average propensity to consume (APC) the fraction of a given level of NATIONAL INCOME that is spent on consumption:
Alternatively, consumption can be expressed as a proportion of DISPOSABLE INCOME. See CONSUMPTION EXPENDITURE, PROPENSITY TO CONSUME, MARGINAL PROPENSITY TO CONSUME.
average propensity to import (APM) the fraction of a given level of NATIONAL INCOME that is spent on IMPORTS:
Alternatively, imports can be expressed as a proportion of DISPOSABLE INCOME. See also PROPENSITY TO IMPORT, MARGINAL PROPENSITY TO IMPORT.
average propensity to save (APS) the fraction of a given level of NATIONAL INCOME that is saved (see SAVING):
Alternatively, saving can be expressed as a proportion of DISPOSABLE INCOME. See also PROPENSITY TO SAVE, MARGINAL PROPENSITY TO SAVE.
average propensity to tax (APT) the fraction of a given level of NATIONAL INCOME that is appropriated by the government in TAXATION:
See also PROPENSITY TO TAX, MARGINAL PROPENSITY TO TAX, AVERAGE RATE OF TAXATION.
average rate of taxation the total TAX paid by an individual divided by the total income upon which the tax was based. For example, if an individual earned £10,000 in one year upon which that individual had to pay tax of £2,500, the average rate of taxation would be 25%. See STANDARD RATE OF TAXATION, MARGINAL RATE OF TAXATION, PROPENSITY TO TAX, PROPORTIONAL TAXATION, REGRESSIVE TAXATION, PROGRESSIVE TAXATION.
average revenue the total revenue received (price X number of units sold) divided by the number of units. Price and average revenue are in fact equal: i.e. in Fig. 12, the price £10 = average revenue (£10 × 10 ÷ 10) = £10. It follows that the DEMAND CURVE is also the average revenue curve facing the firm.
average revenue product the total REVENUE obtained from using a given quantity of VARIABLE-FACTOR INPUT to produce and sell output, divided by the number of units of input. The average revenue product of a factor is given by the factor’s AVERAGE PHYSICAL PRODUCT multiplied by the AVERAGE REVENUE or PRICE of the product. The average revenue product, together with average cost, indicates to a firm how many factor inputs to employ in order to maximize profit in the SHORT RUN. See MARGINAL REVENUE PRODUCT.
Fig. 12 Average revenue. The demand curve or average revenue curve.
average total cost (ATC) see AVERAGE COST (SHORT-RUN), AVERAGE COST (LONG-RUN).
average variable cost (AVC) see AVERAGE COST (SHORT-RUN), AVERAGE COST (LONG-RUN).
back door the informal mechanism whereby the BANK OF ENGLAND buys back previously issued TREASURY BILLS in the DISCOUNT MARKET at their ruling market price in order to release money to help the DISCOUNT HOUSES overcome temporary liquidity shortages. This is done as a means of increasing the liquid funds available not only to the discount houses themselves but also to the COMMERCIAL BANKS at prevailing interest rates to enable them to maintain their lending. Compare FRONT DOOR.
back-to-back loan or parallel loan an arrangement under which two companies in different countries borrow each other’s currency and agree to repay the loans at a specified future date. At the expiry date of the loans, each company receives the full amount of its loan in its domestic currency without risk of losses from exchange-rate changes. In this way back-to-back loans serve to minimize EXCHANGE-RATE EXPOSURE.
backward integration the joining together in one firm of two or more successive stages in a vertically related production/distribution process, with a later stage (for example, bread making) being combined with an earlier stage (for example, flour milling) Backward integration is undertaken to cut costs and secure supplies of inputs. See VERTICAL INTEGRATION, FORWARD INTEGRATION.
BACS (Bank Automated Credit System) a money transmission system whereby a payer instructs a COMMERCIAL BANK to debit a specified sum of money from his or her account and transfer it to a named payee’s bank account. This obviates the need for the payer to issue and post a cheque to the payee and for the payee then to bank it, thus saving on time and expense. Many employers now use BACS to pay their employees’ monthly salaries, and many companies use the system to transfer dividend payments to shareholders.
bad debt an accounting term for money owed that is unlikely to be paid because, for example, a customer has become insolvent (see INSOLVENCY). Such bad debts are written off against the PROFITS of the trading period as a business cost. See CREDIT CONTROL.
balanced budget a situation where GOVERNMENT EXPENDITURE is equal to TAXATION and other receipts. In practice, most governments run unbalanced budgets as a means of regulating the level of economic activity.
Where the government spends more than it receives in taxation, then a BUDGET DEFICIT is incurred. Where the government spends less than it receives in taxation, then a BUDGET SURPLUS ensues. See BUDGET, FISCAL POLICY, PUBLIC SECTOR BORROWING REQUIREMENT.
balanced budget multiplier a change in AGGREGATE DEMAND brought about by a change in GOVERNMENT EXPENDITURE, which is exactly matched by a change in revenues received from TAXATION and other sources. The change in government expenditure has an immediate effect on aggregate demand and generates income of an equivalent size. By contrast, the change in taxation does not change aggregate demand by an equivalent amount because some of the increased/reduced DISPOSABLE INCOME will be offset by changes in SAVING. Consequently, an increase in government expenditure and taxation of equal amounts will have a net expansionary effect on aggregate demand and incomes, while a decrease in government expenditure and taxation of equal amounts will have a net contractionary effect. See BUDGET, FISCAL POLICY.
balance of payments
A statement of a country’s trade and financial transactions with the rest of the world over a particular time period, usually one year. Fig. 13 (a), shows a summary presentation of the UK balance of payments for 2003. The account is divided into two main parts:
(a) current account, and
(b) capital and financial account.
The current account shows the UK’s profit or loss in day-to-day dealings. It is made up under two headings. The ‘visible’ trade balance (BALANCE OF TRADE) indicates the difference between the value of merchandise EXPORTS and IMPORTS of goods (raw materials, foodstuffs, oil and fuels, semi-processed and finished manufactures). ‘Visibles’ are so called because they consist of tangible goods that can be seen directly and recorded by the country’s CUSTOMS AND EXCISE authorities as they move into or out of the country. The second group of transactions make up the ‘INVISIBLE’ TRADE BALANCE. These transactions include earnings from, and payments for, such services as banking, insurance, transport and tourism. It also includes interest, dividends and profits on investments and loans, and government receipts and payments relating to defence, upkeep of embassies, etc., and transfers to the European Union budget. (See Fig. 62 (a)).
‘Invisibles’