Definition of Household savings ratio: The percentage of disposable income that is saved. (1) Total savings = Disposable income – Household consumption UK Saving Ratio Latest UK household savings ratio: 2021 = 10% But, by 2021 Q4 the saving ratio had fallen to 6.2% By contrast, the average savings ratio in the past 54 years …
Definition of a liquidity trap: When monetary policy becomes ineffective because, despite zero/very low-interest rates, people want to hold cash rather than spend or buy illiquid assets. A liquidity trap is characterised by Very low-interest rates Low inflation Slow/negative economic growth Preference for saving rather than spending and investment Monetary policy becomes ineffective in boosting …
Supernormal profit is all the excess profit a firm makes above the minimum return necessary to keep a firm in business. Supernormal profit is calculated by Total Revenue – Total Costs (where total cost includes all fixed and variable costs, plus minimum income necessary for the owner to be happy in that business.) Normal profit …
Definition: Monopolistic competition is a market structure which combines elements of monopoly and competitive markets. Essentially a monopolistic competitive market is one with freedom of entry and exit, but firms can differentiate their products. Therefore, they have an inelastic demand curve and so they can set prices. However, because there is freedom of entry, supernormal …
Classical economic theory assumes that individuals are rational. However, in the real world, we often see irrational behaviour – decisions which don’t maximise utility but can cause a loss of economic welfare. Irrational behaviour is not just isolated to a few ‘irrational individuals’ but can become the dominant choice for most people in society (e.g. …
Definition of Rational expectations – an economic theory that states – when making decisions, individual agents will base their decisions on the best information available and learn from past trends. Rational expectations are the best guess for the future. Rational expectations suggest that although people may be wrong some of the time, on average they …
Fiscal responsibility implies a government pursues the appropriate level of government spending and tax to: Maintain sustainable public finances. Ensure fiscal policy aids the optimal rate of economic growth. Maintain appropriate levels of public investment. The UK chancellor has proposed a fiscal charter – which requires the government to run a budget surplus within three …
Horizontal integration occurs when there is a merger between two firms in the same industry operating at the same stage of production. For example, if two newspapers like the Independent and the Guardian merged, this would be a horizontal integration. Horizontal integration is different to vertical integration which occurs when firms at different stages of …