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"Animal Spirits" – J.M. Keynes  

Animal spirits is a term coined by the economist John Maynard Keynes. The term was chosen to emphasise the importance of confidence and the ‘gut instincts’ of businessmen on their future business prospects."Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits – a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative…

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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. However this a priori argument of assuming profit maximisation may not be true in the real world. There are many other examples of business objectives such as sales maximisation. A big a priori assumption in economics is that…

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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 but without giving away any control and being the subject of a takeover. Because A shares do not have any voting rights they usually trade at a lower level than ordinary shares.

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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 income. The poll tax by contrast doesn’t take into account people’s ability to pay. The poll tax, introduced in the UK during the 1980s was charged to everyone regardless of ability to pay.Ability…

Absolute Advantage definition and examples

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 advantageIn this example, Brazil has an absolute advantage in producing bananas (8 to 1). The US has an absolute advantage in producing cars (5 to 2)Absolute advantage and labour costs

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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 had a high level of absorption. If absorption is greater than production then there will be a deterioration in the current account balance of payments.  

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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.  

Accelerator effect

Accelerator effect

Definition of the Accelerator Effect: The accelerator effect states that investment levels are related the rate of change of GDP. Thus an increase the rate of economic growth will have a corresponding larger increase in the level of investment. However, a fall in the rate of GDP growth could lead to lower investment levels. The accelerator model attempts to explain the volatility of investment that we see. Simple Accelerator Model This model assumes that the stock of capital goods (k) is relative to YK = k×YIf we assume that the capital output…