f ðD 1 þD 2 ÞþD 1 f 0 ðD 1 þD 2 Þ¼0 f ðD 1 þD 2 ÞþD 2 f 0 ðD 1 þD 2 Þ¼0 Seealso:duopoly References Cournot, A. (1897) Researches into the Mathematical Principles of the Theory of Wealth, trans. N.T. Bacon, ch. 7, New York: Macmillan. cover (G1) Earnings available to shareholders divided by the total amount of dividend paid. Thus, if cover is 3.2, the dividend is covered more than three times so it is unlikely that the dividend will have to be cut in the next year and the company has sufficient retained earnings to be able to expand. However, a company with a high cover for a number of years appears to be cautious and neglecting growth opportu- nities. cowboy (M1) A small-scale business, often in the con- struction industry, which dishonestly per- forms a contract and then rides away before non-performance of the contract is discovered. cowboy economy (M0) An economy, like the US economy, which behaves as if natural resources are infinite in supply and that Nature can absorb any amount of refuse. BOULDING coined this term to describe the ‘Wild West’ philoso- phy still prevalent in modern USA. Seealso:spacemaneconomy Cowles Commission (B2, C0) US econometric research centre founded in Colorado Springs in 1932 and then moving to Chicago University in 1939 to avoid the Colorado state income tax which affected its publisher benefactor. It was noted in its early days for the distinctive econometric methodology of HAAVELMO and his followers which concentrated on the problems of simultaneity, identification and estimation. Seealso:econometrics References Haavelmo, T. (1944) ‘The probability ap- proach in econometrics’, Econometrica (Supplement) 12: 1–115. Hildreth, C. (1986) The Cowles Commis- sion in Chicago, 1935–55, Berlin: Springer Verlag. CPI-U (E3) A version of the US CONSUMER PRICE INDEX for all urban consumers covering about 80 per cent of the US population. CPI-W (E3) A version of the US CONSUMER PRICE INDEX for all urban wage earners and clerical workers covering about 32 per cent of the US population. craft union (J5) A TRADE (LABOR) UNION drawing all of its membership from a ‘trade’, i.e. a few closely related occupations, e.g. in engi- neering or printing. Many of the first unions in the UK and the USA were of this nature. Craft unionism has been blamed for much DEMARCATION, a practice which raises labour costs by insisting on a rigid subdivision of labour. Unskilled © 2002 Donald Rutherford workers, before forming general unions, resented the craft unions for maintaining a labour elite. Seealso:generalunion;industrialunion crashometrics (G1) The quantitative analysis of crashes in security or currency markets. This exercise provides a means of estimating the expo- sure of a portfolio to a market crash. crawling peg (F3) An exchange rate adjustment method which gradually changes the par value of an exchange rate by small amounts. This is less disruptive than DEVALUATION or reva- luation as it does not encourage specula- tion. creative accounting (M4) The manipulation of the accounts of a firm or other enterprise to produce a more favourable picture of its financial state. Profits are made to appear higher to induce a rise in the company’s share price; costs are inflated to justify product price increases. A variety of methods can be used, e.g. changing the method of allocat- ing expenses, changing the valuation of assets and using more convenient ex- change rates than those ruling at the time of the transaction. Some of these practices are within the rules of company law; others are so questionable as to amount to deception. UK local authorities in the 1980s used many devices to increase their spending, including selling their principal buildings and leasing them back, barter (e.g. exchanging council land for a new building), rescheduling debts and capitaliz- ing current expenditure (e.g. including house repairs in their capital programme). References Griffiths, I. (1986) Creative Accounting: How to Make Your Profits What You Want Them to Be, London: Sedgeworth & Jackson. creative destruction (O3, P1) SCHUMPETER’s description of the evolution- ary process inherent in CAPITALISM consist- ing of entrepreneurs employing new products and new processes to supplant the old. References Schumpeter, J.A. (1976) Capitalism, Soci- alism and Democracy, 5th edn, New York: Harper; London: Allen & Unwin. creative federalism (H7) A co-operative partnership between the federal, state and local governments of the USA which led to many new programmes. President Lyndon B. Johnson used this term to describe US federalism in the 1960s. Seealso:co-operativefederalism;dual federalism;fiscalfederalism credit (G2) 1 A loan, or an agreement to lend money, to be repaid at a later date. 2 Bank lending (in macroeconomics) as credit is chiefly analysed within the context of the money supply. 