The basic model can be developed to incorporate a number of ‘INJECTIONS’ to, and ‘WITHDRAWALS’ from, the income flow. In Fig. 22 (b), not all the income received by households is spent – some is saved, SAVINGS is a ‘withdrawal’ from the income flow. INVESTMENT expenditure ‘injects’ funds into the income flow. Part of the income accruing to households is taxed by the government and serves to reduce disposable income available for consumption expenditure. TAXATION is a ‘withdrawal’ from the income flow. GOVERNMENT EXPENDITURE on products and factor inputs ‘injects’ funds into the income flow. Households spend some of their income on imported goods and services. IMPORTS are a ‘withdrawal’ from the income flow. On the other hand, some output is sold to overseas customers. EXPORTS represent a demand for domestically produced goods and services and hence constitute an ‘injection’ into the income flow. See also AGGREGATE DEMAND, EQUILIBRIUM LEVEL OF NATIONAL INCOME MODEL.
Fig. 22 Circular flow of national income model. (a) The basic model of the relationship between money flows and physical flows. (b) A more complex model, incorporating injections to and withdrawals from the income flow.
City code a regulatory system operated voluntarily by interested parties to the UK STOCK EXCHANGE that lays down ‘rules of good conduct’ governing the tactics and procedures used in TAKEOVER BIDS and MERGERS. The general purpose of the code is to ensure that all SHAREHOLDERS (both the shareholders of the firm planning the takeover and those of the target firm) are treated equitably, and that the parties City (of London) involved in arranging a takeover bid do not abuse privileged ‘insider’ information, or misuse such tactics as CONCERT PARTIES, DAWN RAIDS and CHINESE WALLS.
The City code is administered by the City Panel on Takeovers and Mergers, which is responsible for formulating rules of practice and for investigating suspected cases of malpractice. See also INSIDER TRADING.
City (of London) the centre of the UK’s FINANCIAL SYSTEM, embracing the MONEY MARKETS (commercial banks, etc.), CAPITAL MARKET (STOCK EXCHANGE), FOREIGN EXCHANGE MARKET, COMMODITY MARKETS and INSURANCE MARKETS. The City of London is also a major international financial centre and earns Britain substantial amounts of foreign exchange on exports of financial services.
City Panel on Takeovers and Mergers see CITY CODE.
claimant count unemployment measure a UK measure of UNEMPLOYMENT that is based on the number of people claiming unemployment-related benefits (see JOBSEEKERS ALLOWANCE) at job centre offices. The unemployment rate is then expressed as a percentage of ‘workforce jobs’ (the number of persons recorded as being in full-time and part-time employment) plus claimant unemployment. In 2004 (third quarter) the unemployment rate was calculated at 2.7% using this measure. Compare INTERNATIONAL LABOUR ORGANIZATION UNEMPLOYMENT MEASURE. See REGISTERED UNEMPLOYMENT.
classical economics a school of thought or a set of economic ideas based on the writings of SMITH, RICARDO, MILL, etc., which dominated economic thinking until about 1870, when the ‘marginalist revolution’ occurred.
The classical economists saw the essence of the economic problem as one of producing and distributing the economic wealth created between landowners, labour and capitalists; and were concerned to show how the interplay of separate decisions by workers and capitalists could be harmonized through the market system to generate economic wealth. Their belief in the power of market forces led them to support LAISSEZ-FAIRE, and they also supported the idea of FREE TRADE between nations. After about 1870, classical economic ideas receded as the emphasis shifted to what has become known as NEOCLASSICAL ECONOMIC ANALYSIS, embodying marginalist concepts.
Classical economists denied any possibility of UNEMPLOYMENT caused by deficient AGGREGATE DEMAND, arguing that market forces would operate to keep aggregate demand and POTENTIAL GROSS NATIONAL PRODUCT in balance (SAY’S LAW). Specifically, they argued that business recessions would cause interest rates to fall under the pressure of accumulating savings, so encouraging businesses to borrow and invest more, and would cause wage rates to fall under the pressure of rising unemployment, so encouraging businessmen to employ more workers. See LABOUR THEORY OF VALUE, KEYNES, PRIVATE ENTERPRISE ECONOMY.
clearing bank see COMMERCIAL BANK.
clearing house system a centralized mechanism for settling indebtedness between financial institutions involved in money transmission and dealers in commodities and financial securities. For example, in the case of UK commercial banking, when a customer of Bank A draws a cheque in favour of a customer of Bank B, and the second customer pays in the cheque to Bank B, then Bank A is indebted to Bank B for the amount of that cheque. There will be many thousands of similar transactions going on day by day, creating indebtedness between all banks. The London Clearing House brings together all these cheques, cross-cancels them and determines at the end of each day any net indebtedness between the banks. This net indebtedness is then settled by transferring balances held by the COMMERCIAL BANKS at the CENTRAL BANK (BANK OF ENGLAND).
A similar ‘clearing’ function is performed in the commodities and financial securities market by, for example, the International Commodities Clearing House and the London Financial Futures Exchange. See STOCK EXCHANGE, FUTURES MARKET, COMMODITY MARKET.
closed economy an economy that is not influenced by any form of INTERNATIONAL TRADE, that is, there are no EXPORTS or IMPORTS of any kind. By concentrating on a closed economy, it is possible to simplify the CIRCULAR FLOW OF NATIONAL INCOME MODEL and focus upon income and expenditure within an economy.
In terms of the circular flow, AGGREGATE DEMAND in a closed economy is represented by:
| Y = C + I + G | ||
| where | Y | = national income |
| C | = consumption expenditure | |
| I | = investment expenditure | |
| G | = government expenditure |
By contrast, the OPEN ECONOMY allows for the influence of imports and exports and here aggregate demand is represented in the circular flow as:
| Y | = C + I + G + (X-M) | |
| where | X | = exports |
| M | = imports |
closed shop a requirement that all employees in a given workplace or ORGANIZATION be members of a specified TRADE UNION. Closed shops are often imposed by powerful trade unions as a means of restricting the supply of labour and maintaining high wage rates for members. See SUPPLY-SIDE ECONOMICS.
club principle a means of allocating the common overhead costs incurred in providing a good or service to each individual consumer. For example, residents may create a club to arrange for the resurfacing of a private road. See COLLECTIVE PRODUCTS, FREE-RIDER.
clusters geographically proximate groups of interconnected companies, suppliers, service producers and associated institutions, linked by commodities and complementarities. Michael Porter identified clusters as being vital for competitiveness insofar as they improve productivity and flexibility, aid innovation and contribute to new business formation. Porter noted that national economics tend to specialise in certain industrial clusters and that if these clusters are internationally competitive then their export performance will be good. See COMPETITIVE ADVANTAGE OF COUNTRIES, EXTERNAL ECONOMIES OF SCALE.
Coase theorem see TRANSACTION COSTS.
Cobb-Douglas production function a particular physical relationship between OUTPUT of products and FACTOR INPUTS (LABOUR and CAPITAL) used to produce these outputs. This particular form of the PRODUCTION FUNCTION suggests that where there is effective competition in factor