What is Regulatory Capture? One difficulty with government price regulation is what economists call regulatory capture, in which the firms that are supposedly regulated end up playing a large role in setting the regulations that they will follow. When the airline industry was regulated, for example, it suggested appointees to the regulatory board, s...

What is Capital? Capital as a financial term as a wide range of meaning. It can mean the financial strength of an individual or business, money used to start a business, money invested for profits or a factor for producing goods and services. However, in this context, capital refers to financial value, assets and tangible factors involved in product...

What is a Chartered Bank? A chartered bank basically refers to any financial institution vested with the power to accept and protect monetary deposits from person and other organizations, and also permitted to lend these money out as loan. The general conduct of chartered banks vary by country, however, in each legislation, this organization should ...

What is the Total Cost Of Ownership? The sum of total price of an asset and the operational costs of owning it gives the Total Cost of Ownership (TCO). Asset purchasing decisions should take into account not only the sale price of an asset but also the expenditure that will be required to keep the asset operational. This is the long term cost of an ...

What is Absolute Advantage in All Goods? What happens to the possibilities for trade if one country has an absolute advantage in everything? This is typical for high-income countries that often have well-educated workers, technologically advanced equipment, and the most up-to-date production processes. These high-income countries can produce all pro...

What is Bank Regulation? A safe and stable national financial system is a critical concern of the Federal Reserve. The goal is not only to protect individuals’ savings, but to protect the integrity of the financial system itself. This esoteric task is usually behind the scenes, but came into view during the 2008–2009 financial crisis, when for a bri...

What is Appreciating and Depreciating Currency? When the exchange rate for a currency rises, so that the currency exchanges for more of other currencies, we refer to it as appreciating or “strengthening.”  Related Topics What Does it Mean to Dollarize Foreign Exchange Market Who Demands and Supplies Currency in a Foreign Exchange Market?  Foreign Di...

How Does the Business Cycle Affect Trade Balances? In the short run, whether an economy is in a recession or on the upswing can affect trade imbalances. A recession tends to make a trade deficit smaller, or a trade surplus larger, while a period of strong economic growth tends to make a trade deficit larger, or a trade surplus smaller. When the trad...

How to Convert Currencies with Exchange Rates? To compare the GDP of countries with different currencies, it is necessary to convert to a “common denominator” using an exchange rate, which is the value of one currency in terms of another currency.  We express exchange rates either as the units of country A’s currency that need to be traded for a sin...

What is Consumption Expenditure? Consumption expenditure is spending by households and individuals on durable goods, nondurable goods, and services. Durable goods are items that last and provide value over time, such as automobiles. Nondurable goods are things like groceries—once you consume them, they are gone. Services are intangible things consum...