, revenues and costs, as well as assets and liabilities. Governments require that the accounts of public limited companies be published so that all shareholders, auditors and creditors may be able to assess their financial position. Accountancy rules vary considerably in different countries; as business activities become increasingly global in extent, there is growing pressure for all firms to conform to a standard procedure.

The most general financial statements submitted by both public and private corporations are the profit and loss account (also known as p&l) and the balance sheet. The profit and loss account is a financial statement showing revenues, costs, as well as the profit and loss resulting from operations in a given period. It is a flow representation of the performance of the company from one period to the next. The profit and loss account should reveal information about the company’s profit margins and costs, as a percentage of revenues, as well as providing an insight to budgeting.

In contrast to the p&l account, the balance sheet reveals a company’s net worth. It distinguishes between those items owed by the corporation and those owed to it. The items and property owned by the corporation are referred to as assets, and are reported on the left-hand side or top of the balance sheet. Usually they are organised in terms of liquidity, with the most liquid assets or the current assets appearing first, followed by less liquid, or fixed assets. The items of debt owed by the company are listed on the right-hand side or on the bottom of the balance sheet, as liabilities. The difference between the total assets and the total debt is the shareholders’ equity, and represents the net wealth of the company. Often this value will differ from the market value of the company, which relies on investor expectations and the stockmarket economics of demand and supply.

Another element in the accounts is the cash flow statement, which measures the inflows and outflows of money. Whereas p&l statements are concerned with the generation of revenues and influences of costs, the cash flow statement focuses on the flow of a specific type of income—money. In this way shareholders, auditors and creditor may ascertain the firm’s ability to cover day-to-day expenses, as well as the stability of cash inflows. If a firm’s working capital (a measure of a firm’s liquidity, subtracting its current liabilities from its current assets) does not sufficiently cover its debts, it is said to be ‘overtrading’.

In order to ensure that firms’ accounts are consistent with government standards, companies are required to submit their accounts for auditing. Audits are legal requirements for a company’s balance sheet and p&l, as well as the underlying accounting system and records, examined by a qualified accountant (auditor).

(See also governance , management theories of the firm .)

ASSET

For the economist and the investor, one of the most difficult processes is estimating what a company is worth. A reasonable guide is to look at its net assets: i.e. what it owns (assets), minus what it owes (liabilities).

For an understanding of the different kinds of assets and what they represent, it is necessary to look at the firm’s balance sheet. Here, the items or properties that are owned by the business and which have money value are recorded as the assets of the company. Generally there are three types of assets that a firm can record:

1. Physical assets: these include plant and equipment, land, as well as consumer durable goods.

2. Financial assets: including currency , bank deposits, shares and other types of securities .

3. Intangible assets: these are not actually items or pieces of property in the tangible sense, but include the value of the firm’s brand name or its goodwill. Goodwill is an accounting measure of the market value of a firm less its other net assets.

Some manufacturing firms also hold assets in the form of raw materials, work in progress and finished goods (which are their inventories). These assets are the stock of the firm and have been accumulated to keep up with demand for their finish...

Table of contents

• COVER PAGE
• TITLE PAGE
• COPYRIGHT PAGE
• EDITOR’S INTRODUCTION
• CONTRIBUTORS
• I. THE NEW ECONOMICS
• II. THE GLOBAL CONTEXT
• III. THE WORLD TOMORROW
• IV. A–Z OF KEY THEMES AND MAJOR FIGURES