скачать книгу бесплатно
(c) trade and foreign exchange restrictions. The use of TARIFFS, QUOTAS, FOREIGN-EXCHANGE CONTROLS, etc., to affect the price and availability of goods and services, and of the currencies with which to purchase these products.
Under a FIXED EXCHANGE-RATE SYSTEM, minor payments imbalances are corrected by appropriate domestic adjustments (b), but fundamental disequilibriums require, in addition, a devaluation or revaluation of the currency (a). It must be emphasized, however, that a number of favourable conditions must be present to ensure the success of devaluations and revaluations (see DEPRECIATION 1 for details).
Fig. 14 Balance-of-payments equilibrium. (b) Internal price adjustment.
In theory, a FLOATING EXCHANGE-RATE SYSTEM provides an ‘automatic’ mechanism for removing payments imbalances in their incipiency (that is, before they reach ‘fundamental’ proportions): a deficit results in an immediate exchange-rate depreciation, and a surplus results in an immediate appreciation of the exchange rate (see PURCHASING-POWER PARITY THEORY). Again, however, a number of favourable conditions must be present to ensure the success of depreciations and appreciations. See also ADJUSTMENT MECHANISM, J-CURVE, INTERNAL-EXTERNAL BALANCE MODEL, MARSHALL-LERNER CONDITION, TERMS OF TRADE.
balance of trade a statement of a country’s trade in GOODS (visibles) with the rest of the world over a particular period of time. The term ‘balance of trade’ specifically excludes trade in services (invisibles) and concentrates on the foreign currency earnings and payments associated with trade in finished manufactures, intermediate products and raw materials, which can be seen and recorded by a country’s customs authorities as they cross national boundaries. See BALANCE OF PAYMENTS.
balance sheet an accounting statement of a firm’s ASSETS and LIABILITIES on the last day of a trading period. The balance sheet lists the assets that the firm owns and sets against these the balancing obligations or claims of those groups of people who provided the funds to acquire the assets. Assets take the form of FIXED ASSETS and CURRENT ASSETS, while obligations take the form of SHAREHOLDERS’ CAPITAL EMPLOYED, long-term loans and CURRENT LIABILITIES.
balances with the Bank of England deposits of money by the COMMERCIAL BANKS with the BANK OF ENGLAND. The Bank of England acts as the ‘bankers’ bank’ and commercial banks settle indebtedness between themselves by transferring ownership of these balances. Such balances are included as part of the commercial banks’ CASH RESERVES RATIO and RESERVE ASSET RATIO. In addition to the balances held for settling indebtedness, the banks may be required from time to time to make SPECIAL DEPOSITS with the Bank, which have the effect of reducing their reserve assets.
balancing item see BALANCE OF PAYMENTS.
bank a deposit-taking institution that is licensed by the monetary authorities of a country (the BANK OF ENGLAND in the UK) to act as a repository for money deposited by persons, companies and institutions, and which undertakes to repay such deposits either immediately on demand (CURRENT ACCOUNT 2) or subject to due notice being given (DEPOSIT ACCOUNTS). Banks perform various services for their customers (money transmission, investment advice, etc.) and lend out money deposited with them in the form of loans and overdrafts or use their funds to purchase financial securities in order to operate at a profit. There are many types of banks, including COMMERCIAL BANKS, MERCHANT BANKS, SAVINGS BANKS and INVESTMENT BANKS. In recent years many BUILDING SOCIETIES have also established a limited range of banking facilities. See BANKING SYSTEM, CENTRAL BANK, FINANCIAL SYSTEM.
bank deposit a sum of money held on deposit with a COMMERCIAL BANK (or SAVINGS BANK). Bank deposits are of two main types: sight deposits (CURRENT ACCOUNTS), which are withdrawable on demand; time deposits (DEPOSIT ACCOUNTS), which are withdrawable subject usually to some notice being given. Sight deposits represent instant LIQUIDITY: they are used to finance day-to-day transactions and regular payments either in the form of a CURRENCY withdrawal or a CHEQUE transfer. Time deposits are usually held for longer periods of time to meet irregular payments and as a form of savings.
