byeighteencountriesincludingIceland andTurkey;theUKagreedtoimplement itin1997. Europeansystemofaccounts(E0) Aclassificationofhouseholdexpenditures bycategoriesofuse.Itisacoherent frameworkforthepresentationofthe nationalincomeaccountsofthemember countriesofthe EUROPEANCOMMUNITY.The principalaccountsare: 1Domesticaccounts Goodsandservicesaccounts Productionaccount Generationofincomeaccount Distributionofincomeaccount Useofincomeaccount Capitalaccount Financialaccount. 2Restoftheworldaccounts Currenttransactionsaccount Capitalaccount Financialaccount. References EuropeanSystemofIntegratedEconomic AccountsESA,2ndedn,Luxemburg: StatisticalOfficeoftheEuropeanCom- munities,1980. EuropeanUnion(F0) Acombinationofthe EUROPEANCOMMUNITY, co-ordinationofforeignandsecuritypo- licies,andco-ordinationofjusticeand interioraffairsestablishedbytheMaas- trichtTreatyandeffectivefrom1Novem- ber1993.TheCounciloftheEUconsists oftheappropriateministersfromeach memberstateforthematterunderdiscus- sion. EuropeanUnitofAccount(E4) Abasketofthecurrenciesofthemember countriesofthe EUROPEANECONOMICCOMMU- NITY .Eachcurrencyisweightedaccording toitsstandingandamountincirculation. Seealso:ecu Eurosystem(E5) Thisconsistsofthe EUROPEANCENTRALBANK andthecentralbanksofthefifteenmem- berstates. eurozone(F3) Thecountriesofthe EUROPEANUNIONwhich acceptedtheeuroastheircommoncur- rency. eventstudy(C5,G0) Theanalysisofthestatisticalsignificance oftheoccurrenceofaparticulartypeof event,e.g.astockrepurchaseorfinancial restructuring,forthemarketvalueofa companyinafinancialmarket. evolutionarygametheory(C7) Anapplicationofevolutionarymethodsto gametheory.Throughlearningandevolu- tionitispossibletoreachanequilibrium lackinginrationality.Atrialanderror processestablisheswhichstrategyworks best.Asearchfornewmicrofoundations toevolutionarydynamicshasbeenunder- takentoenablethetheorytobeapplicable tohumansociety. References Samuelson,L.(1997)EvolutionaryGames andEquilibriumSelection,Londonand Cambridge,MA:MITPress. Weibull,J.W.(1995)EvolutionaryGame Theory,LondonandCambridge,MA: MITPress. evolutionarytheoryofthefirm(L1,L5) Astudyofthedeterminantsofthe‘des- tiny’offirmswhichrejectstheviewthat firmsaremaximizersandassertsthat firms’actionshaveevolvedfromtheir owntraditions.Innovatorychangeisonly acceptedinacrisis;itisnotpartofalong- termgrowthplan. MARSHALL,withhis biologicalanalogiesforthegrowthofthe firm,wasafounderofthistheoretical approach.Theviablefirm,accordingto ALCHIAN,hasprofitsgreaterthanare neededtomaintaincurrentactivities; thereforeunderconditionsof UNCERTAINTY, managerscannotpredicttheoutcomeof theirdecisions,soluckisquiteimportant. Seealso:Penrose © 2002 Donald Rutherford References Alchian,A.(1950)‘Uncertainty,evolution andeconomictheory’,JournalofPoliti- calEconomy58:211–21. Nelson,R.R.andWinter,S.G.(1982)An EvolutionaryTheoryofEconomic Change,Cambridge,MA:BelknapPress ofHarvardUniversityPress. exante,expost(E0) Awidelyuseddistinctioninmacroeco- nomics,coinedby MYRDAL,todistinguish whatisplanned(i.e.exante)fromwhat actuallyhappens(i.e.expost).Thesealter- nativeconceptsareoftenusedindiscus- sionsofinvestmentandwelfare.If,for example,expostinvestmentislessthan whatwasplanned,thentheexpectations oftheinvestorhavenotbeenrealized. References Myrdal,G.(1939)MonetaryEquilibrium, London:WilliamHodge. exantevariables(E0) Measuresofwhatisplannedorintended, e.g.intendedinvestment.Thesehavebeen usedsincethe STOCKHOLMSCHOOLandKey- nesiansstartedmodernmacroeconomics; increasinglyexantemeasureshavebeen usedtoestimate EXPECTATIONS.Inpractice, surveysofbusinessenterprisesareusedto ascertainintendedlevelsofproduction, investmentandemployment. Seealso:expostvariables excessburdenofatax(H2) The DEADWEIGHTLOSSfromatax.Thishas twomeanings: 1Thedeadweightlosssufferedbytax- payersinexcessofwhatthegovernment collects. 2Theamountataxpayerwouldsacrifice inexcessofthetaxesbeingcollectedin exchangeortheremovalofalltaxes. Seealso:taxincidence excesscapacity(D0) 1Incompetitivetheory,alevelofoutput belowthatlevelofoutputwhichmini- mizesaveragetotalcost. 