- Branche: Economy; Printing & publishing
- Number of terms: 15233
- Number of blossaries: 1
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Policies to pump up demand and thus boost the level of economic activity. Monetarists fear that such policies may simply result in higher inflation.
Industry:Economy
A policy intended to boost economic activity in a specific geographical area that is not an entire country and, typically, is in worse economic shape than nearby areas. It can include offering firms incentives to provide jobs in the region, such as soft loans, grants, lower taxes, cheap land and buildings, subsidized labor and worker training. Is it necessary? A region's problems should be somewhat self-correcting. After all, simple theories of supply and demand would suggest that firms will move to areas of low wages and high unemployment to take advantage of cheaper labor and surplus workers, or that workers will move away from such areas to where more and better-paid jobs exist. But some economic theories suggest that rather than moving to areas where wages are lowest, firms often cluster together with other successful businesses. Regional policy may need to be extremely generous to tempt firms to give up the advantages of being in a cluster.
Industry:Economy
Number-crunching to discover the relationship between different economic variables. The findings of this statistical technique should always be taken with a pinch of salt. How big a pinch can vary considerably and is indicated by the degree of statistical significance and r squared. The relationship between a dependent variable (GDP, say) and a set of explanatory variables (demand, interest rates, capital, unemployment, and so on) is expressed as a regression equation.
Industry:Economy
A tax that takes a smaller proportion of income as the taxpayer’s income rises, for example, a fixed-rate vehicle tax that eats up a much larger slice of a poor person’s income than a rich person’s income. This goes against the principle of vertical equity, which many people think should be at the heart of any fair tax system.
Industry:Economy
Rules governing the activities of private-sector enterprises. Regulation is often imposed by government, either directly or through an appointed regulator. However, some industries and professions impose rules on their members through self-regulation. Regulation is often introduced to tackle market failure. Externalities such as pollution have inspired rules limiting factory emissions. Regulations on the selling of financial products to individuals have been introduced as protection against unscrupulous financial firms with better information than their customers. Rate of return regulation and price regulation have been used to combat natural monopoly, sometimes instead of nationalization. Some regulation has been motivated by politics rather than economics, for instance, restrictions on the number of hours people can work or the circumstances in which an employer can dismiss employees. Even when introduced for sound economic reasons, regulation can generate more costs than benefits. Regulated firms or individuals may face substantial compliance costs. Firms may devote substantial resources to regulatory arbitrage, which would leave consumers no better off. Regulation may lead to moral hazard if people believe that the government is keeping an eye on the behavior of the regulated business and so do less monitoring of their own. Regulation may be badly designed and thus lock an industry into an inefficient equilibrium. Rigid regulation may hold back innovation. There is also the danger of regulatory capture. In short, then, regulatory failure may be even worse for an economy than market failure.
Industry:Economy
Exploiting loopholes in regulation, and perhaps making the regulation useless in the process. This is often done by international investors that use derivatives to find ways around a country’s financial regulations.
Industry:Economy
Gamekeeper turns poacher or, at least, helps poacher. The theory of regulatory capture was set out by Richard Posner, an economist and lawyer at the University of Chicago, who argued that “regulation is not about the public interest at all, but is a process, by which interest groups seek to promote their private interest. . . Over time, regulatory agencies come to be dominated by the industries regulated. ” Most economists are less extreme, arguing that regulation often does good but is always at risk of being captured by the regulated firms.
Industry:Economy
A risk faced by private-sector firms that regulatory changes will hurt their business. In competitive markets, regulatory risk is usually small. But in natural monopoly industries, such as electricity distribution, it may be huge. To ensure that regulatory risk does not deter private firms from offering their services, a government wishing to change its regulations may have good reason to compensate private firms that suffer losses as a result of the change.
Industry:Economy
People often care more about their relative well being than their absolute well being. Someone who prefers a $100 a week pay rise when a colleague gets $50 to both of them getting a $200 increase, for example. Poor people may consume more of their income than rich people do because they want to reduce the gap in their consumption levels. The relative income hypothesis, set out by James Duesenberry, says that a household’s consumption depends partly on its income relative to other families. Contrast with permanent income hypothesis.
Industry:Economy
