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Economic Glossary

Artefact
an artificial result, in particular a mistaken or biased result produced by the measuring instruments rather than by the phenomenon being studied, or something the researcher created by the way he or she gathered or analysed the data.
Ascending order
data arranged so that each item in the series is higher than the previous items.
Average
see mean.
Balance of payments - BOP
a country’s financial position vis-à-vis other countries in the world. It is the sum of the current (see trade balance) and capital account over a given period.
Bar chart or bar graph
a way of depicting a frequency distribution for nominal or discrete variables, such as religious affiliation or place of residence.
Barrel
a measurement, typically of oil, equal to 42 US gallons or 35 imperial gallons.
Base year
the time period from which relative levels are measured and which is usually allocated the value of 100 in an index.
Basis points
in some fields, such as finance, where very small percentage changes are significant, measurement might be in basis points. A basis point is 100th of 1%. An interest rate increase of ¼% might be described as being of 25 basis points.
Bivariate
relating to two variables only.
Business cycle
more of less regular fluctuations in aggregate economic activity, between peaks and troughs, typically spread over 5 to 10 years.
Capex
capital expenditure.
Census
a survey of an entire population - in contrast to a survey of a sample.
Chain linking
a method of constructing one index series from two or more index series of different base periods or different weights.
Compound growth
a series of numbers where the difference between them is found by multiplying the preceding number by a fixed amount. For example, if 100 grows as a compound rate of 5% per annum, it would value 121.55 after four years.
Confidence interval
a confidence interval gives an estimated range of values which is likely to include an unknown population parameter, the estimated range being calculated from a given set of sample data. Confidence intervals are usually calculated so that this percentage is 95%, but we can produce 90%, 99% (or whatever) confidence intervals for the unknown parameter.
Constant prices
constant prices refer to volume measures whose values are derived prices by applying to current quantities, prices pertaining to a specific base period. They allow figures to be represented so that the effects of inflation are removed. The values for each time period are expressed in terms of the prices in some base period, such as 2000.
Consumer confidence
measures the optimism of consumers in an attempt to forecast future spending.
Consumer Price Index (CPI)
measures the changes in the price of goods and services. The CPI measures price change from the perspective of the consumer. It is a key way to measure changes in purchasing trends and inflation in each country. Most developed countries have an inflation target measured by the CPI. A higher than expected reading should be taken as positive/bullish for the currency (as the common way to fight inflation is raising interest rates, which may attract foreign investment), while a lower than expected reading should be taken as negative/bearish for the currency.
Current prices
Current prices are the actual or estimated recorded monetary value over a defined period for, for example, a group of industries or products. They show the value for each item expressed in terms of the prices of that period.
Data
information collected by a researcher normally thought of as statistical or quantitative.
Decile
one of the points that divides a frequency distribution into ten equal parts – for example, 10% of cases fall below the first decile and 20% below the second.
Deflation
the same as negative inflation and only likely to rise when an economy is very weak. Disinflation is a reduction in the rate of inflation.
Deflator
A price index used to produce a set of volume measures from a set of current values.
Demography
the statistical study of the characteristics of human communities and their populations, such as size, growth, density and distribution.
Denominator
the part of the fraction that is below the line.
Depreciation
the decline in the value of one currency against another.
Depression
a severe recession over a prolonged period.
Divisor
another term for denominator.
ECB
European Central Bank, based in Frankfurt.
EEA - European Economic Area
came into being in 1994 following an agreement between EFTA and the EU, to allow EFTA countries to participate in the European single market without having to join the EU.
EFTA - European Free Trade Association
established in 1960 as an alternative to European states that did not wish to join the European Union. Original membership was the UK, Denmark, Norway, Sweden, Austria, Switzerland and Portugal, with Finland, Iceland and Liechtenstein subsequently joining. Current membership is Iceland, Norway, Switzerland and Liechtenstein.
