Economics: A dictionary

A

Absolute advantage

If a country, individual or region has the ability to produce a service or a good at a lower unit price than another country, region or individual they will have absolute advantage.

An entity hat has absolute advantage is able to produce products using a smaller number of inputs or use a more efficient process than another entity while producing the same product or service.

Accelerator

The accelerator theory says that investments made by companies increase when demand or income increases.

It also says that if the demand produces an excess of demand the companies can meet this increase in two ways:

Raise the prices in order to decrease the demand
Increase investments to the level of demand

Usually the companies would want to increase the production so that they can increase the profits. This growth will then attract more investors → more growth.

Adjustable pegged exchange rates

An adjustable pegged exchange rate is when a currency is fixed against another currency to a certain extent.

The Danish currency (the Krone (DKK)) is, for example, fixed against the Euro but is allowed a flexibility of 2 %.

If the exchange rate fluctuates by more than the agreed upon level the Central Bank will have to intervene.

Aggregate demand

The sum of all final goods and services produced in an economy. It is expressed as the total amount of money exchanged for the goods and services.

The Keynesian equation for aggregate demand is:

Aggregate demand = C + I + G + (Nx)

where,

C = Consumer spending

I = Private investment spending for non-final capital goods

G = Government spending

Nx = Net exports

Bear in mind that since aggregate demand is measured through market values it will only represent the total output at a given price level. This means that it does not always represent the quality of living.

(Source)

Aggregate supply

It is also known as the total output. It is the total supply of goods and services produced within an economy at a given price level during a given time period.

Aid

Voluntary transfer of resources from one country to another. Aid can be used as a security political mean.

Allowance trading

Allowance trading is a market based approach to controlling pollution. It provides economic incentives for achieving reductions in the emission.

This is done when a central authority (which usually is the government) sells a number of permits. Polluters wishing to pollute more can then buy more permits from others willing to sell theirs.

This system ensures that pollution control happens at companies that have the lowest expenses.

Alternative costs

See opportunity costs.

APEC

Asian Pacific Economic Cooperation

It is a cooperation between 21 member economies and was established in 1989 to promote free trade throughout the Asia-Pacific region.

The member economies are:

Australia
Brunei Darussalam
Canada
Chile
People's Republic of China
Hong Kong, China
Indonesia
Japan
Republic of Korea
Malaysia
Mexico
New Zealand
Papua New Guinea
Peru
The Philippines
Russia
Singapore
Chinese Taipei
Thailand
The United States
Viet Nam

Appreciation

It is the increase in value of an asset over time.

This increase happens because of various factors such as an increase in demand or a weakening supply. It can also happen because of changes in inflations or interest rates.

Its obverse is depreciation.

Arbitrage

It is in brief when someone buys in one market and sells in another profiting from a temporary difference.

ASEAN

Association of South-East Asian Nations.

Founded on the 8th of August 1967 in Bangkok, Thailand. Its purpose is to strengthen the social, economic and cultural development in the member states. It is in a way EU’s counterpart though significantly weaker.

Member states:

The Philippines
Indonesia
Malaysia
Singapore
Thailand
Brunei
Vietnam
Laos
Myanmar
Cambodia

Asset

An asset is an economic resource that someone or a corporation owns in the belief that it will provide future benefits. This is, for example, cars, houses, shares etc.

Automatic stabiliser

Features of the tax and transfer system that ensure that a boom and a slump are tempered without direct intervention by the policy makers. The bigger welfare state the more the automatic stabilisers will temper.

Average

The sum of all numbers in a list divided by the number of numbers in the list. In mathematics and statistics this is known as the arithmetic mean.

If we have a dataset containing the values a1, …, an the arithmetic mean, A, is given as:

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