KEY TERMS USED IN ESSAY

Appreciation

A rise in the value of an asset and the opposite of depreciation. When the value of a currency
rises relative to another, it appreciates.

Assets

Things that have earning power

Balanced budget

When total public-sector spending equals total government income during the same period from
taxes and charges for public services.

Bankruptcy

When a court judges that a debtor is unable to make the payments owed to a creditor.

Budget

An annual procedure to decide how much public spending there should be in the year ahead
and what mix of taxation, charging for services and borrowing should finance it.

Deflation

In economics, deflation is a decrease in the general price level of goods and services.

Deficit

When more MONEY goes out than comes in.

A BUDGET deficit occurs when PUBLIC SPENDING exceeds GOVERNMENT revenue.

A current account deficit occurs when EXPORTS and inflows from private and official
TRANSFERS are worth less than IMPORTS and transfer outflows.

Depreciation

A fall in the value of an ASSET or a currency; the opposite of APPRECIATION.

Dividend

The part of a company’s PROFIT distributed to shareholders

Dumping

Selling something for less than the cost of producing it.

Economic indicator
A statistic used for judging the health of an economy, such as GDP per head, the rate of
UNEMPLOYMENT or the rate of INFLATION.

Equity

The capital of a firm, after deducting any liabilities to outsiders other than shareholders, who are
typically the legal owners of the firm's equity. This ownership right is the reason SHARES are
also known as equities.

Game theory

Game theory is a technique for analysing how people, firms and governments should behave in
strategic situations (in which they must interact with each other), and in deciding what to do
must take into account what others are likely to do and how others might respond to what they
do. For instance, competition between two firms can be analysed as a game in which firms play
to achieve a long-term competitive advantage (perhaps even a monopoly).

Liquidity

How easily an ASSET can be spent, if so desired. Cash is wholly liquid. The liquidity of other
assets is usually less; how much less may be measured by the ease with which they can be
exchanged for cash (that is, liquidated).

Purchasing power parity

A method for calculating the correct value of a currency, which may differ from its current market
value. It is helpful when comparing living standards in different countries, as it indicates the
appropriate EXCHANGE RATE to use when expressing incomes and PRICES in different
countries in a common currency.

Tariff

Often used to describe a tax on goods produced abroad imposed by the GOVERNMENT of the
country to which they are exported. Many countries have reduced such tariffs as part of the
process of freeing up world trade.

Tax evasion

Paying less tax than you are legally obliged to.

Nominal and Real GDP

“The main difference between nominal and real values is that real values are adjusted for
inflation, while nominal values are not. As a result, nominal GDP will often appear higher than
real GDP. Values for real GDP are adjusted for differences in prices levels, while figures for
nominal GDP are not.”