3 All the sources of finance available to firms (including TRADE CREDIT) and to households. In the past two decades there has been a great increase in the amount of credit given to households on the basis either of collateral (a house in the case of a building society mortgage) or of CREDIT SCORING for hire purchase expenditure on CONSUMER DURABLES . The creation of new credit instruments, e.g. the credit card, has re- sulted in an expansion in the total volume of credit. References Beckman, T.N. and Foster, R.S. (1969) Credits and Collections: Management and Theory, 8th edn, New York: McGraw-Hill. credit card (G2) A means of purchasing consumer goods and services by presenting a card issued by a bank, financial institution or retailer permitting the buyer to settle in part or in full the amount payable. Major examples © 2002 Donald Rutherford of these include Visa and Mastercard. Such cards, in use in the USA since 1950 and in the UK since 1966, have contributed to the large increase in consumer debt. As the banks financing these cards advance the amount due to retailers and collect from the cardholders later, they bring about a short-term increase in the money supply. Like the development of other modern financial arrangements, credit cards have made it more difficult for central banks to control the money supply. Seealso:affinitycard;chargecard;debit card;smartcard credit crunch (E5) A shortage of bank loans and other forms of credit which brings about the curtail- ment of a business’s activities or even its collapse. Credit can be limited by its price, by the type of borrower or by the state of the lender’s balance sheet relative to the criteria used by a regulatory body (this often happened in the USA under REGULA- TION Q ). The crunch comes under regula- tion because the lenders cannot use their own funds. References Wojnilower, A.M. (1980) ‘The central role of credit crunches as recent financial history’, Brookings Papers on Economic Activity 2: 277–326. credit enhancement (G1) A technique for improving the credit- worthiness of a security or asset-backed debt. The collateral can be larger than the debt, or losses can be underwritten. credit money (E4) Banknotes and bank deposits which have been created by banks. This MEDIUM OF EXCHANGE has gradually displaced coinage made of precious metals. creditmultiplier(E4)seemoney multiplier credit rating (G0, H0) Measuring the creditworthiness of a gov- ernment or corporation. For a govern- ment, a scale from the lowest (0) to the best (100) using the information supplied by leading international banks is used; for corporations, the most famous rating is conducted by STANDARD & POOR. credit rationing (E5) Restricting the total amount which can be borrowed or excluding types of borrower so that a central bank can control the total volume of bank deposits. The aim of this rationing is to reduce the risk of borrowers defaulting or to prevent increases in inter- est rates. In the UK this was traditionally done by the BANK RATE, which provided the basis for all other interest rates. However, in the UK as elsewhere a greater variety of controls have been employed. The recent growth of new money markets, where interest rates are largely determined sepa- rately within each market, has weakened the power of central banks to exercise complete control. Seealso:‘corset’;specialdeposit credit reserves (F3) Gold and foreign currency reserves of central banks which are used to settle intercountry indebtedness. Increasingly, major currencies, such as those of the USA, Germany, Japan, Switzerland and the UK, have been held in preference to gold. credit scoring (G2) Assessments of applicants for credit using a points system. A score is awarded for each of the applicant’s characteristics, e.g. home ownership, employment and pay- ment record for previous credit. Credit is granted if the total score is above the acceptance level. credit spread (G1) That part of the yield to maturity attribu- table to credit risk. Treasury bonds have no credit risk but financial instruments with less liquidity do. credit tranche facility (F3) An INTERNATIONAL MONETARY FUND lending facility to help a member country deal © 2002 Donald Rutherford with a short-term balance of payments problem, similar to a COMPENSATORY FINAN- CIAL FACILITY . The loan has