![]() bank run A situation in which depositors withdraw funds from a bank because they fear that it may go bankrupt and not honour its liabilities (that is, not repay the funds owed to depositors). ![]() bank money Money in the form of bank deposits created by commercial banks when they extend credit to firms and households. bank bailout The government buys an equity stake in a bank or some other intervention to prevent it from failing. bank A firm that creates money in the form of bank deposits in the process of supplying credit. balance sheet A record of the assets, liabilities, and net worth of an economic actor such as a household, bank, firm, or government. Also known as: balance of payments account. This account records all payment transactions between the home country and the rest of the world, and is divided into two parts: the current account and the capital and financial account. balance of payments (BP) This records the sources and uses of foreign exchange. average product Total output divided by a particular input, for example per worker (divided by the number of workers) or per worker per hour (total output divided by the total number of hours of labour put in). average cost The total cost of the firms’s output divided by the total number of units of output. autonomous demand Components of aggregate demand that are independent of current income. autonomous consumption Consumption that is independent of current income. automation The use of machines that are substitutes for labour. An example is the unemployment benefits system. automatic stabilizers Characteristics of the tax and transfer system in an economy that have the effect of offsetting an expansion or contraction of the economy. ![]() austerity A policy where a government tries to improve its budgetary position in a recession by increasing its saving. See also: adverse selection, moral hazard. asymmetric information Information that is relevant to the parties in an economic interaction, but is known by some but not by others. asset price bubble Sustained and significant rise in the price of an asset fuelled by expectations of future price increases. artificially scarce good A public good that it is possible to exclude some people from enjoying. As long as the trade costs are lower than the price gap, they make a profit. Traders engaging in arbitrage take advantage of the price difference for the same good between two countries or regions. arbitrage The practice of buying a good at a low price in a market to sell it at a higher price in another. antitrust policy Government policy and laws to limit monopoly power and prevent cartels. altruism The willingness to bear a cost in order to benefit somebody else. allocation A description of who does what, the consequences of their actions, and who gets what as a result. aggregate output The total output in an economy, across all sectors and regions. See also: consumption, investment, government spending, exports, imports. It is the total amount of demand for (or expenditure on) goods and services produced in the economy. aggregate demand The total of the components of spending in the economy, added to get GDP: Y = C + I + G + X – M. See also: incomplete contract, moral hazard, asymmetric information. Also referred to as the ‘hidden attributes’ problem (the state of already being ill is the hidden attribute), to distinguish it from the ‘hidden actions’ problem of moral hazard. This will lead to further price increases to cover costs. An example is the problem of asymmetric information in insurance: if the price is sufficiently high, the only people who will seek to purchase medical insurance are people who know they are ill (but the insurer does not). adverse selection The problem faced by parties to an exchange in which the terms offered by one party will cause some exchange partners to drop out. administratively feasible Policies for which the government has sufficient information and staff for implementation. adjustment gap The lag between some outside change in labour market conditions and the movement of the economy to the neighbourhood of the new equilibrium. acyclical No tendency to move either in the same or opposite direction to aggregate output and employment over the business cycle. accountability The obligation of a decision-maker (or body) to be responsive to the needs and wishes of people affected by his, her or its decisions. absolute advantage A person or country has this in the production of a good if the inputs it uses to produce this good are less than in some other person or country. abatement policy A policy designed to reduce environmental damages. Glossary abatement Practices to limit or reverse environmental damages.
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