2Moregenerally,anyoutputlevelless thanthemaximumamounttechnically possible. Seealso:X-efficiency excesscapacitytheorem(L1) Thetheoreticaloutcomeof MONOPOLISTIC COMPETITION whichholdsthatprofit-max- imizingfirmschoosealevelofproduction thatislowerandwithhigheraveragecosts thanunder PERFECTCOMPETITION.Inthe figure,ATCis AVERAGETOTALCOST,MCis MARGINALCOST,Disdemand,ARisAVER- AGEREVENUE ,MRisMARGINALREVENUE,OP istheprofit-maximizingprice,OQ 2 isthe profit-maximizingoutputandQ 1 Q 2 isthe excesscapacity. Seealso:profitmaximization excess demand (D0) The amount by which demand exceeds supply at a given price. As excess demand can be positive or negative, it is a useful way of stating the relationship between demand and supply. When a market is in equilibrium, excess demand is zero. The rate of excess demand can be measured as (demand À supply)/supply. Markets sub- ject to maximum price control are usually characterized by long-term positive excess demand which necessitates rationing and encourages the growth of BLACK MARKETS; © 2002 Donald Rutherford East European countries have provided many examples of this. excess supply (D0) Supply less demand at a given price. It can be regarded as negative excess demand. exchange (D0) 1 The mutual transfer of goods, money or something of value between two or more parties. 2 The sale of one currency to obtain another. 3 A place for the sale of currencies, securities or commodities. Seealso:trade exchange controls (F3) Limitations on the free movement of a national CURRENCY probably first advo- cated by PLATO. These usually take the form of restrictions on the purchases of foreign currency and on the export of capital. The UK had such controls from 1939 until 1979 when, helped by North Sea oil revenues, sterling needed no such support. France used exchange controls in 1981 to defend the franc; the Italian lira long needed the support of controls. When exchange controls are in force, BLACK MAR- KETS in currency are tolerated by most governments as a means of delaying the formal announcement of change in the official rate. Seealso:dualexchangerate exchange cross-rate (F3) The value of one of the world’s leading CURRENCIES against another. The leading ten currencies usually quoted have been the US dollar, sterling, Deutschmark, yen, French franc, Swiss franc, Belgian franc, Dutch guilder, Italian lira and Canadian dollar. These are published daily in leading financial newspapers. This rate can be regarded as the exchange rate between currencies B and C when the exchange rates between A and B and A and C are known already; this cross-rate should be consistent with the other exchange rates. exchange efficiency (D6) An exchange of goods which makes at least one person better off, without anyone being worse off according to PARETO. Exchange Equalization Account (E5) The account of the BANK OF ENGLAND holding UK foreign exchange reserves. After the UK abandoned the GOLD STAN- DARD from 1932, the establishment of this account was necessary to provide a me- chanism for supporting sterling through the sale and purchase of gold and foreign currencies: the account sells foreign cur- rency to buy pounds when there is a desire to stabilize or improve the sterling ex- change rate. exchange rate (F3) The price of a currency in terms of another, e.g. how many US dollars can be bought for one pound sterling. Such rates vary because of changes in the relative demand for different countries’ goods and services and because national MONETARY and FISCAL POLICIES are inconsistent with each other. Differences in tax rates and in interest rates cause capital flows that affect © 2002 Donald Rutherford acountry’sbalanceofpaymentsand, consequently,itsexchangerate.Anover- valuedexchangerateleadstoa CURRENT ACCOUNT balanceofpaymentsdeficitand bearishspeculativecapitalmovements;an undervaluedexchangeratecreatesacur- rentaccountsurplusandaninfluxof capital.Volatileexchangeratesandvola- tileinterestratescoincide. References Isard,P.(1978)ExchangeRateDetermina- tion:ASurveyofPopularViewsand RecentModels,Princeton,NJ:Interna- tionalFinanceSection,Departmentof Economics,PrincetonUniversity. Stein,J.L.etal.(1997)Fundamentaldeter- minantsofexchangerates,2ndedn, OxfordandNewYork:Clarendon Press. Witteveen,H.J.