Economic Terms

PPT 1

Definition of economics

"Economics is the study of the use of scarce resources which have alternative uses

Agency Problem

A conflict of interest arising between creditors, shareholders and management because of differing goals. For example, an agency problem exists when management and stockholders have conflicting ideas on how the company should be run.

Scarcity Principle

Although we have boundless needs and wants, the resources available to us are limited. So having more of one good thing usually means having less of another

Compensating Balances Plan

A type of premium paid by an insured business. Compensating balances plans allow firms to subtract various expenses from the premiums that they pay to their carriers. This allows the business to divert this portion of the premium to a separate account from which it can draw.

Compensating balances plans allow insured firms to subtract costs like the cost of carrying the policy, premium taxes and profit from the premiums that they pay. This plan effectively lowers the cost of insurance for businesses. Firms can use the money diverted into their account for practically any reason they choose."

Microeconomics

"the study of the behaviour of individual markets, workers, households and FIRMS.

Fiat Money

"Currency that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves. Historically, most currencies were based on physical commodities such as gold or silver, but fiat money is based solely on faith.

Most of the world's paper money is fiat money. Because fiat money is not linked to physical reserves, it risks becoming worthless due to hyperinflation. If people lose faith in a nation's paper currency, the money will no longer hold any value."

Macroeconomics

analysing economy-wide phenomena such as GROWTH, INFLATION and UNEMPLOYMENT

Aggregration

"This is a time saving accounting method for larger corporations. It helps...