Economic Terms

Is a term that describes when a bond is being sold and traded at a discount price. When a bond is being traded at a discount (below par), its current yield is higher than the fixed coupon rate. This can happen for a variety of reasons but the most common is a rise in the interest rate which causes investors to switch to similar risk-related assets offering a greater return i.e. the excess supply of bonds forces the price to below par.

Unemployed workers that decide not to pursue re-employment. Sometimes referred to as workers that are marginally attached to the workforce i.e. of working age but not actively looking for a job.

Small adjustments to fiscal policy that are more likely to change the structure rater than the size of the economy. This is more likely to be motivated by political rather than economic factors.

A process which causes average costs to increase as output rises. It will occur when output rises above the level at which capacity is exceeded.

Below is a diagram to illustrate that as the size and scale of a firm and their output increases beyond an optimal point the firm inadvertently causes its own costs to rise. This is highlighted by the SRAC curves shifting up the LRAC as the scale of the firm increases. This shows that all firms have a capacity in which no more cost advantages are available i.e. increasing the scale and size of the firm has no beneficial effect on the firm e.g. a barber's shop in a small town.

When there is either an excess of demand or supply.

Below is set of diagrams to illustrate when an excess demand or supply can lead to a disequilibrium, as there is no longer a market price which causes the supply and demand to equalise.

A decrease in the rate of inflation for an economy over time. Disinflation occurs when the increase in the main price index of a country (e.g. UK CPI) slows down from the previous period is measured over.

This should not be confused with the term deflation. Because even if the inflation rate has slowed down from 2.2% to 1.5%, the general prices of everyday goods will still be increasing by 1.5% despite the lower figure.

The amount of income (including state benefits) in any period that remains after the deduction of direct taxes.

The share of profits that is paid to shareholders.

Workers perform individual tasks that contribute to the production of the good or service. This means that a number of workers will work together to produce a unit of a good/service. This helps to achieve greater efficiency as workers specialise in a smaller number of tasks.

This ultimately helps to increase productivity because the longer workers can carry out jobs for, the more efficient and acustomed they become towards carrying out the task in the best possible way. This then ultimately will free up workers time to carry out other tasks.

This is all based on Adam Smith's theory of specialisation regarding workers in a pin factory.

Workers perform individual tasks that contribute to the production of the good or service. This means that a number of workers will work together to produce a unit of a good/service. This helps to achieve greater efficiency as workers specialise in a smaller number of tasks.