(1982)TheProblemof ExchangeRates,NewYork:Groupof Thirty. exchangerateagreement(F3) Aforeignexchangehedgingtechnique requiringonlythenetamountowedat theendofabankingdaytobepaid. Otherwise,purchasesandsalesofafor- eigncurrencyatdifferenttimesrequire severaltransactions;thiskindofagree- mentrequiresonlyone. ExchangeRateMechanism(F3) Acrucialelementofthe EUROPEANMONE- TARYSYSTEM whichlinksthevaluesof participatingEuropeancurrenciesandlim- itstheextentoftheirfluctuationsto2.25 percentagainsttherestinthesystem, unlessawiderbandhasbeenspecially negotiated,e.g.Spain’sandtheUK’s6per cent.Alsoitproducesindicatorsofcur- rencydivergenceagainsttheecu,makes availableshort-termcredittosupportin- terventioninforeignexchangemarketson behalfofcurrencieswhichdivergetoofar and,inextremecases,realignscurrencies atnew EXCHANGECROSS-RATES.TheERM reducesspeculativegainsfromchangesin exchangeratemovementsandconcen- tratesthemindsofinvestorsontheinter- estrateofferedfordepositsinaparticular currency,unlesstherearefrequentrealign- ments. References Giavazzi,F.andSpaventa,L.(1990)The ‘New’EMS,PaperNo.369,London: CentreforEconomicPolicyResearch. exchangeratepremium(F3) Thedifferencebetweentheforwardex- changerateandtheexpectedfuturespot exchangerate. exchangerateregime(F3) Thesystemchosenbynationalgovern- mentsforthemutualdeterminationof theirexchangerates.Themainchoiceis concernedwiththeextenttowhichthere arefixedparitiesbetweendifferentcurren- cies,e.g.underthe BRETTONWOODSsystem andunderthe EUROPEANMONETARYSYSTEM orFLOATINGEXCHANGERATES. exchangeratetargetzone(F3) Asofterversionofafixedexchangerate regimewhichpermitswidebandsforeach currencyparticipatingprovidedthatthe countriesconcernedtakecorrectiveaction whenthevaluesoftheircurrenciescome closetotheirlimits. Seealso:EuropeanMonetarySystem References Williamson, J. (1985) The Exchange Rate System, Washington, DC: Institute for International Economics. exchange risk (F3) The risk of an exchange rate changing and thereby lowering the value of one’s holding of another currency. A MULTINATIONAL COR- PORATION , for example, constantly faces the risk when doing business in another coun- try that the foreign currency it acquires there will fall in value. exchange standpoint epistemology (D4) An approach to studying economics fa- vouring market and market policy mea- sures. Exchequer (E5) The UK government’s account held at the © 2002 Donald Rutherford BankofEngland.Holdingthisaccountis oneoftheactivitiesoftheBankof Englandasa CENTRALBANK. ExchequerWhite(E5) ThedailyinternalBankofEnglandstate- mentwhichshowsitscashneedsby detailingflowsintoandoutofthebank, chieflyasaconsequenceofthegovern- ment’sreceiptoftaxpaymentsanddis- bursementofgovernmentalexpenditures. Ifthebankisshort,itwillbuybills;if thereisexcesscashinthebankingsystem, itwillsellthem. exciseduty(H2) Anindirecttaxleviedonaspecificgood, especiallypetrol,alcoholortobacco.Du- tiesofthiskindhavebeenanimportant sourceofgovernmentrevenueinsome countries,e.g.theUSA,forlongerthan INCOMETAXES.GiventheINELASTICITYof demandforthesegoods,theyprovidea reliablesourceofrevenue.Also,theduties havebeenimposedas TARIFFStoprotect domesticindustriesfromthecompetition ofimports. Seealso:directandindirecttaxation excisetax(H2)seeexciseduty exclusionprinciple(D0) Amajorcharacteristicofa PRIVATEGOOD: oneperson’sconsumptionexcludesothers’ consumption,e.g.myconsumptionofa pieceoffruitexcludesyourconsumption ofit. PUBLICGOODSarenon-exclusive,e.g. myconsumptionofthebenefitofthe nation’sarmedservicesdoesnotreduce yourconsumption. exclusivedealing(L4) A RESTRICTIVEPRACTICEinamarketwhereby distributorsagreenottotradewithfirms whicharenotpartytoanagreement.In returnforloyaltyarebateonpurchasesis oftengiven. exdividend(G2) An ORDINARYSHAREwhichdoesnotbear theentitlementtoreceivethedividend recentlyannouncedandpayableatthat time. executiveleasing(G2) Theofferingofmanagementservicesby experiencedmid-careermanagersforshort periods,usuallyforlessthanayear. Leasingisattractivetocompanieswhena particulartypeofskillisneededeitherto copewithanunusualtask,e.g.organizing amerger,orduringaninterregnumuntila permanentexecutiveisappointed. executivestockoption(J3,M1) Partoftheremunerationofamanager grantingtherighttopurchasestocks/ sharesatapreferentialprice.Thisformof incentiverewardsexecutiveswhoincrease themarketvalueofacompany. exerciseprice(G1)seeputprice exit–voice(D0) Adistinctionusedtoclassifythephysical orverbalmethodsindividualsuseto revealtheirpreferences.‘Voice’cantake theformofvoting(asindemocratic politics)orcomplaints(asundergrievance procedures);‘exit’ismovementawayfrom alessdesiredsituation,e.g.aparticular employment,regionorcountry.