to be repaid over a three- to five-year period. credit union (G2) A friendly society whose members save to provide small loans to other members in need of financial assistance at an interest rate lower than the market rate. The group forming a credit union usually resides in the same area, or works for the same employer or belongs to another associa- tion, e.g. a church. In the depressed areas of the UK in the 1980s credit unions became popular alternatives to the main financial institutions. By 1990, 310 were formed in the UK with over 40,000 mem- bers; the USA has more than 60 million persons in credit unions; in Germany they appeared as early as the 1860s. crisis (E3) In Marxian economics, a phase of the TRADE CYCLE which is the upper turning point where an economy turns down from a boom to a recession. Marx believed that such crises were inevitable under CAPITAL- ISM and would occur every ten years. A crisis could occur for two reasons. The preceding increase in employment pushes up wages and reduces the rate of profit below the normal level, cutting back capital accumulation. Also, producers who are slow to innovate have higher costs and may go bankrupt and cause a collapse of firms throughout the economy. Crises, according to Marxists, are inevitable under capitalism because of its continual capital accumulation without the co-ordination of investment decision making which plan- ning would achieve. References Sweezy, P.M. (1942) The Theory of Capi- talist Development: Principles of Marx- ian Political Economy, chs 8–10, New York: Oxford University Press; London: D. Dobson. crisis management (H1, L2, Q2) Working out strategies to deal with possi- ble disasters, e.g. floods, interference with the quality of a product or an act of war. The police, fire and ambulance services have to consider worst case scenarios but firms also need contingency planning. They can maintain EXCESS CAPACITY and keep large inventories, e.g. to guard against a disruption in the supply of crucial components, as well as contracting to retain the services of other firms as back-up. critical economy (E3, P0) An atypical ECONOMY subject to disrup- tions and shocks. critical value (C1) The lower or upper value of a CONFIDENCE INTERVAL. cross price elasticity of demand (C1, D0) The responsiveness of the quantity de- manded of one good to a change in the price of another good. It can be measured, for example, as the ratio of the percentage change in quantity demanded of good A to the percentage change in the price of good B. If A and B are substitutes the cross price elasticity is positive; it is negative if A and B are complements. The concept has been used extensively by analysts of market concentration and ANTI- TRUST lawyers as it indicates whether the dissimilar output from different firms is supplied to one or several markets. Seealso:elasticity cross-section data (C8) Data referring to different groups at the same point in time, e.g. wages of workers in different countries at a particular date. Economic analysis based on time series data faces the problem of the effects of the passage of time on exogenous variables; cross-sectional analysis eliminates this dif- ficulty. cross-subsidization (L1, L3) The financing of an unprofitable part of an enterprise by a more profitable part. A public enterprise, instead of following the © 2002 Donald Rutherford ruleofattributingcostsproperlytoeach divisiontomakeeachpartofthatenter- priseindividuallyfinanciallyaccountable, couldallowtheprofitabledivisionsto financeloss-makingdivisions.Inthepri- vatesector,cross-subsidizationoccurs withinfirmsifsomeoftheirproductsare soldatlessthanincrementalcost.To ensuremaximumefficiency,firmsshould avoidthispracticeasfaraspossible. cross-trading(D4) Amethodofdisposingofallthegoodsa selleroffersinamarketbysellingthe samegoodatdifferentpricesthroughouta tradingday,withpricesfallingtowardsthe endoftheday. crowdinghypothesis(J2,J7) Theviewthat DISCRIMINATIONoccursbe- causesomeworkersarecrowdedintothe fewoccupationslackingbarrierstoentry. Women’swages,forexample,havebeen depressedbyanexcesssupplytothefew jobstraditionallyavailableforwomen. BothJohnStuart MILLandEDGEWORTH usedthismodelofdiscrimination. Seealso:occupationalsegregation crowdingin(E2) Publicexpenditurewhichstimulatespri- vatesectorinvestment. Seealso:crowdingout crowding out (E2) An alleged effect on private sector demand of an increase in public expenditure. It was argued, especially by MONETARISTS, that KEYNESIAN style budget deficits will raise borrowing with the effect of increasing interest rates which