Economic Terms

Is a gurantee to savers that all or a fraction of their deposits will be reimbursed if a bank fails. This is funded by the taxpayer. This is put in place to ensure that destructive bank runs do not occur by ensuring that depositors do not have a marginal propensity to run. Therefore savers will feel confident that there savings are safe even if the bank is troubled. As of 2015 the Bank of England increased the protection of up to £1million on certain depsoits.

Money placed into a financial intermediary for security and wealth generating purposes. This money gets placed into deposit accounts such as savings accounts and checking accounts. The placement of deposits allow banks to use these funds to lend to borrowers and that in turn allows banks to make their profits through the interest income channel.

Below is a diagram which highlights how banks act as an intermediary of funds between surplus units (total income exceeds total expenditure) and deficit units (total income exceeded by total expenditure). This is done by taking depostis from these savers and transferring them to borrowers through loans.

A fall in the value (Exchange Rate) of a currency due to excess supply. This will result in lower export prices and higher import prices.

A sustained reduction in economic activity and GDP that lasts for a long period of time (typically 2 years or more) and leads to very high levels of unemployment e.g. the depression that followed the Wall St crash in 1929 lasted for 3 1/2 years and GDP fell by over 25% and the unemployment rate rose to 25%.

A form of government policy when existing regulations are loosened or removed to encourage supply or demand of a good or service.

When the demand for one good or service results in the demand for another good or service that is a necessary part of the production process.

Below is a set of diagrams to illustrate derived demand in a demand and supply framework. If there is an increase in demand for cars, then ultimately more cars need to be produced to meet the extra demand. However, more cars can only be made if more steel is made. So therefore similtaneously an increase in demand for cars will lead to an increase in demand for steel, as steel has demand derived from cars.

The factors that will determine the level of demand at a given price e.g. population.

Below is a list of factors that will cause the demand of a given product to change. If the price of substitute goods change this will change the demand for a product as consumers will always switch to the cheapest versions of a product. If the price of complementary goods change this will affect the demand for a product as consumers will always consume both complimentary goods together. Changes in real income will affect the demand of a good because the more income that consumers have available to them the mre goods they are likely to demand and consume. The persuasion of advetising and marketing campaigns can sway consumers towards purchasing goods. Finally a change in fashion, tastes and preferences can also affect demand for products, this often happens in the clothing industry when certain clothing items come back into fashion .

A factor that will determine the level of supply at a given price.

Below is a list of factors that will cause the supply of a given product to change. If the costs of production change this will change the supply because it will ultimately affect the cost at which firms can produce products at and therefore their profit margins will be affected. New technology being introduced can increase the producitvity and efficiency of the production process and this can lead to an increase in supply at a given price. Goevernment taxes and subsidies can affect the overall cost of producing a good. For instance if a subsidy is granted to a firm it will encourage them to produce more as it is now cheaper to produce. Finally external factors such as the change in climate can affect the amount of goods that can be produced particuarly in the agricultural market (primary sector).

 

An essential element of both a normal good and a private good. It means the consumption of a good or service by one consumer will diminish the amount available to another.

Taxes on income and wealth that diminish the amount of money available to buy goods and service e.g. income tax