‘Exit– voice’canbeappliedtocollectiveor individualchoice. Seealso:Tiebouthypothesis References Hirschman, A.O. (1970) Exit, Voice and Loyalty: Responses to Decline in Firms, Organizations and States, Cambridge MA: Harvard University Press. exogenous expectations (E0) EXPECTATIONS that are given and are thus excluded from an economic model or theory. Few economists would now take this view of expectations. exogenous growth model (O4) A process of ECONOMIC GROWTH driven by an outside factor, especially technical change or foreign trade. © 2002 Donald Rutherford exogenousvariable(C1,C6) Aneconomicvariablewhosevaluesare notdeterminedbytheothervariablesof aneconomicmodel. Seealso:endogenousvariable expectations(D0,E0) Theviewsofhouseholdsorfirmsor governmentsaboutthefuture.Theyare basedeitheronthesimpleviewthatthe futurewillbelikethepastoronamore sophisticatedviewthatthefuturewillbe partlylikethepastandpartlydifferent becauseofresponsestopreviousforecast- ingerrors.Thisisnowthedominant themeofmuchofmacroeconomics.The studyofexpectationshasbecomemuch moreelaboratethanitwasinthehandsof MYRDALandKEYNES. Seealso:adaptiveexpectations;exante variables;exogenousexpectations;extra- polativeexpectations;Keynesexpecta- tions;rationalexpectations;regressive expectations expectedmonetaryvalue(E4) Theproductoftheprobabilityoftheith outcomeandthevalueoftheithoutcome: EMV= X n i¼1 p i :X i expectedutility(D0) Theproductoftheprobabilityoftheith outcomeandtheutilityoftheithout- come: EU= X n i¼1 p i :U i Seealso:Bernoullihypothesis;prospect theory References Savage,L.J.(1954)FoundationsofStatis- tics,NewYork:Wiley. expeditedfundsavailability(G2) Thepromptavailabilityofcheckdeposits byUScommercialbanks. expenditurefunction(E2) Anequationusedtodescribethecon- sumptionpossibilitiesforaconsumerata givensetofprices. expendituretax(H2) Ataxbasedontheamountactuallyspent byaconsumer.Proponentsofsuchtaxa- tionarguethatthetaxmightbeeasierto collectthancapitalorincometaxesand thatthegrowthofpersonalsavings(which wouldescapethetax)isencouraged.There havebeenmanysupportersofthistypeof taxation,includingJohnStuart MILL,MAR- SHALL ,IrvingFISHER,KALDORandthe MEADECommittee. Seealso:doubletaxationofsavings References Kaldor,N.(1955)AnExpenditureTax, London:Allen&Unwin. expensepreference(M1) Amanager’sweightedpreferencefora particulartypeofcost.Asmanagersoften preferanexpansionofstaff(asameansof beinginchargeofalargerestablishment), theywillpreferextraexpenditureonstaff tootherformsofexpenditure. expenseratio(M2)seecostratio expensiveeasymoney(E4,G2) OKUNregardedthisascreditextensively available,andthereforeeasy,butofferedat higherinterestratesandthusexpensive. experiencegood(D0) A GOODusuallypurchasedfrequentlybya consumerwhoacquiresinformationabout itthroughtherepeatpurchases. Seealso:searchgood experimental economics (C9) The study of simulated markets in order to test microeconomic theory. This attempt to give economic theory firm foundations has always been methodologically contro- versial. © 2002 Donald Rutherford References Hey,J.(1991)ExperimentsinEconomics, Oxford:Blackwell. Kagel,J.andRoth,A.(eds)(1995)The HandbookofExperimentalEconomics, Princeton,NJ:PrincetonUniversity Press. expertsystem(M1) Computersoftwarethatreproducesthe expertiseofaspecialistbyprovidingaset ofrulesandaknowledgebasesothata userisaskedasetofquestionsbeforethe computerprogramgivesadvice.Themany applicationsofthesesystemsincludecon- trollingproductionplantsandinsurance underwriting. explicitcontract(D0) Anagreementwhosetermsarestated clearlybytheparties.Thisisusuallyin writingandlegallyenforceable. Seealso:implicitcontracttheory explicitcost(D0) Actualmoneyexpenditureincurredto obtainafactorofproductionoragood orservice. Seealso:implicitcost exploitation(J7,Q2) 1Usingormisusinganaturalresource. Extractionofmineralsconstitutesuse; misusearisesfromcausinglong-term damagetotheenvironment. 