will lead to a reduc- tion in private sector investment and expenditure on consumer durables. The stimulative effect of increased government expenditure will be cancelled out by ex- penditure reductions in the private sector. The reduction in business investment, in the long term, will further reduce the ability of the private sector to spend. The size of this effect depends strongly on the ELASTICITY of IS-LM CURVES. In the figure, although an increase in government ex- penditure raises the IS curve from IS 1 to IS 2 , because of the INELASTICITY of the LM curve the rate of interest rises from r 1 to r 2 , without an increase in national income. Crowding out may also occur because increased government spending changes private sector expectations about the fu- ture of the economy, thereby reducing the amount of investment carried out. References Carlson, K.M. and Spencer, R.M. (1975) ‘Crowding out and its critics’, Federal Re- serve Bank of St Louis Review 57: 2–17. Friedman, B.M. (1978) ‘Crowding out or crowding in? Economic consequences of financing government deficits’, Brookings Papers on Economic Activity 9: 593–641. crude population rate (J1) The ratio of births, deaths, or other demo- graphic events, to the average total popu- lation of a country at the midpoint of a specified period, usually a year. These rates are called ‘crude’ because the popu- lation used in the denominator is not adjusted to give the measure theoretical significance, e.g. a crude birth rate per total population is less useful in a demo- graphic model than a birth rate per women of child-bearing age. © 2002 Donald Rutherford Cshare(G1) AChinesestockmarketshareownedonly bystate-ownedenterprises.Itisdenomi- natedandpayableineitherChineseor foreigncurrency. cultivatedcapital(E0,Q0) Ahybridformof CAPITALcombininghu- man-madeand NATURALCAPITAL,e.g.food, woodandnaturalfibres. culturaleconomics(Z1) Theanalysisofthedemandforand productionofliterature,music,opera, drama,paintingandsculpture.Thepecu- liaritiesofthelabourmarketforthese performersandproducersareanalysed andtheroleofpublicsubsidiesconsidered. References Baumol,W.J.andBowen,W.G.(1966)The EconomicDilemma,NewYork:The TwentiethCenturyFund. Peacock,A.andRizzo,I.(1994)Cultural EconomicsandCulturalPolicies,Dor- drecht:KluwerAcademic. Ruskin,J.(1857)ThePoliticalEconomyof Art,London:Smith,Elder. CulturalRevolution(N0) Achangeintheorganizationofthe Chinesesocietyandeconomyinthelate 1960sand1970s.Thisrevolutionchal- lengedthe DIVISIONOFLABOURpreviously practised,especiallybybreakingdownthe divisionbetweenthetownandcountry- side.Revolutionaryfactorycommittees weresetuptoimplementchanges.These includedusingfive-yearplansonlyas generalguidelines,requiringadministra- torstoworktwoorthreedaysperweek inmanualworkandsettingupofwork teamsinvolvedinmattersasdiverseas productionplanning,assigningproduction tasks,establishingsafetyregulationsand managingwelfarefunds.Massactionwas usedtounifytheworkingclass. References Bettelheim,C.(1974)CulturalRevolution andIndustrialOrganizationinChina. ChangesinManagementandtheDivi- sionofLabour,trans.A.Ehrenfeld,New YorkandLondon:MonthlyReview Press. cumdividend(G2) Astockexchangesecuritywiththeentitle- menttoreceiveanimminentdividend. cumulativemultistagecascadesystem (H2) Asalestaxonthegrossvalueofa commodityateachstageofproduction.It doesnotallowarebateoftaxespaidat earlierstagesofproduction.Thistaxwas inforceinWestGermanyuntiltheendof 1967,inLuxemburguntiltheendof1969 andintheNetherlandsuntiltheendof 1968. cumulativepreferenceshare(G1)see preferenceshare cumulativesecurity(G1) Astockexchangesecuritywhichaccumu- latesunpaidinterestorpreferencedivi- dendssothattheholderdoesnotsuffer fromayearofpoorprofitability.Inreturn forthisgreatersecurityofincome,many cumulative PREFERENCESHARESarewithout votingrights. currenciesoftheworld(F3)see AppendixA currency (F3) The official money currently circulating in a country and available for immediate use as a medium of exchange. It can take the for m of coins, BANKNOTES and, in a broader sense, BANK DEPOSITS. Currencies are called by various names, the most popular being dollar, franc and kroner. The value of a currency is regarded as an overall indica- tor of world opinion about that country’s economy. Apart from the use of prudent fiscal and monetary policies to boost confidence in a currency, there are other ways of making a currency attractive. A central bank can produce beautiful bank- notes, offer CONVERTIBILITY into another currency or raise its interest rates to encourage foreign holdings of that cur- rency. A few