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Financial Terms | |
Paradox of Thrift |
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Definition of Paradox of ThriftParadox of ThriftThe result that an increase in saving by everyone causes a multiplied fall in income that could end up decreasing aggregate saving.
Related Terms:Accrued Incomeincome that has been earned but not yet received. For instance, if you have a non-registered Guaranteed Investment Certificate (GIC), Mutual Fund or Segregated Equity Fund, growth accrues annually or semi-annually and is taxable annually even though the gain is only paid at maturity of your investment. Accumulated Other Comprehensive IncomeCumulative gains or losses reported in shareholders' Adjusted Income from ContinuingOperations Reported income from continuing operations Aggregate DemandTotal quantity of goods and services demanded. Aggregate Demand CurveCombinations of the price level and income for which the goods and services market is in equilibrium, or for which both the goods and services market and the money market are in equilibrium. Aggregate Expenditure Curveaggregate demand for goods and services drawn as a function of the level of national income. Aggregate planningA budgeting process using summary-level information to ![]() Aggregate Production FunctionAn equation determining aggregate output as a function of aggregate inputs such as labor and capital. Aggregate SupplyTotal quantity of goods and services supplied. Aggregate Supply CurveCombinations of price level and income for which the labor market is in equilibrium. The short-run aggregate supply curve incorporates information and price/wage inflexibilities in the labor market, whereas the long-run aggregate supply curve does not. Autonomous ExpenditureElements of spending that do not vary systematically with variables such as GDP that are explained by the theory. See also exogenous expenditure. Back-up1) When bond yields and prices fall, the market is said to back-up. BankruptcyState of being unable to pay debts. Thus, the ownership of the firm's assets is transferred from bankruptcyThe reorganization or liquidation of a firm that cannot pay its debts. Bankruptcy cost viewThe argument that expected indirect and direct bankruptcy costs offset the other Bankruptcy riskThe risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk. ![]() Bankruptcy viewThe argument that expected bankruptcy costs preclude firms from being financed entirely Blend offThe reintroduction of a faulty product into a process production flow by Book IncomePretax income reported on the income statement. Borrower falloutIn the mortgage pipeline, the risk that prospective borrowers of loans committed to be Bottom-up equity management styleA management style that de-emphasizes the significance of economic CalendarList of new issues scheduled to come to market shortly. Calendar effectThe tendency of stocks to perform differently at different times, including such anomalies as Canada Savings BondsA bond issued each year by the federal government. These bonds can be cashed in at any time for their full face value. Capital expendituresAmount used during a particular period to acquire or improve long-term assets such as capital expendituresRefers to investments by a business in long-term Capitalized Cost An expenditure or accrual that is reported as an asset to be amortized againstfuture-period revenue. ![]() Capitalized ExpendituresExpenditures that are accounted for as assets to be amortized Cash dividendA dividend paid in cash to a company's shareholders. The amount is normally based on cash dividendPayment of cash by the firm to its shareholders. Cash Flow–to–Income Ratio (CFI)Adjusted cash flow provided by continuing operations Cash-surrender valueAn amount the insurance company will pay if the policyholder ends a whole life Cash Surrender ValueThis is the amount available to the owner of a life insurance policy upon voluntary termination of the policy before it becomes payable by the death of the life insured. This does not apply to term insurance but only to those policies which have reduced paid up values and cash surrender values. A cash surrender in lieu of death benefit usually has tax implications. Cash Surrender ValueBenefit that entitles a policy owner to an amount of money upon cancellation of a policy. Closed-end fundAn investment company that sells shares like any other corporation and usually does not Closed-end mortgageMortgage against which no additional debt may be issued. common-size income statementincome statement that presents items as a percentage of revenues. constant-growth dividend discount modelVersion of the dividend discount model in which dividends grow at a constant rate. contract vendoran external party that has been granted an CouponThe periodic interest payment made to the bondholders during the life of the bond. CouponDetachable certificate attached to a bond that shows the amount of couponThe interest payments paid to the bondholder. CouponThe annual interest payment associated with a bond. Coupon BondAny bond with a coupon. Contrast with discount bond. Coupon / CouponsThe periodic interest payment(s) made by the issuer of a bond Coupon datesThe dates when the coupons are paid. Typically a bond pays Coupon equivalent yieldTrue interest cost expressed on the basis of a 365-day year. Coupon paymentsA bond's interest payments. Coupon rateIn bonds, notes or other fixed income securities, the stated percentage rate of interest, usually Coupon RateThe rate of interest paid on a debt security. Generally stated