Bank deposits constitute an important component of the MONEY SUPPLY. See BANK DEPOSIT CREATION, MONETARY POLICY.
bank deposit creationorcredit creationormoney multiplier the ability of the COMMERCIAL BANK system to create new bank deposits and hence increase the MONEY SUPPLY. Commercial banks accept deposits of CURRENCY from the general public. Some of this money is retained by the banks to meet day-to-day withdrawals (see RESERVE-ASSET RATIO). The remainder of the money is used to make loans or is invested. When a bank on-lends, it creates additional deposits in favour of borrowers. The amount of new deposits the banking system as a whole can create depends on the magnitude of the reserve-asset ratio. In the example set out in Fig. 15, the banks are assumed to operate with a 50% reserve-asset ratio: Bank 1 receives initial deposits of £100 million from the general public. It keeps £50 million for liquidity purposes and on-lends £50 million. This £50 million, when spent, is redeposited with Bank 2; Bank 2 keeps £25 million as part of its reserve assets and on-lends £25 million; and so on. Thus, as a result of an initial deposit of £100 million, the banking system has been able to ‘create’ an additional £100 million of new deposits.
Fig. 15 Bank deposit creation. Deposit creation operated with a 50% reserve-asset ratio in a multibank system.
Since bank deposits constitute a large part of the MONEY SUPPLY, the ability of the banking system to ‘create’ credit makes it a prime target for the application of MONETARY POLICY as a means of regulating the level of spending in the economy.
Bank for International Settlements (BIS) an international bank, situated in Basle and established in 1930, that originally acted as a coordinating agency for the central banks of Germany, France, Italy, Belgium and the UK in settling BALANCE-OF-PAYMENTS imbalances and for other intercentral bank dealings. Nowadays its membership comprises all western European central banks together with those of the USA, Canada and Japan. Although the INTERNATIONAL MONETARY FUND is the main institution responsible for the conduct of international monetary affairs, the BIS is still influential in providing a forum for discussion and surveillance of international banking practices.
banking system a network of COMMERCIAL BANKS and other more specialized BANKS (INVESTMENT BANKS, SAVINGS BANKS, MERCHANT BANKS) that accept deposits and savings from the general public, firms and other institutions, and provide money transmission and other financial services for customers, operate loan and credit facilities for borrowers, and invest in corporate and government securities. The banking system is part of a wider FINANCIAL SYSTEM and exerts a major influence on the functioning of the ‘money economy’ of a country. Bank deposits occupy a central position in the country’s MONEY SUPPLY and hence the banking system is closely regulated by the money authorities. See BANK OF ENGLAND, CENTRAL BANK, CLEARING HOUSE SYSTEM.
bank loan the advance of a specified sum of money to an individual or business (the borrower) by a COMMERCIAL BANK, SAVINGS BANK, etc. (the lender). A bank loan is a form of CREDIT that is often extended for a specified period of time, usually on fixed-interest terms related to the base INTEREST RATE, with the principal being repaid either on a regular instalment basis or in full on the appointed redemption date. Alternatively, a bank loan may take the form of overdraft facilities under which customers can borrow as much money as they require up to a pre-arranged total limit and are charged interest on outstanding balances.
In the case of business borrowers, bank loans are used to finance WORKING CAPITAL requirements and are often renegotiated shortly before expiring to provide the borrower with a ‘revolving’ line of credit.
Depending on the nature of the loan and the degree of risk involved, bank loans may be unsecured or secured, the latter requiring the borrower to deposit with the bank COLLATERAL SECURITY (e.g. title deeds to a house) to cover against default on the loan.
bank note the paper CURRENCY issued by a CENTRAL BANK which forms part of a country’s MONEY SUPPLY. Bank notes in the main constitute the ‘high value’ part of the money supply. See MINT, LEGAL TENDER, FIDUCIARY ISSUE, BANK OF ENGLAND.
