Terms From The ECONOMIST

Equity: A stock or any other security representing an ownership interest.In the context of real estate, the difference between the current market value of the property and the amount the owner still owes on the mortgage. It is the amount that the owner would receive after selling a property and paying off the mortgage. In terms of investment strategies, equity (stocks) is one of the principal asset classes. The other two are fixed-income (bonds) and cash/cash-equivalents. These are used in asset allocation planning to structure a desired risk and return profile for an investor's portfolio.

Factor cost: A measure of output reflecting the costs of the factors of production used, rather than market prices, which may differ because of indirect tax and subsidy.

Foreign direct investment: Investing directly in production in another country, either by buying a company there or establishing new operations of an existing business. This is done mostly by companies as opposed to financial institutions, which prefer indirect investment abroad such as buying small parcels of a country's supply of shares or bonds.

Financial instrument: Certificate of ownership of a financial asset, such as a bond or a share.

Fiscal drag: Fiscal drag is the tendency of revenue from taxation to rise as a share of GDP in a growing economy. Tax allowances, progressive tax rates and the threshold above which a particular rate of tax applies usually remain constant or are changed only gradually. By contrast, when the economy grows, income, spending and corporate profit rise. So the tax-take increases too, without any need for government action. This helps slow the rate of increase in demand, reducing the pace of growth, making it less likely to result in higher inflation. Thus fiscal drag is an automatic stabiliser, as it acts naturally to keep demand stable.

Fiscal policy: One of the two instruments of macroeconomic policy; monetary policy's side-kick. It comprises public spending and taxation, and any other government income or assistance to the private sector. It can be used to influence the level of demand in the economy, usually with the twin goals of getting unemployment as low as possible without triggering excessive inflation.

Flotation: Going public. When shares in a company are sold to the public for the first time through an initial public offering. The number of shares sold by the original private investors is called the "float". Also, when a bond issue is sold in the financial markets.

Free trade: The ability of people to undertake economic transactions with people in other countries free from any restraints imposed by governments or other regulators. Measured by the volume of imports and exports.

Game theory: Game theory is a technique for analysing how people, firms and governments should behave in strategic situations, and in deciding what to do must take into account what others are likely to do and how others might respond to what they do.

Gross domestic product(GDP): It is a measure of economic activity in a country. It is calculated by adding the total value of a country's annual output of goods and services. GDP = private consumption + investment + public spending + the change in inventories + (exports - imports). It is usually valued at market prices; by subtracting indirect tax and adding any government subsidy, however, GDP can be calculated at factor cost. This measure more accurately reveals the income paid to factors of production.

Gilts: Also gilt-edged securities, meaning a safe bet, at least as far as receiving interest and avoiding default goes. The price of gilts can vary considerably over time, however, creating a degree of risk for investors. Usually the term is applied only to government bonds.

Gini coefficient: An inequality indicator. The Gini coefficient measures the inequality of income distribution within a country. It varies from zero, which indicates perfect equality, with every household earning exactly the same, to one, which implies absolute inequality, with a single household earning a country's entire income. Latin America is the world's most unequal region, with a Gini coefficient of around 0.5; in rich countries the figure is closer to 0.3.

Globalisation: A buzz word that refers to the trend for people, firms and governments around the world to become increasingly dependent on and integrated with each other. This can be a source of tremendous opportunity, as new markets, workers, business partners, goods and services and jobs become available, but also of competitive threat, which may undermine economic activities that were viable before globalisation.

Gross national product(GNP): Another measure of a country's economic performance, also called GNI. It is calculated by adding to GDP the income earned by residents from investments abroad, less the corresponding income sent home by foreigners who are living in the country.

Gresham's law: Bad money drives out good. One of the oldest laws in economics, named after Sir Thomas Gresham, an adviser to Queen Elizabeth I of England. He observed that when a currency has been debased and a new one is introduced to replace it, the new one will be hoarded and effectively taken out of circulation, while the old one will continue to be used for transactions, to be got rid of as fast as possible.