small countries – Luxemburg, © 2002 Donald Rutherford PanamaandLiechtenstein–donothave theirowncurrencies. Seealso:coinage currencyappreciation(F3) Ariseintheinternationalvalueofa currency.If,forexample,moreFrench francsareexchangedthanpreviouslyfor thesameamountofUSdollars,thedollar hasappreciated. currencybasket(F3) Acombinationofcurrenciestoproducea commonunit,e.g.the ECU.Thevaluesof thesecurrenciesareweighted,e.g.by sharesinworldtradeorthegrossnational productsofthecountriesparticipating. currencycocktail(F3) Amixtureofcontributingcurrencies,e.g. the ECUorSDR. currencydepreciation(F3) Afallintheinternationalvalueofa currencyaslessofanothercurrencyis exchangedforoneunitofone’sown. Residentsofonecountryusingthecur- rencyinothercountrieswillhavetheir purchasingpowerperunitofthecurrency reduced.Depreciationcanoccurveryra- pidlyinforeignexchangemarketsinreac- tiontobadnewsaboutthestateofthe economyissuingthecurrency. currencydevaluation(F3) Afallina FIXEDEXCHANGERATEwhich reducesthevalueofacurrencyinterms ofothercurrencies.Thepound,forexam- ple,wasdevaluedin1949fromUS$4.03to US$2.80andin1967fromUS$2.80to US$2.40.Theaimofdevaluationisto improvethebalanceofpayments CURRENT ACCOUNT .Thechangeintheexchangerate byraisingimportpricesandlowering exportpriceswillreduceimportsand increaseexports,ifthereisaprice-elastic demandforbothandthepossibilityof divertingproductiontoexportsandsub- stitutesforimportsbyreducingdomestic expenditure. Seealso:J-curve;Marshall–Lernercondi- tion currencymarket(F3)seeforeign exchangemarket currency reform (F3) Replacing an existing currency which has lost its value with a new currency. Ger- many after the First and Second World Wars provides good examples of this. On an appointed day, holdings of the old currency are replaced by the new at a particular exchange rate. The intention of such reform is to restore confidence in the money used by a state. In some extreme cases where a currency has been severely devalued, it has changed its name, e.g. in Peru the sol de oro became the inti. currency revaluation (F3) A deliberate increase in the price of a currency with a fixed exchange rate. This is undertaken to reduce a balance of payments surplus. Revaluation is often urged by countries in deficit to enable them to compete more easily in interna- tional markets. As a consequence of a revaluation, a CENTRAL BANK suffers losses from the fall in value of its foreign exchange holdings: taxpayers ultimately bear these losses as central banks are usually owned by governments. currency risk (F3) The possibility of suffering a financial loss through holding a currency which falls in value. Supporters of the EURO argue that one of the principal arguments for mone- tary union is the reduction in this type of risk. currency run (G2) A great increase in the public’s demand for cash because of the belief that other forms of finance, including CREDIT CARDS, will be ineffective. At the time of the beginning of the new millennium, 1 January 2000, many believed that only coins and banknotes were reliable at a time when widespread computer failures were possible. © 2002 Donald Rutherford CurrencySchool(B1,N2) AgroupofUKeconomistswho,following RICARDO,believedthatthenoteissue shouldbeconvertibleandstrictlydeter- minedbytheamountofgoldpossessedby theBankofEngland.Theleadersofthe school,Robert TORRENSandSamuelLOYD (laterLordOverstone),convincedPrime MinisterSirRobertPeeloftheirtheory– hencethe BANKCHARTERACT1844whichwas toprovidetheframeworkformanyofthe operationsofUKbankinguntil1980. References Felter,F.W.(1965)DevelopmentofBritish MonetaryOrthodoxy,1719–1875,Cam- bridge,MA:HarvardUniversityPress. currencystabilizationscheme(F3) Aninternationalarrangementbywhicha groupofstatesagreestolinktheexchange ratevaluesoftheircurrenciestogold,a leadingcurrency(e.g.theUSdollar)oran artificialcurrency.Thefirstschemeinthe post-1945periodwas BRETTONWOODS;the majoroneinforceatthebeginningofthe twenty-firstcenturyisthe EUROPEANMONE- TARYSYSTEM. currencyswap(F3) Acapitalmarketexchangeofaloanin onecurrencyforaloaninanother,e.g.a fixedinterestdollarloanforafloating interestloaninSwissfrancs. currentaccount(F4,G2) 1AbankaccountofaUK CLEARINGBANK immediatelyavailableformakingpay- ments.Inthepast,bankaccountsof thistypeneverearnedinterest;some nowdo.IntheUSAtheyareknownas CHECKINGACCOUNTSorSIGHTDEPOSITS. 