Bank of England the CENTRAL BANK of the UK, which acts as banker to the government and the BANKING SYSTEM and acts as the authority responsible for implementing MONETARY POLICY. The Bank of England handles the government’s financial accounts in conjunction with the TREASURY, taking in receipts from taxation and the sale of government assets, and making disbursements to the various government departments to fund their activities. The bank acts as the government’s broker in its borrowing and lending operations, issuing and dealing in government BONDS and TREASURY BILLS to underpin its year-to-year budgetary position and management of the country’s NATIONAL DEBT.
COMMERCIAL BANKS hold accounts with the Bank of England and, in its role as banker to the banking system, the Bank makes it possible for banks to settle their indebtedness with one another by adjusting their accounts as appropriate (see CLEARING HOUSE SYSTEM).
The Bank of England and its satellite, the Royal Mint, are responsible for issuing the country’s basic stock of money – LEGAL TENDER, consisting of bank notes and coins (see MONEY SUPPLY). The Bank occupies a key role in the implementation of monetary policy through controls on the money supply, influencing the level of bank deposits and credit creation by the financial institutions, particularly commercial banks (see BANK DEPOSIT CREATION), while the MONETARY POLICY COMMITTEE has the responsibility for setting ‘official’ INTEREST RATES in the UK, which in turn determines all other short-term interest rates (BASE RATE, BILL DISCOUNTING INTEREST RATE, INTERBANK CLEARING INTEREST RATE).
The Bank is also responsible for managing the country’s EXCHANGE RATE and holding the country’s stock of INTERNATIONAL RESERVES to be used in the financing of balance-of-payments deficits. The Bank of England operates a ‘Foreign Exchange Equalization Account’ that it uses to intervene in the FOREIGN EXCHANGE MARKET, buying and selling currencies to support the exchange rate at a particular level or to ensure that it falls (depreciates) or rises (appreciates) in an ‘orderly’ manner. See LENDER OF LAST RESORT.
bank rate the former ‘official’ INTEREST RATE that was administered by the government as part of MONETARY POLICY in controlling the economy. Bank rate operated as the BASE RATE for the banking system, influencing interest rates charged on bank loans, mortgages and instalment credit. Bank rate was replaced in 1972 by the ‘minimum lending rate’, which itself was abolished in 1984. The ‘official’ interest rate is now set by the MONETARY POLICY COMMITTEE of the BANK OF ENGLAND. See Fig. 125.
bankruptcy see INSOLVENCY.
bank statement a periodic record of an individual’s or business’s transactions with a BANK (or BUILDING SOCIETY) which itemizes, on the one hand, cash deposits and cheques paid in, and, on the other hand, cash withdrawals and cheques drawn and presented against the account.
bar chartorhistogram a chart that portrays data in pictorial form and shows the relative size of each category in a total by means of the relative height of its ‘bar’ or ‘block’.
bargaining see BARTER, COLLECTIVE BARGAINING.
barometric forecasts see FORECASTING.
barometric price leader see PRICE LEADER.
barriers to entry an element of MARKET STRUCTURE that refers to obstacles in the way of potential newcomers to a MARKET. These obstacles operate in a number of ways to discourage entry:
(a) lower cost advantages to established firms, arising from the possession of substantial market shares and the realization of ECONOMIES OF LARGE SCALE production and distribution;
(b) strong consumer preferences for the products of established firms, resulting from PRODUCT DIFFERENTIATION activities;
(c) the control of essential raw materials, technology and market outlets by established firms, either through direct ownership or through PATENTS, FRANCHISES and EXCLUSIVE DEALING CONTRACTS;
(d) large capital outlays required by entrants to set up production and to cover losses during the initial entry phase.
