The average propensity to consume (APC) refers to the percentage of income that is spent on goods and services rather than on savings. One can determine the percentage of income spent by dividing the average household consumption (what is spent) by the average household income (what is earned). The inverse of the average propensity to consume is the average propensity to save (APS). Economic periods where consumers are spending can boost the economy: more goods are purchased (high demand for goods and services); keeping more people employed and more businesses open. Periods where the tendency to save is increased can have a negative effect on the economy as people purchase fewer goods and services (low demand for goods and services), resulting in fewer jobs and increased business closures.
An economic policy or program that increases or decreases automatically to offset the current economic trend without government assistance. An example of such a policy would be unemployment insurance.
A slang term for an uneducated or unsophisticated investor. The term is considered a derogatory remark in the financial sector, often used to refer to poor investment choices. Financial professionals might recommend an "Aunt Millie" investment to clients who are unfamiliar with investing. Because the professional tries to match the investment to the customer, he or she will typically offer "Aunt Millie" a simple, low-risk investment.Analysts may use the term to berate a stock or other security. For example, one may say that investing in a certain stock is so foolish, only Aunt Millie would buy it.
A situation in which one party in a transaction has more or superior information compared to another. This often happens in transactions where the seller knows more than the buyer, although the reverse can happen as well. Potentially, this could be a harmful situation because one party can take advantage of the other party’s lack of knowledge. With increased advancements in technology, asymmetric information has been on the decline as a result of more and more people being able to easily access all types of information. Information Asymmetry can lead to two main problems:1. Adverse selection- immoral behavior that takes advantage of asymmetric information before a transaction. For example, a person who is not be in optimal health may be more inclined to purchase life insurance than someone who feels fine.2. Moral Hazard- immoral behavior that takes advantage of asymmetric information after a transaction. For example, if someone has fire insurance they may be more likely to commit arson to reap the benefits of the insurance.
Capital required to be set aside in order to cover a company against unexpected debt. The asset valuation reserve serves as a backup for equity and credit losses. A reserve will have capital gains or losses credited or debited against the reserve account. Usually the asset reserve consists of two components, a default component and an equity component. The default component protects future credit related losses, and includes arrangements for corporate debt securities, preferred stock, mortgage backed securities, farm, commercial and residential mortgages. For example, the National Association of Insurance Commissioners (NAIC) has to keep a liability reserve to cover claims in real estate and mortgages. The equity component has provisions for common stocks and real estate.
A check drawn on a nonexistent account or on an account with insufficient funds to honor the check when presented. "Passing" bad checks is illegal, and the crime can range from a misdemeanor to a felony, depending on the amounts involved and whether the activity involved crossing state lines. Many times, bad checks are written inadvertently by people who simply were unaware that their bank balances were too low. It is always a good idea to have a small overdraft line of credit to cover such situations, or keep a close eye on your balance near bill-paying time. When there are insufficient funds in an account, the bank will "bounce the check" (refuse to honor it). Banks and vendors frequently charge fees for bounced checks, sometimes exceeding the amount for which the check was written. online banking can help to avoid writing bad checks by allowing you to view your balance more frequently. Consumers can also create a backstop account that is automatically debited if the primary checking account is too low to pay a specific check.
A slang term for the movement in spread, price or yield of a security, which makes it more expensive to issue. Back up is characterized by an increase in bond yields and a decrease in price. The price of a security "backs up" when a company finds the security more costly to issue when raising funds. When a back up occurs, the fund raising efforts of a company are diminished. For example, if interest rates increase, the required yields on most bonds will rise as well. This forces a company to either raise the coupon on their bond issue, which increases the interest payment, or sell the bonds at a discount, reducing the level of incoming cash.
A slang term that refers to the representation of the basic components of a business model excluding any fine details. It incorporates only the core ideas and success factors of the business. The name comes from the notion that a quick outline of a business can be easily sketched on the back of a napkin to sufficiently demonstrate its fundamental concepts. The slang term comes from a hypothetical scenario in which an entrepreneur pitches an idea to a potential investor over coffee, dinner or a drink. The entrepreneur quickly sketches the business model on the back of a napkin to demonstrate the feasibility of the business. This type of business model should probably only be used as part of the initial stages of planning. A final business model should be drafted for clarity and color, including complete details on all operations as well as the short-term and long-term visions of the business. Without a clear understanding of how a business will operate and bring in sustainable revenues, the probability of building a successful company is low.
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