2Asub-accountofanation’s BALANCEOF PAYMENTS accountsconsistingofvisible andinvisibletradeplusprivateand officialcurrenttransfers;capitalflows areintheseparatecapitalaccount. Seealso:NOWaccount currentassets(M2) Theassetsofafirmconvertibleintocash withinaperiodoftwelvemonths.They consistofstockintrade,workinprogress, debtsowedtothefirm,readilyrealizable investments,billsreceivable,prepayments, cashatthebankandinhand. Seealso:currentliabilities currentcostaccounting(M4) Aformofaccountingwhichincludes adjustmentsfortheeffectsofinflation. TheUK’sStatementofStandardAccount- ingPractice1980requiredseveraladjust- mentstobemade:to DEPRECIATIONforfixed assetswhichhadriseninprice,tosales figuresforthehighercostofreplacing stocksandtomonetaryworkingcapital. Seealso:inflationaccounting;Sandilands Report currentdeposit(G2) AbankdepositofaUKbankwhichis payableondemand,nowtermeda SIGHT DEPOSIT . Seealso:demanddeposit;timedeposit currentliabilities(M2) Thedebtsofafirmpayablewithinthe currentaccountingperiod,usuallytwelve months,whichincludesumsowedby creditorsandbillspayable.Theseare liquidifpayablewithinamonth;other- wise,‘deferred’. Seealso:currentassets current operating profit (M2) The current value of output sold over a period, less the current cost of related inputs. current population survey (J2) A survey of US households undertaken by the US Census Bureau. Its monthly sur- veys are used to provide data on employ- ment, unemployment, wages and hours statistics. Also it provides annual figures on school enrolments, living arrangements, annual incomes, poverty status and other important socioeconomic variables. current prices (C1) A measurement of an income variable at the prices of the period for which data © 2002 Donald Rutherford werecollected;forexample,consumption atcurrentpriceswouldshowforyearsX, YandZtheactualcostofpurchasingsuch goodsandservicesatthepricesrulingin yearsX,YandZrespectively. currentpurchasingpower(M2,M4) Thehistoricvalueofanassetadjustedby changesinaretailpriceindex. Seealso:inflationaccounting currentratio(M2) Theratioof CURRENTASSETStoCURRENT LIABILITIES ofafirm.Alsoknownasa workingcapitalratioor2:1ratiofollowing theruleofthumbthatassetsshouldbe twiceliabilities,unlesstheseasonalor speculativenatureofthefirmrequires moreworkingcapital.Thisistheprincipal measureofthe LIQUIDITYofafirm. customize(L2) Tomodifythestandarddesignofa CON- SUMERDURABLE byminorchangesinits appearanceorfunctionstoallowitsowner toexpresshisorherpersonality,e.g. replacingsmallcar/automobilewheelsby largerones. customsunion(F0) Agroupofcountrieswitha COMMON EXTERNALTARIFF butwithfreetrade amongstthemselvesandfreemovement oflabourandcapital.The EUROPEANCOM- MUNITY isamajorexampleofsuchan arrangement.Manytheoriesaboutcus- tomsunionsarebasednotonlyonhow freetradebasedon COMPARATIVEADVANTAGE isbeneficialbutalsoonLOCATIONTHEORYto understandthechangeswithinthecus- tomsunion,e.g.themovementofcapital andpopulationtowards GROWTHPOLES creatingadynamiceffectofaunion. cycles(E4) Regularfluctuationsinanationalecon- omyfromapeakthroughadownswingto atroughandthenanupswingbacktothe peak.Fewnationaleconomiesarewithout thisinstability. Seealso:boomandbust;businesscycle; Juglarcycle;Kitchincycle;Kondratieff cycle;Kuznetscycle;stop–go cyclical trade (F1) A type of INTRA-INDUSTRY TRADE, particu- larly in agricultural products which are traded north to south between the two hemispheres in one harvest and south to north in the other part of the year. cyclical unemployment (J6) Recurrent unemployment occurring at particular phases of the business cycle, starting with the downturn from a boom. This unemployment is caused by a defi- ciency of AGGREGATE DEMAND and is asso- ciated with a fall in the number of job vacancies. cyclical variations (C1) Movements in a TIME SERIES brought about by the BUSINESS or TRADE CYCLE. These components of changes in the values of a variable can be removed from raw data by first removing seasonal variations by mak- ing a SEASONAL ADJUSTMENT and then divid- ing the adjusted data by corresponding trend values. © 2002 Donald Rutherford D D(G1) A SECURITYofquestionablevalueaccording totheratingagencyStandard&Poor. Seealso:AAA;BBB;BB;QDDR daisy-chain scheme (H2, M2) A commercial scheme for passing a com- modity through a chain of company sub- sidiaries to avoid taxation. Dalton improving tax reform (H2) An income transfer from a household of high social rank to a lower ranking house- hold that does not change the ranking of households. This MARGINAL TAX change yields a marginal improvement in social welfare. References Dalton, H. (1920) ‘The measurement of the inequality of income’, Economic Journal 30: 348–61. data (C8) Measured observations obtained from of- ficially or privately collected statistics: the raw material of empirical economics. data-mining (C1) Persistent and repeated attempts to find significant relationships between variables. However, the excessive zeal of the re- searcher may produce a false relationship. This misuse of ECONOMETRICS gives undue prominence to insignificant economic re- lationships. David Hume Institute (H0) An economic research institute founded in 1985 and now based in Edinburgh, Scot- land, with Sir Alan Peacock as its first executive director. It has examined the economics of regulation, broadcasting, small firms and banking. Davignon Plan (L5) The plan of the European Coal and Steel Community in 1980 to restructure the European steel industry; named after the EUROPEAN COMMUNITY’s Industry Commis- sioner, Viscount Etienne Davignon. State aid was offered (mainly for environmental improvements or research and develop- ment) provided that there was a cut in steel-making capacity. Minimum prices were set together with production quotas to cover 85 per cent of the European Community’s output. The plan succeeded in scrapping production quotas by the end of 1987 and using MARKET FORCES to complete the adjustment process. Davos man (F0) A businessman, banker, official or intellec- tual who is a literate and numerate grad- uate with a belief in individualism, market economics and democracy. These men, from any culture, control governments and their economic capabilities. The World © 2002 Donald Rutherford [...]... much of WELFARE ECONOMICS, e.g the analysis of the effects of a monopoly, of taxes and of tariffs The size of the deadweight loss depends on the ELASTICITY of demand or supply Deane, Phyllis Mary, 1918– (B3) Educated at Glasgow University Research officer at the National Institute for Economic and Social Research from 1941 to 1945, at the Colonial Office from 1946 to 1949 and at the Department of Applied... units of a variable factor of production are applied to a fixed factor The most familiar example was the application of increasing amounts of labour to a fixed amount of land with the consequence that the MARGINAL PRODUCT of labour declined This view of agricultural production was central to much of CLASSICAL ECONOMICS, including RICARDO’s model of the economy The US economist Henry Charles Carey (17 93 1879)... southern regions of the EUROPEAN UNION, often have a great deal of this sort of unemployment disincentive effect (H2, H3) The discouraging effect of a tax on the supply of effort or the number of persons available for work The best example is an income tax with a high marginal rate This can result in a BACKWARD-BENDING LABOUR SUPPLY CURVE See also: incentive effect disinflation (E3) The reduction of inflation... pricing of an asset measured as the present value of expected cash flows from it In the case of a COMMON STOCK or EQUITY it is the expected dividend payments and the expected price of the stock at a future date diversification (D2, G1, L0) 1 The production of a range of products by a firm 2 The establishment of several industries in a region or a country 3 The spreading of investments over a range of assets... the less the monetary instrument is ‘money’ in the narrow sense of being CASH The growth of interest-bearing CURRENT ACCOUNTS has rendered the index less useful divestment (L1) The disposal of part of the assets of a firm; the opposite of a MERGER An appraisal of the activities of a diversified firm often results in divestment as a means of rationalizing its interests See also: money supply dividend... gap (E6) The excess of AGGREGATE SUPPLY over AGGREGATE DEMAND of a national economy This overall situation of an economy at less than FULL EMPLOYMENT has often encouraged KEYNESIAN policies of deficit spending degrees of freedom (C1) The number of observations in a sample minus the number of population PARAMETERS to be estimated by the sample de-industrialization (L6) The decline of a country’s manufacturing... diffusion rate (O3) The proportion of output of an industry using a particular technique by a stated date, e.g the percentage of the steel industry using technique X by 2000 This is a major measure of technical progress and of INNOVATION High rates of diffusion are encouraged by the possibility of cost reduction and by energetic advisory and information services Dillon Round (F1) The fifth round of tariff... systems of Western countries is a product of their long period of relative freedom to develop a variety of financial instruments, unlike the MONO-BANKS of Soviet-type economies whose role was limited through subservience to a system of central planning The Second World War created an excessive volume