The economic significance of barriers to entry lies in their capacity for blocking MARKET ENTRY, thereby allowing established firms to earn ABOVE NORMAL PROFIT and affecting the RESOURCE ALLOCATION function of markets.
One, or some combination, of the above factors may pose particular problems for a small-scale, GREENFIELD type of entrant. However, they may be of little consequence to a large conglomerate firm possessing ample financial resources that chooses to effect entry by MERGER with, or TAKEOVER of, an established producer. Moreover, the basic assumption of much entry theory – that established firms invariably possess advantages over potential entrants – must also be challenged. In a dynamic market situation, entrants may be in a position to introduce new technology ahead of existing firms or to develop innovative new products, thereby giving them COMPETITIVE ADVANTAGES over established firms.
For example, the introduction of FLEXIBLE MANUFACTURING SYSTEMS has enabled small entrant firms to secure similar cost advantages to their larger established rivals’ exploitation of economies of scale, while giving them greater adaptability to rapid changes in customers demands. Changes in distribution channels likewise have provided firms with entry opportunities. For example, E-COMMERCE on the INTERNET has enabled small firms to tap into markets at low cost and to sell their products at lower prices directly to customers than rivals using traditional wholesaler-retailer networks (see DIRECT SELLING/MARKETING). See also CONDITION OF ENTRY, LIMIT PRICING, POTENTIAL ENTRANT, OLIGOPOLY, MONOPOLY, MOBILITY BARRIERS.
barriers to exit elements of MARKET STRUCTURE that refer to obstacles in the way of a firm contemplating leaving a MARKET which serve to keep the firm in the market despite falling sales and profitability. Exit barriers include: whether the firm owns the assets it uses or leases them; whether assets are special-purpose or can be redeployed to other uses; whether assets are resaleable in second-hand markets; the extent of market excess capacity and the extent of shared production and distribution facilities. Barriers to exit determine the ease with which firms can leave declining markets and thus affect both the profitability of firms and the smooth functioning of markets.
Exit barriers can limit the incentives for a firm to leave a market even when the returns from producing are less than the potential earnings from the company’s assets in their next best alternative use. Exit barriers arise when a firm has contractual obligations that it must meet whether or not it ceases production: for example, long-term contracts to purchase raw materials and components; or large redundancy pay obligations; or the presence of specific assets (see ASSET SPECIFICITY). See PRODUCT LIFE CYCLE, PRICE SYSTEM, CONTESTABLE MARKET.
barriers to imitation see MOBILITY BARRIERS.
barter the EXCHANGE of one economic good or service for another. Barter as an exchange mechanism, however, suffers from a number of serious disadvantages:
(a) for barter to take place, there must be a ‘coincidence of wants’, that is, each party to the barter must be able to offer something that the other wants. For example, an apple-grower wishing to obtain oranges must not only find an orange-grower but must particularly find an orange-grower wishing to acquire apples. Finding appropriate exchange partners can involve lengthy search activity, which reduces the time available for actually producing goods;
(b) even if the parties meet up, they then have to agree on an appropriate ‘rate of exchange’, for example, how many apples are to be exchanged for one orange? Haggling over exchange terms is again time-consuming, and where agreement cannot be reached between the two parties each will then have to seek out new exchange partners.
Overall, barter is a very inefficient means of organizing transactions in an economy and has been largely superseded by the PRICE SYSTEM in modern economies, using money as a medium of exchange. See COUNTERTRADE, BLACK ECONOMY.
base rate the INTEREST RATE that is used by the COMMERCIAL BANKS to calculate rates of interest to be charged on bank loans and overdrafts to their customers. For example, a large company might be charged, say, an interest rate of base rate plus 2% on a loan, whereas a smaller borrower might be charged, say, base rate plus 4%. Formerly, base rates were linked directly to BANK RATE but are now fixed by reference to the ‘official’ rate of interest set by the MONETARY POLICY COMMITTEE of the Bank of England. See PRIME RATE.