2Treatinglabourunjustlybyeitherpay- ingitlessthanits MARGINALPRODUCTor extracting SURPLUSVALUEfromit. export(F3) Thesaletoaresidentofanothercountry ofadomesticallyproducedgoodorser- vice.Unlessaneconomyisself-sufficient, itwillbenecessaryforittoexportinorder tobeabletopayfortheimportsde- mandedbyitsresidents.Thevolumeofa country’sexportshasmanydeterminants, includingtheexchangerate,marketing methods,deliverytimes,productdesign andgovernmentsubsidization,especially theguaranteeofexportfinancesothat firmswillnotbediscouragedfromexport- ingbytheriskofbuyers’defaulting. Exportsnetofimportsareincludedinthe GROSSDOMESTICPRODUCT. Seealso:import ExportImportBank(G2) Washingtonbanksetupin1934asan agencyoftheUSfederalgovernmentto facilitateandfinanceexports,e.g.byissu- ingguarantees,directloansandinsurance programmestominimizebuyers’default. exportpromotion(F3) Asetofmeasures,usuallytakenbya nationalgovernment,tosubsidizethe marketingoverseasofdomesticallypro- ducedgoodsandtoguaranteeforeign paymentsforthem. exportrequirement(F2) Aruleimposedbyahostgovernmenton foreigninvestorstoexportaminimum percentageoftheiroutput.Thisisapolicy responsetothepracticeofa MULTINA- TIONAL companyofdivertingtoother marketstheoutputofadomesticproducer ithastakenovertothedetrimentofthe hostcountry’spatternoftrade. exportsubsidy(F1,H2) Areductioninthecostofexportsbrought aboutbyagovernmentgrant.Therecan bereductionsinthecostsoflabour,of capitalorofexportfinancing,aswellas morefavourabletaxtreatment. SMITHre- ferredtosuchsubsidiesas‘bounties’. expostvariables(E0) Variableswhichshowactualeconomic outcomes,e.g.theamountoffixedinvest- mentwhichhasbeenundertaken.Inthe 1930stherewasmuchdiscussioninmacro- economicsofhowexantesavingsand investmentthatweredifferentinamount becameequalexpost.Onepossibilitywas fortheretobesavingateachroundof incomegeneratedfromanexanteinvest- mentexcessoverexantesaving. Seealso:exantevariables © 2002 Donald Rutherford extendedequilibrium(D5) Anexpansionoftheconceptof GENERAL EQUILIBRIUM toincludethenaturalenviron- ment. extendedfundfacility(F3) Atypeof INTERNATIONALMONETARYFUND loanintroducedin1974whichisgranted toacountrywhichagreestoaneconomic adjustmentprogrammeoverathree-year period.Repaymentbeginsfourandahalf yearsaftertheloanisgrantedandis extendedoverasix-yearperiod.Thefacil- itywasusedtotheextentofabout$100 millionannuallyinthe1970s,andbythe mid-1980shadrisentoover$2billionper year.Itcanbeusedinconjunctionwitha SUPPLEMENTARYFINANCINGFACILITY. externalaccount(F4,G2) 1The BALANCEOFPAYMENTSaccountsofa nation. 2Abankaccountofapersonwhoisnot aresidentofthecountry. externalbalance(F4) Thestateofacountry’s BALANCEOFPAY- MENTSsuchthatitisneitherindeficitnor insurplus.Inaccountingterms,thebal- anceofpaymentsalwaysbalancesbecause oftheprinciplesofdouble-entrybook- keeping.However,ineconomicterms,for acountrytohaveanexternalbalance theremustbeanequalitybetweenthe flowsofpaymentsandreceiptsbetween thatcountryandtherestoftheworldina giventimeperiod. Seealso:internalbalance References Meade,J.E.(1951)TheTheoryofInterna- tionalEconomicPolicy,Vol.I,The BalanceofPayments,ch.10,London andNewYork:OxfordUniversityPress. Swan,T.W.(1963)‘Longerrunproblemsof thebalanceofpayments’,inH.W.Arndt andW.M.Corden(eds)TheAustralian Economy,Melbourne:F.W.Cheshire. externalcreditrating(F4,G2) 1Theratingaccordedtoabankofits exposuretorisk. 2Thereliabilityofacountryinservicing itsexternaldebttobanksandother countries. externaldebt(F4,H6) Thedebtacountryowestoforeignbanks andgovernmentswhichaccumulates throughitspersistent BALANCEOFPAYMENTS deficits.Anattempttoachieveeconomic growthinashorttimeperiodisoftenthe causeofsuchindebtedness.Inextreme casesofforeignindebtedness,national governmentswillattempttoreschedule theirdebtsand,inacrisis,applytothe INTERNATIONALMONETARYFUNDforloans. Seealso:internaldebt externaleconomyofscale(D0) Areductioninthe AVERAGECOSTSofafirm asaresultoftheexpansionofthewhole industryofwhichitispart.Amajor exampleoftheseeconomiesoccursinthe caseofthetrainingoflabour:thegeneral expansionofanindustryrequiresmore skilledlabourtoprovideapoolofsuitable labourforotherfirms. Seealso:internaleconomyofscale externality (D0, Q0) The benefit or cost to society or another person of a private action (e.g. production or consumption); a third-party effect. Since PIGOU’s discussion of the distinction between SOCIAL AND PRIVATE COST, it has been a central concept of WELFARE ECONOMICS. ‘Internalizing an externality’, in the case of an external cost, can be achieved by a government levying taxes equal to the difference between a private cost and a social cost. external labour market (J4) A market consisting of competing employ- ers and competing workers. Workers can and will enter firms at different pay and status levels but often with lower