Economics. Dr. Pass Christopher

suppliers who restrict output in order to keep prices high.

      dear money see TIGHT MONEY.

      Fig. 36 Deadweight loss. See entry.

      death rate the number of people in a POPULATION who die per thousand per year. In 2004, for example, the UK death rate was 10 people per 1,000 of the population. The difference between this rate and the BIRTH RATE is used to calculate the rate of growth of the population of a country over time. The death rate tends to decline as a country attains higher levels of economic development. See DEMOGRAPHIC TRANSITION.

      debentures a means of financing companies through fixed-interest LOANS secured against company ASSETS.

      In some cases the company may offer a specific asset, such as a particular machine, as security for the loan; in other cases lenders are offered security by means of a general claim against all company assets in the event of default. See LOAN CAPITAL.

      debt an amount of money owed by a person, firm or government (the borrower) to a lender. Debts arise when individuals, etc., spend more than their current income or when they deliberately plan to borrow money to purchase specific goods, services or ASSETS (houses, financial securities, etc.). Debt contracts provide for the eventual repayment of the sum borrowed and include INTEREST charges for the duration of the loan. An individual’s debt can include MORTGAGES, INSTALMENT CREDIT, BANK LOANS and OVERDRAFTS; a firm’s debt can include fixed-interest DEBENTURES, LOANS, BILLS OF EXCHANGE and bank loans and overdrafts; a government’s debt can take the form of long-term BONDS and short-term TREASURY BILLS (see NATIONAL DEBT). See PUBLIC SECTOR BORROWING REQUIREMENT. See also INTERNATIONAL DEBT.

      debt capital see LOAN CAPITAL.

      debt financing the financing of firms’ and governments’ deficits by the issue of FINANCIAL SECURITIES such as short-dated company BILLS OF EXCHANGE and government TREASURY BILLS, and, in the case of government, longer-term BONDS. See PUBLIC SECTOR BORROWING REQUIREMENT.

      debtor a person or business that owes money to individuals or firms for goods, services or raw materials that they have bought but for which they have not yet paid (trade debtors) or because they have borrowed money. Debtors are also termed ‘accounts receivable’. See CREDITORS, DEBT, CREDIT CONTROL, WORKING CAPITAL, BAD DEBT.

      debtor nation a country that has had more invested in it than it has invested abroad. A debtor nation has to pay out more interest and dividends on investments made in the country than it receives, with a consequent deficit in its BALANCE OF PAYMENTS. Many DEVELOPING COUNTRIES are debtor nations. Compare CREDITOR COUNTRY.

      debt servicing the cost of meeting INTEREST payments and regular contractual repayments of principal on a LOAN along with any administration charges borne by the BORROWER.

      decentralization the diffusion of economic decision-making to many different decision-makers rather than concentrating such decision-making centrally. In an economy this is achieved by the adoption of the PRICE SYSTEM, which devolves decisions to individual consumers and suppliers. In a firm, decentralization involves delegating authority to make decisions ‘down the line’ to particular divisions and departments. See PRIVATE ENTERPRISE ECONOMY, M-FORM ORGANIZATION.

      decision tree a graphical representation of the decision-making process in relation to a particular economic decision. The decision tree illustrates the possibilities open to the decision-maker in choosing between alternative strategies. It is possible to specify the financial consequence of each ‘branch’ of the decision tree and to gauge the PROBABILITY of particular events occurring that might affect the consequences of the decisions made. See RISK AND UNCERTAINTY.

      decreasing returns to scale see DISECONOMIES OF SCALE.

      decreasing returns to the variable-factor input see DIMINISHING RETURNS.

      deferred compensation payment schemes that pay lower wages during the early years of employment in an organization and higher wages in subsequent years. With deferred compensation schemes, a worker’s remuneration increases with seniority and experience, which tend to improve the worker’s efficiency within the organization. Such compensation schemes tend to reduce labour turnover and reduce SHIRKING. See PAY.

      deficiency payment see INCOME SUPPORT.

      deficit see BUDGET DEFICIT, BALANCE OF PAYMENTS.

      deficit financing see BUDGET DEFICIT, PUBLIC SECTOR BORROWING REQUIREMENT.

      deflation a reduction in the level of NATIONAL INCOME and output usually accompanied by a fall in the general price level (DISINFLATION).

      A deflation is often deliberately brought about by the authorities in order to reduce INFLATION and to improve the BALANCE OF PAYMENTS by reducing import demand. Instruments of deflationary policy include fiscal measures (e.g. tax increases) and monetary measures (e.g. high interest rates). See MONETARY POLICY, FISCAL POLICY.

      deflationary gap or output gap the shortfall in total spending (AGGREGATE DEMAND) at the FULL EMPLOYMENT level of national income (POTENTIAL GROSS NATIONAL PRODUCT). Because of a deficiency in spending, some of the economy’s resources lie idle and ACTUAL GROSS NATIONAL PRODUCT is below that of potential GNP. To counteract this deficiency in spending, the authorities can use FISCAL POLICY and MONETARY POLICY to expand aggregate demand. See Fig. 37. See also DEFLATION, REFLATION, INFLATIONARY GAP.

      DEFRA see DEPARTMENT FOR THE ENVIRONMENT, FOOD AND RURAL AFFAIRS.

      deindustrialization a sustained fall in the proportion of national output accounted for by the industrial and manufacturing sectors of the economy, a process that is often accompanied by a decline in the number of people employed in industry (compare INDUSTRIALIZATION).

      There is a well-established trend in advanced economics for the industrial sector to grow more slowly than the service sector, as shown in Fig. 38. For the UK, the share of industry in GDP fell from 43% in 1960 to 29% in 2002, while the share of services increased from 54% to 70%. Over the same period, employment in industry in the UK fell from 11.8 million in 1960 to 3.7 million in 2003.

      Fig. 37 Deflationary gap. (a) The AGGREGATE SUPPLY SCHEDULE is drawn as a 45-degree line because businesses will offer any particular level of output only if they expect total spending (aggregate demand) to be just sufficient to sell all of that output. However, once the economy reaches the full employment level of national income (OY₁), then actual output cannot expand further and at this level of output the aggregate supply schedule becomes vertical. (b) Alternatively, aggregate supply can be depicted in terms of the various levels of real national income supplied at each price level. Again, once the economy reaches the full employment level of real national income, the aggregate supply schedule becomes vertical. In both (a) and (b), if aggregate demand is at a low level (AD₁), then actual output (OY) will be determined by the intersection of AD₁ and the aggregate supply schedule at point A; this output (OY) is less than potential output (OY₁), leaving an output gap. An output gap can be removed by the authorities by expanding aggregate demand to the full employment level of aggregate demand (AD₂) where actual output (determined by the intersection of AD₂ and the aggregate supply schedule at point B) corresponds with potential GNP.

      Changes in sector shares may simply reflect changes in the pattern of final demand for goods and services over time, and as such may be considered a ‘natural’ development associated with a maturing economy. On the other hand, deindustrialization that stems from supply-side deficiencies (high costs, an overvalued exchange rate, lack of investment