Emerging markets
have a low per head income compared to developed countries. They can be of interest to investors due the potential for high returns – balanced against the higher economic and political risk.
ESA - European System of National and Regional Accounts
an integrated system of economic accounts. The UK National Accounts have been based on the European System of National Accounts 1995 (ESA 95) since September 1998. Prior to this they were based on ESA79 which is still in use for compiling the Gross National Product.
EU-15
Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the UK. The EU increased from 10 members to 12 in 1986 when Portugal and Spain acceded, and grew to 15 in 1995 with the addition of Austria, Finland and Sweden.
EU-25
the EU-15 plus the ten countries which joined in May 2004 - Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia.
Euro
introduced to 11 EU member states in January 1999 with notes and coin entering circulation in January 2002.
Federal Reserve System
the 12 regional federal banks in the US that comprise the central banking system.
Fed Funds
a key short term interest rate in the US paid on funds deposited by commercial banks in the federal system.
Financial corporations
corporations that are primarily engaged in financial activities, including banks, building societies, insurance corporations and pension funds.
Frequency distribution
a tally of the number of times each score occurs in a group of scores or a way of presenting data that shows the number of cases having each of the attributes of a particular variable.
G7/G8
the "Group of seven" is a coalition of the major industrial democracies - the UK, France, Germany, Italy, Japan, the US and Canada. The G7 was in part superseded by the addition of Russia in 1998 to create the G8.
General government
the sector that comprises central government and local government (local authorities).
Geometric mean
the nth root of the product of the distribution. This average is used to measure changes in the rate of growth. If there are three items, it is the third root (cubed root) of the items multiplied together.
Graph
a diagram showing the relationship between two variables. It can be in many forms, such as line chart, bar graph or histogram.
Gross
before any deductions. For example, gross income is income before deducting tax.
Gross Domestic Product (GDP)
the broadest measure of economic activity and a key indicator for the economy's health. The quarterly percent changes in GDP shows the growth rate of the economy as a whole.
Gross fixed capital formation
Investment in assets that are used repeatedly or continuously over a number of years to produce goods. For example, machinery used to create a product.
Growth rate
if output increases by 5% between year one and year two, it is said to have a growth rate of 5%. It is important to distinguish between different growth rates, including: the change during a year (from December of one year to December in the next year), the change between successive calendar or financial years, the change over any specified 12 months or four quarters, or annualised change (the change over a month or quarter grossed up to cover the year).
Housing Starts
measures the new homes or buildings on which construction began in the given period. It shows the strength of the housing market, which helps to analysis the economy as a whole as the housing market is a key factor in the economy.
Index numbers
values expressed in relation to a single base figure, often set at 100, and designed to show changes over a period of time. The indices may be of prices, quantities or values. For example, if the industrial output of an economy rose by 5% in one year, output in the second year can be said to be 105% of the base year. In index terms, output in the two years are 100 and 105.
ILO, International Labour Organisation
a specialised agency of the United Nations that deals with labour issues, including setting the rules for the Labour Force Surveys in most developed countries. Its headquarters are in Geneva.
Inventories
formerly called stocks, these consist of materials and supplies which are stored for use in production, work-in progress, finished goods and goods for re-sale.
Law of averages
the principle that random errors in measurement will tend to balance one another out, suggesting that the average is the best estimate of the true value.
Law of large numbers
the larger the sample, the more likely, other things being equal, it is to represent the population from which it was drawn - specifically the more likely it is the sample mean will equal the population mean.
Leading Indicators
measures the change in index derived from various measures of economic health such as building permits, new orders, money supply, average working week.
Like for like
a popular measure in retailing where the desire is to compare the performance of units over time, not including any increase in, say, floor space.