remu- neration than in oligopolistic firms with INTERNAL LABOUR MARKETS. Much of the external labour market is coterminous with the SECONDARY LABOUR MARKET. © 2002 Donald Rutherford externalshock(E6) Alargeunanticipatedchangeinworld economicconditionswhichimpactsupon aparticularnationaleconomy.Shockscan takemanyforms,includingashiftinthe TERMSOFTRADE,aslowdowninthegrowth ofworldexportdemandandanincrease intheinterestratessetbyworldfinancial markets.However,themajorshocksofthe 1970s,particularlytheincreaseintheprice ofoil,hadanunevenimpactonthe prosperityofparticularnationswithpro- ducingcountrieswelcomingtheshocks andconsumershavingtomakemajor adjustments. Seealso:structuraladjustmentpolicy; supply-sideshocks extralegalproperty(P0) Assets,especiallyhouses,whichlacka legaltitlebecauseoftheabsenceofa systemof PROPERTYRIGHTSinthatcountry. Oftenthisoccursindevelopingcountries withtheconsequencethatthedefacto ownerscannotusetheirpropertyascol- lateralforloans.Inmanycountries,in- cludingtheUSA,propertywasheldinthis waybyoccupationratherthanestablished title.Alsoknownasinformalownership. extrapolativeexpectations(D0,E0) EXPECTATIONSbasedonthepastlevelofan economicvariableandwhetherthatvari- ableisincreasingordecreasinginvalue. References Metzler,L.A.(1941)‘Thenatureand stabilityofinventorycycles’,Reviewof EconomicsandStatistics23:113–29. extremevaluetheory(C8) Anaccountoftheprobabilitiesassociated withextremeandrareevents.Itisusedin financialeconomicstomodelthemaxima andminimaofaseries.Inferenceshaveto bemadeaboutthelevelsofaprocessfor whichthereisnodata.The MARKOVCHAIN MODEL hasbeenusedtoexamineextremes. extremum(C1,C6) Anextremevalue,i.e.amaximumora minimum. Seealso:optimizationproblem © 2002 Donald Rutherford F Fabian Society (P2) Founded in 1883 by Edith Nesbit and Hubert Bland to promote socialism. It contributed to the ideological development of the UK Labour Party and had as its earliest members Beatrice and Sidney Webb and George Bernard Shaw. In its many pamphlets on economic and related issues it has advocated gradualist, rather than revolutionary, socialism. factor-augmenting technical progress (O2) Technical progress arising from an in- crease in factor PRODUCTIVITY in the ab- sence of an increase in the stock of capital or the size of the labour force. factor cost (D0) 1 The cost of employing a FACTOR OF PRO- DUCTION . 2 A method of valuing the NATIONAL IN- COME . This valuation at factor cost excludes indirect taxes, is net of sub- sidies and indicates what factors of production are actually received. factor endowment (Q0) 1 Quantities of land, labour, capital and entrepreneurs owned by a particular country. This uses a stock approach to consider the total WEALTH of a country. The crudest measures of the size of a country would be in terms of its land area, population and labour force; more elaborate estimates of its wealth would include a calculation of the amount of HUMAN CAPITAL it has and the replace- ment cost value of its physical capital. 2 The ratio of one factor to another. This indicates the extent to which the coun- try’s production is predominantly CAPI- TAL INTENSIVE or LABOUR INTENSIVE. HECKSCHER and OHLIN made factor en- dowment central to their international trade theory by examining the extent to which a country’s trade is a reflection of the scarcity or abundance of particular factors of production. Seealso:stockandflowconcepts factorial terms of trade (F1) The NET BARTER TERMS OF TRADE multiplied by the PRODUCTIVITY change in a country’s export industries (single factorial terms) or by the ratio of the index of productivity change of the country’s export industries to the corresponding index for the foreign export industries producing its imports (double factorial terms). This modification of the net barter terms of trade is made to show the welfare effects of the terms of trade, because an increase in productivity, for example, which worsens a country’s terms of trade indicates that it is sharing its productivity gain with another country. Seealso:termsoftrade factor income (D3) Part of the national product distributed to a particular factor of production. The © 2002 Donald Rutherford [...]