base year the initial period from which a system of INDEXATION proceeds. For example, the present UK Consumer Price Index has as the base period 1996 = 100, with the average price of a typical basket of goods in 1996 being taken as the basis for the index. The 2004 index number was 111 for all items in the basket of goods. Convention dictates that the base period always commences from the number 100. See PRICE INDEX.
basing point price system a form of pricing products, such as cement, that are bulky and expensive to transport, which involves charging different prices to customers based in different locations. Customers located near to the supply source (or ‘base point’) are charged a lower delivery price compared to customers farther afield. See PRICE DISCRIMINATION, DELIVERED PRICE.
batch production the manufacture of a product in small quantities using labour-intensive methods of production (see LABOUR-INTENSIVE FIRM/INDUSTRY). Batch production is typically employed in industries where the product supplied is nonstandardized, with consumers demanding a wide variety of product-choice. Batch production industries are usually characterized by low levels of SELLER CONCENTRATION, easy entry conditions and high unit costs of supply. See PRODUCTION, MASS PRODUCTION, CONDITION OF ENTRY, FLEXIBLE MANUFACTURING SYSTEM.
bear a person who expects future prices in a STOCK EXCHANGE or COMMODITY MARKET to fall and who seeks to make money by selling shares or commodities. Compare BULL. See SPOT MARKET, FUTURES MARKET, BEAR MARKET.
bearer bonds FINANCIAL SECURITIES that are not registered under the name of a particular holder but where possession serves as proof of ownership. Such securities are popular in the American financial system but fairly rare in Britain, where the names of holders of STOCKS and SHARES are recorded in a company’s share register.
bear market a situation where the prices of FINANCIAL SECURITIES (stocks, shares, etc.) or COMMODITIES (tin, wheat, etc.) are tending to fall as a result of persistent selling and only limited buying. See SPECULATOR. Compare BULL MARKET.
beggar-my-neighbour policy a course of action that is entered into by a country unilaterally in pursuit of its own self interest in INTERNATIONAL TRADE even though this might adversely affect the position of other countries. For example, country A might decide to impose TARIFFS or EXCHANGE CONTROLS on imports from other countries in order to protect certain domestic industries. The great danger with this type of policy, however, is that it can be self-defeating; that is, other countries may retaliate by imposing tariffs, etc., of their own on country A’s exports, with the result that everybody’s exports suffer. To avoid confrontation of this kind, various international organizations have been established to regulate the conduct of international trade and monetary dealings. See WORLD TRADE ORGANIZATION, INTERNATIONAL MONETARY FUND, EXPORT INCENTIVES, IMPORT RESTRICTIONS, DIRTY FLOAT, DUMPING.
behavioural theory of the firm an alternative to the traditional, profit-maximizing THEORY OF THE FIRM, which stresses the nature of large companies as complex organizations beset by problems of goal conflict and communications. The behavioural theory examines the inherent conflict between the goals of individuals and subgroups within the organization and suggests that organizational objectives grow out of the interaction among these individuals and subgroups.
Cyert and March, who helped develop the behavioural theory, suggested five major goals that are relevant to companies’ sales, output and pricing strategies:
(a) production goal;
(b) inventory goal;
(c) sales goal;
(d) market-share goal;
(e) profit goal.
Each of these goals will be the primary concern of certain managers in the organization, and these managers will press their particular goals. The goals become the subject of ‘bargaining’ among managers, and such overall goals as do emerge will be compromises, often stated as satisfactory-level targets (see SATISFACTORY THEORY). This intergroup conflict, however, rarely threatens the organization’s survival because ORGANIZATIONAL SLACK provides a pool of emergency resources that permit managers to meet their goals when the economic environment becomes hostile.
