Economic Terms

Passed as a response to the 2008 financial crisis, it brought the most significant changes to financial regulation in the US. Specifically it focused on ensuring that by 2019 all universal banks had ringfenced their commerical banking activities away from their investment banking activities.

For exchange to occur via barter, both parties must want the products being exchanged and the rate of exchange must be acceptable.

Goods that are not immediately consumed and can be used repeatedly, often over a long period of time e.g. pair of running shoes.

When a firm achieves productive efficiency over a sustained period of time.

Graphically this can be represented by the firms long-run average costs curves falling over time. This is achieved by the firm inventing and innovating new products and more importantly better and more efficient production processes. This type of efficiency will see both the short-run and long-run average cost curves fall over time.

 

An economic model that considers a particular issue over a period of time.

Any behaviour or action that involves the supply and consumption of goods and services.

An individual, firm or government involved in the buying and selling of goods and services and making investments.

The opportunity cost of production.

A prolonged period of depressed asset values and economic activity and high inflation and unemployment usually as a result of political instability, a war, government debt default or the collapse of a banking system.

A term used to describe the process of economic expansion (positive output gap) and contraction (negative output gap) that economies experience over time.

Below is a depiction of the theoretical movement of a country's economic cycle. What this diagram is showing is that an economy typically moves from periods of growth, and this culminates in a boom (peak). After this the economy hits a downturn, as economic growth cannot be sustained. If the downturn is sustained for more than two quarters this creates an economic recession, in which the economy hits a trough (the lowest point of growth). Eventually an economy will arrest the decline in growth, as a result of economic policies, and this enables the economy to recover over time. After which, the whole economic cycle restarts.

It is important to appreciate that the depth and duration of cycles and phases within the cycle will vary considerably due to individual specifics within each country (as well as external influences) and therefore a country's economic cycle will not always match the smooth shape of the economic cycle above.