Economic Terms

The yield on a bond is the annual coupon payment expressed as a percentage of the market price of the bond.

It illustrates the percentage of the coupon payment the investor is being rewarded with relative to the value of the bond. Higher bond yields illustrate that the investor will receive a large fraction of the value of their bond realtively early on. Bond yields have an inverse relationship with the market price of the bond as well as interest rates and can be calculated using the formula below:

 

 

A period of economic activity characterised by an increase in the rate of real output growth and increasing inflation.

As the diagram below illustrates this rise in economic activity will eventually lead to output being pushed above the full employment level, which is unsustainable. Therefore this is what causes inflationary pressures to be introduced to reign in the boom.

When the Government implements policies that fail to maintain steady growth and instead it achieves periods of rapid growth (boom) followed by decline (bust).

In normal cycles of economic activity an upturn leads to a boom followed by a downturn in which a recession leads to a trough which indicates the economy has gone bust. This description is used because low levels of economic growth will usually mean that tax revenues fall, government spending rises and the government is forced to borrow money to cover the shortfall in its finances. In extreme cases a sustained downturn may mean that a government is not able to borrow money from financial markets and will need to seek a bailout from organisations such as the IMF.

Although the real economy's economic cycle does not operate as smoothly as depicted in the graph, the general pattern seen is similar. The depth and duration of the different cycle phases will largely depend on the effectiveness of fiscal and monetary policies implemented by the government and central bank. Government's are not always prepared to pursue the fiscal and monetary policy that is necessary to control economic cycles. This is often the cause of extreme and prolonged downturns and the need to obtain bailout funding.

When supply in a particular part of the economy is insufficient and this holds back growth in other parts of the economy.

Is the idea that when individuals make decisions, their rationality is limited by the information they have, the cognitive limitations of their minds, and the time available to make the decision.

To question the idea that individuals are able to exercise self-control when presented with certain choices.

Below is an example of how this behavioural economics theory comes about. In this instancet Jenny has slipped out of her weekly regime for going to the gym and we have to assess whether she has chosen to stop this regime herself or whether it is a lack of self-control and discipline to keep the regime going.

A way of differentiating a good through the use of a wide range of promotional techniques.

 

 

A way of differentiating a good through the use of a wide range of promotional techniques.

A measure of the money supply that includes money held on deposit at banks in easily accessible accounts in addition to the physical notes and coins in circulation. M4 is the core measure of Broad Money and amounted to circa £2 trillion in 2013.

When the expenditure made by a government exceeds the taxes raised over a given period.