In order to achieve rational decision-making, it would be necessary to eradicate inconsistencies between goals and resolve conflicts between objectives. Traditional economic theory suggests that rationality can be achieved, painting a picture of ‘ECONOMIC MAN’, able to specify his objectives and take actions consistent with their achievement. By contrast, the behavioural theory argues that goals are imperfectly rationalized so that new goals are not always consistent with existing policies; and that goals are stated in the form of aspiration-level targets rather than maximizing goals, targets being raised or lowered in the light of experience. Consequently, not all objectives will receive attention at the same time and objectives will change with experience.
The behavioural theory also focuses attention on internal communications problems in large organizations, pointing out that decision-making is distributed throughout the firm rather than concentrated at the apex of the organization pyramid. This happens because lower-level managers do not just execute the orders of those at the top; they exercise initiative:
(a) in detailed planning within broad limits set by a top management;
(b) in summarizing information to be passed upwards as a basis for decision-making by their superiors. These communications problems make it difficult for senior managers to impose their objectives upon the organization.
Although the behavioural theory of the firm is somewhat descriptive, lacking the determinism necessary to generate tes table predictions, it has offered many useful insights into the objectives of large companies. See also MANAGERIAL THEORIES OF THE FIRM, PROFIT MAXIMIZATION, FIRM OBJECTIVES, PRINCIPAL-AGENT THEORY.
below-the-line promotion see ABOVE-THE-LINE PROMOTION.
benchmarking the process of measuring aspects of a firm’s performance and comparing this measured performance with that of other firms. Benchmarking can help a firm to discover where its performance is deficient and can suggest means of improving competitive performance.
benefit drivers elements of a firm’s operations that individually and collectively create ‘benefits’ for consumers who buy the firm’s product, e.g. quality, design, accessories, performance in use, guarantees and warranties. The ability to offer a product that is ‘perceived’ by customers to offer superior value to them is an important consideration where PRODUCT DIFFERENTIATION is the key basis of the firm’s COMPETITIVE ADVANTAGE over rival suppliers. See VALUE-CREATED MODEL.
Benefits Agency see DEPARTMENT FOR WORK AND PENSIONS.
benefits-received principle of taxation the principle that those who benefit most from government-supplied goods and services should pay the TAXES that finance them. The problem with this proposition, apart from the obvious difficulties of quantifying the benefits received by individuals, particularly as regards the provision of items such as national defence, fire service, etc., is that it cannot be reconciled with the wider responsibilities accepted by government in providing social services and welfare benefits, i.e. it would make no sense at all to tax an unemployed man in order to finance his unemployment pay. See ABILITY-TO-PAY PRINCIPLE OF TAXATION, REDISTRIBUTION-OF-INCOME PRINCIPLE OF TAXATION.
Bertrand duopoly see DUOPOLY.
bid 1 an offer by one company to purchase all or the majority of the SHARES of another company as a means of effecting a TAKEOVER. The bid price offered by the predator for the voting shares in the victim company must generally exceed the current market price of those shares, the difference being a premium that the predator must pay for control of the company. On occasions, however, the market price of the shares may subsequently rise to exceed the initial bid price where investors either feel that the bid price undervalues the company or where investors anticipate, for example, the possibility of a second party making a higher bid. The offer price could be paid solely in cash, or in a mix of cash and shares in the acquirer’s own company, or solely in terms of the acquirer’s shares (called a paper bid). In order to finance a takeover bid, a predator company may raise loans. See TAKEOVER BID (leveraged bid). 2 an indication of willingness to purchase an item that is for sale at the prevailing selling price. This may occur at auction when many purchasers bid for items on sale, the final sale going to the purchaser offering the highest price unless a predetermined reserve price has been set that was not reached. See AUCTION.
bid price the price at which a dealer in a FINANCIAL SECURITY (such as a STOCK or SHARE), FOREIGN CURRENCY or COMMODITY (tin, wheat, etc.) is prepared to buy a security, currency or commodity. Such dealers usually cite two prices to potential customers, the smaller bid price and a higher ‘offer price’ or ‘ask price’ at which they are prepared to sell a security, etc. The difference between the bid and offer price (referred to as the ‘spread’) represents the dealer’s profit margin on the transaction. See MARKET MAKER.