on an Coupon rateThe nominal interest rate that the issuer promises to pay the coupon rateAnnual interest payment as a percentage of face value. Cum dividendWith dividend. Cumulative dividend featureA requirement that any missed preferred or preference stock dividends be paid Current couponA bond selling at or close to par, that is, a bond with a coupon close to the yields currently Current-coupon issuesRelated: Benchmark issues Current Income Tax ExpenseThat portion of the total income tax provision that is based on Deferred Income Tax ExpenseThat portion of the total income tax provision that is the result DependentAcceptance of a capital budgeting project contingent on the acceptance of another project. dependent variablean unknown variable that is to be predicted DetrendTo remove the general drift, tendency or bent of a set of statistical data as related to time. Discounted dividend model (DDM)A formula to estimate the intrinsic value of a firm by figuring the Disposable Incomeincome less income tax. DissavingNegative saving, a situation in which spending exceeds disposable income. DividendA dividend is a portion of a company's profit paid to common and preferred shareholders. A stock DividendA payment a company makes to stockholders. Earnings before income tax. The profit a company made DividendThe payment of after-tax profits to shareholders as their share of the profits of the business for an accounting period. DividendA payment made to shareholders that is proportional to the number of shares dividendPeriodic cash distribution from the firm to its shareholders. DividendAs the term dividend relates to a corporation's earnings, a dividend is an amount paid per share from a corporation's after tax profits. Depending on the type of share, it may or may not have the right to earn any dividends and corporations may reduce or even suspend dividend payments if they are not doing well. Some dividends are paid in the form of additional shares of the corporation. Dividends paid by Canadian corporations qualify for the dividend tax credit and are taxed at lower rates than other income. DividendUnlike dividends which are paid to company shareholders, participating insurance policy dividends are not based on the company's overall profits. Rather, they are determined by grouping policies by type and country of issue and looking at how each class contributes to the company's earnings and surplus. Dividend clawbackWith respect to a project financing, an arrangement under which the sponsors of a project Dividend clienteleA group of shareholders who prefer that the firm follow a particular dividend policy. For dividend discount modelComputation of today’s stock price which states that share value equals the present value of all expected future dividends. Dividend discount model (DDM)A model for valuing the common stock of a company, based on the dividend growth methoda method of computing the cost Dividend growth modelA model wherein dividends are assumed to be at a constant rate in perpetuity. Dividend incomeincome that a company receives in the form of dividends on stock in other companies that it holds. Dividend limitationA bond covenant that restricts in some way the firm's ability to pay cash dividends. Dividend payout ratioPercentage of earnings paid out as dividends. dividend payout ratioComputed by dividing cash dividends for the year dividend payout ratioPercentage of earnings paid out as dividends. Dividend policyAn established guide for the firm to determine the amount of money it will pay as dividends. Dividend PolicyThis policy governs Canada Life's actions regarding distribution of dividends to policyholders. It's goal is to achieve a dividend distribution that is equitable and timely, and which gives full recognition of the need to ensure the ongoing solidity of the company. It also specifies that distribution to individual policyholders must be equitable between dividend classes and policyholder generations, and among policyholders within any class. Dividend rateThe fixed or floating rate paid on preferred stock based on par value. Dividend reinvestment plan (DRP)Automatic reinvestment of shareholder dividends in more shares of a Dividend rightsA shareholders' rights to receive per-share dividends identical to those other shareholders receive. Dividend yield (Funds)Indicated yield represents return on a share of a mutual fund held over the past 12 dividend yield ratioCash dividends paid by a business over the most Dividend yield (Stocks)Indicated yield represents annual dividends divided by current stock price. DividendsAmounts paid to the owners of a company that represent a share of the income of the company. DividendsProfits paid out to shareholders by a corporation. Dividends per shareAmount of cash paid to shareholders expressed as dollars per share. Dividends per shareDividends paid for the past 12 months divided by the number of common shares Dupont system of financial controlHighlights the fact that return on assets (ROA) can be expressed in terms earned incomeEarned income is generally an individual's salary or wages from employment. It also includes some taxable benefits. Earned income also includes business income if the individual is self-employed. Earned income is used as the basis for calculating RRSP maximum contribution limits. earnings before interest and income tax (EBIT)A measure of profit that Economic dependenceExists when the costs and/or revenues of one project depend on those of another. Economic incomeCash flow plus change in present value. 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