of public sector debt which made possible a post-war expansion in bank advances to meet the demands of private... consisting of a rich modern sector and a poor traditional sector Originally this term was used to describe many colonial economies after the Second World War References Boeke, J.H (19 53) Economics and Economic Policy of Dual Societies, as Exemplified by Indonesia, New York: Institute of Pacific Relations dual exchange rate (F3) The two values of a currency determined separately for different sets of monetary... women and blacks are often trapped in the secondary market dual pricing (D4, F3) The practice of quoting prices in two currencies This occurs as part of the transition to a new currency or because of lack of confidence in the national currency This occurred in many eastern European countries and in EUROPEAN UNION countries after the introduction of the EURO or avoiding the costs of storing unsold goods . dif- ficulty. cross-subsidization (L1, L3) The financing of an unprofitable part of an enterprise by a more profitable part. A public enterprise, instead of following the © 2002 Donald Rutherford ruleofattributingcostsproperlytoeach divisiontomakeeachpartofthatenter- priseindividuallyfinanciallyaccountable, couldallowtheprofitabledivisionsto financeloss-makingdivisions.Inthepri- vatesector,cross-subsidizationoccurs withinfirmsifsomeoftheirproductsare soldatlessthanincrementalcost.To ensuremaximumefficiency,firmsshould avoidthispracticeasfaraspossible. cross-trading(D4) Amethodofdisposingofallthegoodsa selleroffersinamarketbysellingthe samegoodatdifferentpricesthroughouta tradingday,withpricesfallingtowardsthe endoftheday. crowdinghypothesis(J2,J7) Theviewthat DISCRIMINATIONoccursbe- causesomeworkersarecrowdedintothe fewoccupationslackingbarrierstoentry. Women’swages,forexample,havebeen depressedbyanexcesssupplytothefew jobstraditionallyavailableforwomen. BothJohnStuart MILLandEDGEWORTH usedthismodelofdiscrimination. Seealso:occupationalsegregation crowdingin(E2) Publicexpenditurewhichstimulatespri- vatesectorinvestment. Seealso:crowdingout crowding. Rutherford Cshare(G1) AChinesestockmarketshareownedonly bystate-ownedenterprises.Itisdenomi- natedandpayableineitherChineseor foreigncurrency. cultivatedcapital(E0,Q0) Ahybridformof CAPITALcombininghu- man-madeand NATURALCAPITAL,e.g.food, woodandnaturalfibres. culturaleconomics(Z1) Theanalysisofthedemandforand productionofliterature,music,opera, drama,paintingandsculpture.Thepecu- liaritiesofthelabourmarketforthese performersandproducersareanalysed andtheroleofpublicsubsidiesconsidered. References Baumol,W.J.andBowen,W.G.(1966)The EconomicDilemma,NewYork:The TwentiethCenturyFund. Peacock,A.andRizzo,I.(1994)Cultural EconomicsandCulturalPolicies,Dor- drecht:KluwerAcademic. Ruskin,J.(1857)ThePoliticalEconomyof Art,London:Smith,Elder. CulturalRevolution(N0) Achangeintheorganizationofthe Chinesesocietyandeconomyinthelate 1960sand1970s.Thisrevolutionchal- lengedthe DIVISIONOFLABOURpreviously practised,especiallybybreakingdownthe divisionbetweenthetownandcountry- side.Revolutionaryfactorycommittees weresetuptoimplementchanges.These includedusingfive-yearplansonlyas generalguidelines,requiringadministra- torstoworktwoorthreedaysperweek inmanualworkandsettingupofwork teamsinvolvedinmattersasdiverseas productionplanning,assigningproduction tasks,establishingsafetyregulationsand managingwelfarefunds.Massactionwas usedtounifytheworkingclass. References Bettelheim,C.(1974)CulturalRevolution andIndustrialOrganizationinChina. ChangesinManagementandtheDivi- sionofLabour,trans.A.Ehrenfeld,New YorkandLondon:MonthlyReview Press. cumdividend(G2) Astockexchangesecuritywiththeentitle- menttoreceiveanimminentdividend. cumulativemultistagecascadesystem (H2) Asalestaxonthegrossvalueofa commodityateachstageofproduction.It doesnotallowarebateoftaxespaidat earlierstagesofproduction.Thistaxwas inforceinWestGermanyuntiltheendof 1967,inLuxemburguntiltheendof1969 andintheNetherlandsuntiltheendof 1968. cumulativepreferenceshare(G1)see preferenceshare cumulativesecurity(G1) Astockexchangesecuritywhichaccumu- latesunpaidinterestorpreferencedivi- dendssothattheholderdoesnotsuffer fromayearofpoorprofitability.Inreturn forthisgreatersecurityofincome,many cumulative PREFERENCESHARESarewithout votingrights. currenciesoftheworld(F3)see AppendixA currency (F3) The official. measurement of the inequality of income’, Economic Journal 30 : 34 8–61. data (C8) Measured observations obtained from of- ficially or privately collected statistics: the raw material of empirical economics. data-mining