big bang see STOCK EXCHANGE.
bilateral flows movements of money between sectors of the economy to match opposite flows of goods and services. For example, income in return for factor inputs supplied and consumption expenditure in payment for goods and services consumed. Bilateral flows make it possible to ignore flows of goods and services in the economy and to concentrate on money movements in the CIRCULAR FLOW OF NATIONAL INCOME MODEL.
bilateral monopoly a market situation comprising one seller (like MONOPOLY) and one buyer (like MONOPSONY).
bilateral oligopoly a market situation with a significant degree of seller concentration (like OLIGOPOLY) and a significant degree of buyer concentration (like OLIGOPSONY). See COUNTERVAILING POWER.
bilateral trade the trade between two countries. Bilateral trade is a part of INTERNATIONAL TRADE, which is multilateral in scope. See MULTILATERAL TRADE, COUNTERTRADE.
bill 1 a financial instrument, such as a BILL OF EXCHANGE and TREASURY BILL, that is issued by a firm or government as a means of borrowing money.
2 the colloquial term used to describe an INVOICE (a request for payment for products or services received).
3 a draft of a particular piece of legislation that forms the basis of an Act of Parliament, such as the Fair Trading Act 1973.
bill-discounting interest rate the INTEREST RATE at which the BANK OF ENGLAND is prepared to lend money to the DISCOUNT HOUSES. This rate is fixed by reference to the ‘official’ rate of interest set by the MONETARY POLICY COMMITTEE of the Bank of England.
bill of exchange a FINANCIAL SECURITY representing an amount of CREDIT extended by one business to another for a short period of time (usually three months). The lender draws up a bill of exchange for a specified sum of money payable at a given future date, and the borrower signifies his agreement to pay the amount indicated by signing (accepting) the bill. Most bills are ‘discounted’ (i.e. bought from the drawer) by the DISCOUNT MARKET for an amount less than the face value of the bill (the difference between the two constitutes the interest charged). Bills are frequently purchased by the COMMERCIAL BANKS to be held as part of their RESERVE ASSET RATIO. See DISCOUNT, ACCEPTING HOUSE, DISCOUNT HOUSE.
biodiversity the variety of plant and animal life in a particular area. Envi-ronmentalists have expressed concern about the extent to which ECONOMIC GROWTH, in particular modern methods of farming, forestry and manufacturing, has reduced biodiversity, with some plant and animal species becoming rare or extinct. See POLLUTION.
birth rate the number of people born into a POPULATION per thousand per year. In 2004, for example, the UK birth rate was 11 people per 1,000 of the population. The difference between this rate and the DEATH RATE is used to calculate the rate of growth of the population of a country over time. The birth rate tends to decline as a country attains higher levels of economic development. See DEMOGRAPHIC TRANSITION.
black economy NONMARKETED ECONOMIC ACTIVITY that is not recorded in the NATIONAL INCOME ACCOUNTS, either because such activity does not pass through the market place or because it is illegal. Illegality is not the same as nonmarketed activity. Illegal economic activity may operate quite efficiently in the usual PRICE SYSTEM, which is determined by SUPPLY and DEMAND. Examples may be the purchase and sale of illegal drugs on the street, or alcohol in the US prohibition era of the 1920s, or foodstuffs in Britain during the Second World War when RATIONING was in force. Nonmarketed activity does not have a price determined by demand and supply. Certain nonmarketed activity may be undertaken for altruistic reasons, for example, the services of a housewife on behalf of her family and the work of charity volunteers. Other nonmarketed activity is done on a BARTER basis, for example, where a mechanic services the motor car of an electrician who in return installs new light fittings in the mechanic’s house. Money has not changed hands and the activity is not recorded. Most references to the black economy refer to the illegal situation of people working without declaring their income. See BLACK MARKET.
black knight see TAKEOVER BID.
