Economic Terms

Policy decisions designed to reduce the cost of credit and stimulate AD i.e. to counteract deflationary possibilities.

The diagram below illustrates the most common form of loose monetary policy which involves cutting the base rate and injecting some level of economic activity into the economy. It does this by making credit to businesses and consumers from bank's easier to obtain.

A graph which indicates the level of income inequality for a country by plotting the cumulative percentage of total national income against the cumulative percentage of the corresponding population.

Below is a table and diagram to illustarte how the lorenz curve is formed. The Lorenz curve bends away from the x axis as generally the bigger the population segment the bigger the percent of total income belongs to them. But the closer the curve is to the line of equality (income is equally distributed amongst all income groups) the fairer the distribution of income across the country. Likewise the more bowed out the lorenz curve becomes the more unequal the distribution is as a very samll percentage of the population holds majority of the income of a country.

Often called narrow money which includes sterling notes and coins in circulation plus central bank reserves. All the items included are typically associated with being the most liquid assets in the economy at that particular point in time.

Notes and coins in circulation plus non-interest bearing sight deposits held by the non-bank private sector.

Notes and coins in circulation plus all retail deposits (including retail time deposits) held by the non-bank private sector.

Notes and coins in circulation plus all sight and time deposits held with banks (excluding building societies) by the non-bank private sector.

Often called broad money and includes notes and coins in circulation, deposits, repos and securities with a maturity of less than five years held by the non-bank private sector. All the assets included in this monetary aggregate are characterised by being illiquid assets. M4 is a key statistic because it can illustrate the underlying strength of economic activity within a country i.e. during a recession the M4 growth rate usually declines quite rapidly as economic activity diminishes during these periods.

When real output and the price level are stable because AD = AS.

This equilibrium is highlighted below due to the lack of an output gap and therefore in this instance the economy is at the full employment level.

Is when regulation of banks is carried out an industry-wide basis rather than individually scouring their balance sheets for risk which is entailed in micro prudential regulation. More specifically it involves identifying, monitoring and dealing to remove risks that threaten the stability of the financial system. This type of regulation in the UK is carried out by the FSA and PRA, mainly to ensure the systemic stability of the industry holds.

Considers the economy at a national level and the impact of a range of domestic and international variables on economic performance.