Mean
the arithmetic mean, or the average, is the sum of all the items divided by the number of them. An average is useful as it can summarise a group of figures, smoothing out abnormalities to help comparison. While the mean can provide a simple mental picture of the distribution it represents, it can also conceal important facts. Averages provide the first stage of investigation but not all the information required for many purposes. One disadvantage of the mean is that it may not correspond to an actual value, making the figure looked unrealistic. For example, the mean number of legs possessed by the population of the country is 1.99 - nearly everyone has two legs but a few people have one or none bringing down the average and leading to a clearly meaningless statistic. The word "average" is often used very loosely in daily conversation.
Median
the middle score in a set of ranked scores. It is a preferable measure to the mean when there are a few items of very high of very low value that could make the mean unrepresentative of the distribution. For example, median income might be more useful than mean income, as a small number of very high earners can distort the mean. When the number of scores is even, there is no single middle score, in which case the median is found by taking an average of the two middle scores. See also mean.
Mode
the most common or most frequent score in a set of scores. See also mean. As the mode is an actual value, it often appears to be realistic and sensible to users.
Money supply
the total stock of money in an economy including notes, coin, loans and bank accounts. There are various definitions of money supply, often labeled M0, M1, M2 and so on.
Moving average
a method of smoothing the data. Individual observations are replaced by an average of each observation and the observations on either side of it. For example, if monthly data are very erratic, the series might be presented as a three month moving average.
National accounts
the official income and cash accounts for an economy from which headline figures like GDP are derived.
Numerator
the number above the line in a fraction. The number into which the denominator is divided.
OECD
the Organisation for Economic Co-operation and Development is a grouping of 30 developed countries accepting basic principles of democracy and free market economy.
Odds
the ratio of success to failure in probability calculations. For example, the odds of drawing a heart from a deck of cards are 13 to 39, or 1 to 3. By contrast, the probability of drawing a heart is 0.25 or one out of four.
ONS, Office for National Statistics
the executive office of the UK Statistics Authority, a non-ministerial department which reports directly to Parliament. ONS is the UK Government's single largest statistical producer.
OPEC - Organisation of Petroleum Exporting Countries
a grouping of 11 countries organised for the purpose of negotiating with oil companies on petrol production and prices. Founded in 1960, it has 11 members that hold roughly three quarters of the world's oil reserves and supply just under half of the world's oil.
Outlier
a unit of analysis that has extreme values of the variable. Outliers are important because they can distort the interpretation of data or make misleading a statistic that summarises values. See the difference between mean, median and mode.
Percent
%, per hundred, one part in 100. Commonly used for describing increases or decreases over time. If the price of an item has increased from £10 to £11, it is said to have risen by 10%.
Percentage point
if the inflation rate increases from 4% to 5%, it is said to have risen by 25% or, more meaningfully, one percentage point.
Pie chart
a circle with areas, or slices, marked to represent the proportion of total units in each category.
Population
a group of persons (or institutions, events, or other subjects) that is being described or studied.
Primary data
data collected by or for the people who are going to make use of it. Primary data is in contrast to secondary data.
Public Sector Net Borrowing
measures the difference in value between the public spending and income during the given time period (spending minus income). A positive number indicates a budget deficit, while a negative number indicates a surplus.
Purchasing power parity – PPP
the theory that in the long run identical tradeable services and products will cost the same in different countries. PPP exchange rate (the ‘real exchange rate’) fluctuations are mostly due to different rates of inflation between the two economies. There can be marked differences between PPP and market exchange rates.
Quartiles
while a median divides a distribution into half, the quartiles divide it into four equal parts. The difference between the upper and lower quartile is called the inter-quartile range.
Random sampling
selecting a group of subjects from a larger group so that each individual is chosen entirely by chance. Sometimes called equal probability sampling. Alternative sampling frameworks include probability sampling, cluster sampling, quota sampling and stratified random sampling.
Range
a measure of variability, of the spread or the dispersion of values. In its most crude form, you subtract the lowest value or score from the highest.
Ratio
a combination of two numbers that shows their relative size. The relation between the numbers can be expressed as a fraction, a decimal, or simply separating them with a colon.