black market an ‘unofficial’market that often arises when the government holds down the price of a product below its equilibrium rate and is then forced to operate a RATIONING system to allocate the available supply between buyers. Given that some buyers are prepared to pay a higher price, some dealers will be tempted to divert supplies away from the ‘official’ market by creating an under-the-counter secondary market. See BLACK ECONOMY.
board of directors the group responsible to the SHAREHOLDERS for running a JOINT-STOCK COMPANY. Often, boards of directors are made up of full-time salaried company executives (the executive directors) and part-time, nonexecutive directors. The board of directors meets periodically under the company chairman to decide on major policy matters within the company and the appointment of key managers. Directors are elected by rotation at the company ANNUAL GENERAL MEETING. See TWO-TIER BOARD, CORPORATE GOVERNANCE.
bond a FINANCIAL SECURITY issued by businesses and by the government as a means of BORROWING long-term funds. Bonds are typically issued for periods of several years; they are repayable on maturity and bear a fixed NOMINAL (COUPON) INTEREST RATE. Once a bond has been issued at its nominal value, then the market price at which it is sold subsequently will vary in order to keep the EFFECTIVE INTEREST RATE on the bond in line with current prevailing interest rates. For example, a £100 bond with a nominal 5% interest rate paying £5 per year would have to be priced at £50 if current market interest rates were 10%, so that a buyer could earn an effective return of £5/50 = 10% on his investment.
In addition to their role as a means of borrowing money, government bonds are used by the monetary authorities as a means of regulating the MONEY SUPPLY. For example, if the authorities wish to reduce the money supply, they can issue bonds to the general public, thereby reducing the liquidity of the banking system as customers draw cheques to pay for these bonds. See also OPEN MARKET OPERATION, BANK DEPOSIT CREATION, PUBLIC SECTOR BORROWING REQUIREMENT, SPECULATIVE DEMAND FOR MONEY, CONSOLS.
bonus scheme a form of INCENTIVE PAY SCHEME wherein an individual’s or group’s WAGES are based on achievement of individual or group output targets. Bonus schemes often provide for a guaranteed basic wage for employees. See PAY.
bonus shares SHARES issued to existing SHAREHOLDERS in a JOINT-STOCK COMPANY without further payment on their part. See CAPITALIZATION ISSUE.
boom a phase of the BUSINESS CYCLE characterized by FULL EMPLOYMENT levels of output (ACTUAL GROSS NATIONAL PRODUCT) and some upward pressure on the general PRICE LEVEL (see INFLATIONARY GAP). Boom conditions are dependent on there being a high level of AGGREGATE DEMAND, which may come about autonomously or be induced by expansionary FISCAL POLICY and MONETARY POLICY. See DEMAND MANAGEMENT.
borrower a person, firm or institution that obtains a LOAN from a LENDER in order to finance CONSUMPTION or INVESTMENT. Borrowers are frequently required to offer some COLLATERAL SECURITY to lenders, for example, property deeds, which lenders may retain in the event of borrowers failing to repay the loan. See DEBT, DEBTOR, FINANCIAL SYSTEM.
Boston matrix a matrix (developed by the Boston Consulting Group) for analysing product-development policy within a firm and the cash-flow implications of product development. Fig. 16 shows the matrix, which is used to identify products that are cash generators and products that are cash users. One axis of the matrix measures market growth rate: because the faster the growth rate for a product the greater will be the capital investment required and cash used. The other axis measures market share: because the larger the market share the greater will be the profit earned and cash generated. The market growth/share matrix encompasses four extreme product types:
(a) star products – those that have a high growth rate (so that they tend to use cash) and a high market share (so that they tend to generate cash). Star products are usually new products in the growth phase of the PRODUCT LIFE CYCLE.
(b) problem child products – those that have a high growth rate (and so tend to use cash) and a low market share (so that they tend to generate little cash). Problem products are frequently a cash drain but they have potential if their market share can be improved.
