Economic Terms

This ratio is used to protect depositors and promote the stability and efficiency in financial markets. The amount due to be held by banks depends on the risk profile of their assets i.e. the riskier the assets the larger the capital charge attatched to it.

 

 

These are the requirements implaced on banks for the minimum amount of capital they have to hold against the value of their assets to act as a buffer stock towards losses that could threaten the solvency of an individual bank and the systemic stability of an entire industry. Since 1988 the Basle Committee has set these and has called them BASLE, with additional follow-ups to improve these requirements called BASLE II and BASLE III.

Is when capital levels increase at a faster rate than labour inputs i.e. total capital and capital per worker increases.

The difference between the acquisition and sale price of capital. This is mostly associated with investments in assets e.g. property, shares and other financial assets.

Goods that are used in the production of other goods and services e.g. machinery, computers, vehicles. They will create more value than consumer good and contribute to economic growth.

The diagram below shows an economy that is positioned to produce either capital goods or consumer goods and because capital goods have a bigger influence on economic growth, this economy is slanted towards producing more capital goods compared to consumer goods. But, it is still positioned on the PPF and therefore is fully utilising all the resources available in the economy.

Goods that are used in the production of other goods and services e.g. machinery, computers, vehicles. They will create more value than consumer good and contribute to economic growth.

Provides medium to long-term finance to firms and governments via long-term debt or equity. These instruments are illiquid as these instruments typically last for more than a year.

Below is a table to illustrate the methods in which different economic agents can obtain finance.

Measures the amount of capital that is needed to produce one unit of output and therefore is a measure of a country's capital productivity. This is one of two factors that the Harrod Domar Model states can affect economic growth substantially in developing and emerging economies.

Below is an illustration of how important the capital-output ratio is for development in emerging economies. If the capital-output ratio falls this is a positive note for a country's growth rate as it means less capital is needed to produce each extra unit of output. Therefore with the same capital input, output for a country should be boosted and generating a higher level of national income and output. However, if the ratio increases this reduces capital productivity per unit and leads to a lower level of output being produced and economic growth will slow.

 

 

The quantity of output produced by each unit of capital.

Below is a table to show how capital productivity can vary with just one unit of labour operating them.

Money spent on infrastructure projects by the Government e.g. new schools and the high speed rail project (HS2). Funding is usually provided by borrowing money via the issue of Gilts so that the cost of capital projects can be spread to reflect the long term nature of the benefits the project is excepted to deliver.