Recession
a period of general economic decline with stagnating or declining GDP. In some countries, there is a more precise definition, namely two or quarters of falling GDP.
Retail prices index – RPI
one measure of consumer inflation, calculated as part of the CPI.
Retail Sales
typically a monthly measurement of goods sold by retailers based on a sampling of retail stores of different types and sizes. It is an important indicator of consumer spending and thus economic strength.
Rounding
fractions and decimals are frequently rounded to the nearest whole number. Sometimes numbers are rounded to the nearest 50 or 100. Different organisations have different conventions for rounding - some will round up or down, rather than to the nearest whole number. Sometimes data are truncated - the final, unwanted digits are omitted. Components may not add to the total when rounded.
Sample
a group of subjects selected from a larger group in the hope that studying the small group will reveal important things about the larger group. Samples are used because they are cheaper and quicker than a full census of the population, and total accuracy is rarely required.
Scatter plot
also called a scatter diagram and scattergram – is the pattern of points that results from plotting two variables on a graph.
Seasonality
a process of seasonal adjustment can adjust raw data for the any seasonal pattern, for example, retail sales are higher around the Christmas period. For some purposes it is useful to conduct analysis without the seasonal pattern affecting the data.
Secondary data
secondary data are used by people other than the people for whom the data were collected. It is important to know as much about the data as possible to reduce the possibility of misinterpretation. Consider, for example: how the data has been collected, processed, its accuracy, and how it has been summarised into categories or tables. Data may come from administrative sources or specially conducted inquiries or surveys.
Significant figures
rounding to a number of significant figures is a process by which the number of digits that are significant are stated and, after that number, zeros replace other digits.
Skewed distribution
a distribution of scores or measures that, when plotted on graph, produce a nonsymmetrical curve.
Spurious accuracy
spurious accuracy is implied when a figure is given in greater detail that can be justified. Annual inflation rates are quoted to one decimal point, for example 2.1%, because it is deemed to be accurate to such detail. To give a figure of 2.164% would be misleading.
Standard deviation
a measure of dispersion which uses all the values in a distribution. It is a more sophisticated measure than the range or the inter- quartile range. It shows the dispersion of values around the arithmetic mean. Therefore, a distribution with an arithmetic mean of ten and a standard deviation of four has a wider dispersion than a similar distribution with a standard deviation of two. In a “normal” distribution, 95% of the observations would be within two standard deviations of the mean.
Survey
the drawing of a sample of subjects from a population to make inferences about the population.
Time series
a set of measures of a single variable recorded periodically over time, such as the inflation rate in the UK during the 1990s. Time series can be separated into different types of trend: the long-term trend, cyclical fluctuations, seasonal variations, and irregular fluctuations.
Trade balance
The trade balance measures the difference in worth between exported and imported goods (exports minus imports). This is the largest component of a country's balance of payments. Export data can give reflection on the country’s economic growth. Imports provide an indication of domestic demand. Because foreigners must buy the domestic currency to pay for the nation's exports, the trade balance may affect the value of the currency.
Unearned income
income such as dividends or rent received from sources other than employment.
Unemployment Rate
a measure of the percentage of the total labour force that is unemployed but actively seeking employment and willing to work. Can be measured from a survey (based on ILO rules) or a count of those receiving benefits.
Value terms
or current prices, nominal prices or nominal terms. A time series which includes the effects of inflation.
Volume terms
or constant prices or real terms. The volume change in a product is the change in its value divided by the price change, in other words excluding the impact of inflation. From year to year, industrial output generally rises, but some part of that increase is due to increased prices. Extracting the part due to price increases leaves the volume increase in industrial output.
Weighted mean
a procedure for combining the means of two or more groups of different sizes, taking the sizes of the groups into account when computing the overall mean.
World Bank
not a bank in the normal sense but a source of financial and technical assistance to less developed countries. http://www.worldbank.org
X-axis
the horizontal axis on a graph.
Y-axis
the vertical axis on a graph
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