... and years of service finance constraint (E4) see cash-inadvance constraint financial accounting (M4) The recording of the business transactions of a firm in a manner ordered by the legislation of the country of domicile of that firm The main elements of it are the construction of a balance sheet to measure the assets and liabilities of a firm on a particular day, and the construction of a profit and... SHARING of money raised from taxation or different types of taxation at each level of government Federal finance systems vary in (1) the degree of fiscal autonomy of lower © 2002 Donald Rutherford levels of government, (2) the extent to which a federal government imposes limits on the power of lower levels of government to borrow and (3) the degree of independence of a federal budget from those of sub-federal... An arrangement of RAW DATA into classes which are then tabulated: for example, the prices of houses can be classified as $100,000–$ 149 ,999, $150,000–$199,999, etc., and presented in two columns of house prices and the number of houses in each price range frequency polygon (C1) A graph of the frequency of classes of a distribution often constructed by joining the midpoints of the tops of the rectangles... shareholders ask for a distribution of it free depreciation (M4) The amount of depreciation of an asset permitted by a taxation authority before actual wear and tear has taken place All, or part, of the value of an asset is written off at the beginning of its life as a form of investment grant to a firm In general, depreciation allowances are generous if the notional life of the asset for tax purposes is... seek higher profits © 2002 Donald Rutherford through investment abroad Thomas De Quincey (1785–1859) in his Logic of Political Economy (1 944 ) argued that the tendency of the rate of profit is to fluctuate false trading (D4) Making exchanges at non-equilibrium prices in an attempt to find the MARKET CLEARING PRICE Family Expenditure Survey (C8, D1) UK sample survey of the characteristics of households,... first-out (M4) A method of valuing physical stocks which, by assuming the oldest stocks will be used first, values at historic cost The method has largely been abandoned in favour of the LAST-IN, LAST-OUT principle The FIFO method has the effect of including in profits the effects of stock appreciation, thus giving an unrealistic picture of a firm’s financial state first-price auction (D4) A method of selling... range of people © 2002 Donald Rutherford Fisher effect (E5) An effect of MONETARY POLICY that causes nominal interest rates to rise to a level which reflects price changes Fisher equation of exchange (E5) A famous statement of the QUANTITY THEORY OF MONEY as MV = PT M is the stock of money, P the general price level, V the velocity of circulation and T the volume of transactions Fisher, Irving, 1867–1 947 ... The linked stages of production of food from the original farmer to the ultimate consumer football pool (D1) A method of gambling on the outcome of a number of football matches on the same day The fixed stakes of the punters are accumulated in a fund out of which dividends are paid to those who have successfully predicted the outcome of matches, with most points going to a prediction of teams which score... forced saving’, Quarterly Journal of Economics 47 : 123–33 Keynes, J.M (1 940 ) How to Pay for the War (reprinted in his Collected Works, Vol 9, pp 367 43 9, London: Macmillan) Machlup, F (1 943 ) ‘Forced or induced saving: an exploration into synonyms and homonyms’, Review of Economics and Statistics 25: 26–39 © 2002 Donald Rutherford Fordism (L6, P1) A late, and successful, stage of CAPITALISM characterized... businesses of another country which often takes the form of the setting up of local production facilities or the purchase of existing businesses It is to be contrasted with PORTFOLIO INVESTMENT, which is the acquisition of securities FDI has been much criticized, in the case of MULTINATIONAL CORPORATIONS, as a form of neo-colonialism In its favour it can be said that it increases the level of investment . Rutherford extendedequilibrium(D5) Anexpansionoftheconceptof GENERAL EQUILIBRIUM toincludethenaturalenviron- ment. extendedfundfacility(F3) Atypeof INTERNATIONALMONETARYFUND loanintroducedin1974whichisgranted toacountrywhichagreestoaneconomic adjustmentprogrammeoverathree-year period.Repaymentbeginsfourandahalf yearsaftertheloanisgrantedandis extendedoverasix-yearperiod.Thefacil- itywasusedtotheextentofabout$100 millionannuallyinthe1970s,andbythe mid-1980shadrisentoover$2billionper year.Itcanbeusedinconjunctionwitha SUPPLEMENTARYFINANCINGFACILITY. externalaccount(F4,G2) 1The BALANCEOFPAYMENTSaccountsofa nation. 