“Animal Spirits” – J.M. Keynes

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Definition of ‘Animal spirits’ – it refers to the confidence and the ‘gut instincts’ of businessmen on their future business prospects.  It is a term coined by the economist John Maynard Keynes, who explained how the economic cycle could be volatile because of the changing ‘spirits’ of the businessmen involved. “Most, probably, of our decisions …

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A priori arguments

Definition a priori: An a priori argument is one where certain basic principles are assumed to be true. Therefore, it is not necessary to use empirical evidence but rely on the axioms being true. An example of a priori in economics A firm will produce where MR=MC because we assume that firms are profit maximisers. …

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A Shares  

Definition A Share: This is a share which does not have any voting rights within the company. With ordinary shares, the shareholder is given the right to vote on important issues such as control of the company. A Shares are used when the owners of a company wish to raise money on the stock markets …

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Ability to Pay  

 The ability to pay is often used as the justification for a fair tax. A good tax should have various attributes one of which is equality. A fair tax should reflect the ability to pay. For example, an income tax is reflective of someone’s ability to pay because it takes a certain % of their …

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Absolute Advantage definition and examples

Absolute advantage means that an economy can produce a greater total of goods for the same quantity of inputs. Absolute advantage means that fewer resources are needed to produce the same amount of goods and there will be lower costs than other economies. Simple example of absolute advantage In this example, Brazil has an absolute advantage …

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Absorbed costs

Absorbed costs involve including all the variable and fixed costs in producing a unit of output. For example, in producing a motor car, the absorbed costs include the variable raw material costs and the associated fixed manufacturing costs, such as the factory, safety inspections and maintenance of machines. Absorbed costs would not include general administration …

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Absorption in Economics  

  Absorption is not a common term but refers to the total level of spending in an economy. It includes import spending but excludes exports. Absorption includes spending on all goods and services. Countries with a high marginal propensity to consume tend to have a high absorption rate. For example, the UK and US have …

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Accelerated Depreciation  

Definition of Accelerated Depreciation: When goods are written off more quickly than usual to help reduce companies tax bills and encourage investment. Accelerated depreciation means that a companies profits net of depreciation are lower. Therefore, it’s total tax payments will be lower. It is hoped that the lower tax bill will encourage investment.  

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