2Abankaccountofapersonwhoisnot aresidentofthecountry. externalbalance(F4) Thestateofacountry’s BALANCEOFPAY- MENTSsuchthatitisneitherindeficitnor insurplus.Inaccountingterms,thebal- anceofpaymentsalwaysbalancesbecause oftheprinciplesofdouble-entrybook- keeping.However,ineconomicterms,for acountrytohaveanexternalbalance theremustbeanequalitybetweenthe flowsofpaymentsandreceiptsbetween thatcountryandtherestoftheworldina giventimeperiod. Seealso:internalbalance References Meade,J.E.(1951)TheTheoryofInterna- tionalEconomicPolicy,Vol.I,The BalanceofPayments,ch.10,London andNewYork:OxfordUniversityPress. Swan,T.W.(1963)‘Longerrunproblemsof thebalanceofpayments’,inH.W.Arndt andW.M.Corden(eds)TheAustralian Economy,Melbourne:F.W.Cheshire. externalcreditrating(F4,G2) 1Theratingaccordedtoabankofits exposuretorisk. 2Thereliabilityofacountryinservicing itsexternaldebttobanksandother countries. externaldebt(F4,H6) Thedebtacountryowestoforeignbanks andgovernmentswhichaccumulates throughitspersistent BALANCEOFPAYMENTS deficits.Anattempttoachieveeconomic growthinashorttimeperiodisoftenthe causeofsuchindebtedness.Inextreme casesofforeignindebtedness,national governmentswillattempttoreschedule theirdebtsand,inacrisis,applytothe INTERNATIONALMONETARYFUNDforloans. Seealso:internaldebt externaleconomyofscale(D0) Areductioninthe AVERAGECOSTSofafirm asaresultoftheexpansionofthewhole industryofwhichitispart.Amajor exampleoftheseeconomiesoccursinthe caseofthetrainingoflabour:thegeneral expansionofanindustryrequiresmore skilledlabourtoprovideapoolofsuitable labourforotherfirms. Seealso:internaleconomyofscale externality. Rutherford exogenousvariable(C1,C6) Aneconomicvariablewhosevaluesare notdeterminedbytheothervariablesof aneconomicmodel. Seealso:endogenousvariable expectations(D0,E0) Theviewsofhouseholdsorfirmsor governmentsaboutthefuture.Theyare basedeitheronthesimpleviewthatthe futurewillbelikethepastoronamore sophisticatedviewthatthefuturewillbe partlylikethepastandpartlydifferent becauseofresponsestopreviousforecast- ingerrors.Thisisnowthedominant themeofmuchofmacroeconomics.The studyofexpectationshasbecomemuch moreelaboratethanitwasinthehandsof MYRDALandKEYNES. Seealso:adaptiveexpectations;exante variables;exogenousexpectations;extra- polativeexpectations;Keynesexpecta- tions;rationalexpectations;regressive expectations expectedmonetaryvalue(E4) Theproductoftheprobabilityoftheith outcomeandthevalueoftheithoutcome: EMV= X n i¼1 p i :X i expectedutility(D0) Theproductoftheprobabilityoftheith outcomeandtheutilityoftheithout- come: EU= X n i¼1 p i :U i Seealso:Bernoullihypothesis;prospect theory References Savage,L.J.(19 54) FoundationsofStatis- tics,NewYork:Wiley. expeditedfundsavailability(G2) Thepromptavailabilityofcheckdeposits byUScommercialbanks. expenditurefunction(E2) Anequationusedtodescribethecon- sumptionpossibilitiesforaconsumerata givensetofprices. expendituretax(H2) Ataxbasedontheamountactuallyspent byaconsumer.Proponentsofsuchtaxa- tionarguethatthetaxmightbeeasierto collectthancapitalorincometaxesand thatthegrowthofpersonalsavings(which wouldescapethetax)isencouraged.There havebeenmanysupportersofthistypeof taxation,includingJohnStuart MILL,MAR- SHALL ,IrvingFISHER,KALDORandthe MEADECommittee. Seealso:doubletaxationofsavings References Kaldor,N.(1955)AnExpenditureTax, London:Allen&Unwin. expensepreference(M1) Amanager’sweightedpreferencefora particulartypeofcost.Asmanagersoften preferanexpansionofstaff(asameansof beinginchargeofalargerestablishment), theywillpreferextraexpenditureonstaff tootherformsofexpenditure. expenseratio(M2)seecostratio expensiveeasymoney(E4,G2) OKUNregardedthisascreditextensively available,andthereforeeasy,butofferedat higherinterestratesandthusexpensive. experiencegood(D0) A GOODusuallypurchasedfrequentlybya consumerwhoacquiresinformationabout itthroughtherepeatpurchases. Seealso:searchgood experimental. committee consists of seven of the board’s governors plus five of the presidents of the regional Federal Reserve Banks, one of whom is always the Pre- sident of the Federal Reserve Bank of New York.