REQUIREMENT (PSBR) through the issue of TREASURY BILLS and long-term bonds. This is acceptable as long as the economy is growing and the interest payments on such borrowings do not become disproportionate to the overall level of government expenditure. Government borrowing in excess of the amount required to promote long-term growth and effect counter-cyclical policies will ultimately result in INFLATION. Consequently, both the timing and magnitude of the expenditure over and above receipts is of crucial importance. In more recent times recognition that low inflation is necessary to secure low UNEMPLOYMENT has led to an acceptance of the need for ‘fiscal stability’. This has found expression, for example, within the European Union’s MAASTRICHT TREATY limits of a current budget deficit of no more than 3% of GDP and a total outstanding government debt limit of no more than 60% of GDP.
BUDGET SURPLUS is the opposite of the above whereby there is an excess of government receipts over expenditure. See AUTOMATIC (BUILT-IN) STABILIZERS, KEYNESIAN ECONOMICS, BUSINESS CYCLE, DEMAND MANAGEMENT.
budget line or consumption possibility line a line showing the alternative combinations of goods that can be purchased by a consumer with a given income facing given prices. See Fig. 19. See also CONSUMER EQUILIBRIUM, REVEALED PREFERENCE THEORY, PRICE EFFECT.
budget surplus a surplus of TAXATION receipts over GOVERNMENT EXPENDITURE. Budget surpluses are used as an instrument of FISCAL POLICY to reduce the level of AGGREGATE DEMAND in the economy. See BUDGET (government), BUDGET DEFICIT, PUBLIC SECTOR DEBT REPAYMENT.
buffer stock a stock of a COMMODITY (copper, wheat, etc.) that is held by a trade body or government as a means of regulating the price of that commodity. An ‘official’ price for the commodity is established, and if the open-market price falls below this because there is excess supply at the fixed price, then the authorities will buy the surplus and add it to the buffer stock in order to force the price back up. By contrast, if the open-market price rises above the fixed price because there is an excess demand at the fixed price, then the authorities will sell some of their buffer stock in order to bring the price down. Through this mechanism the price of the commodity can be stabilized over time, avoiding erratic, short-term fluctuations in price.
Thus this mechanism attempts to avoid erratic short-term fluctuations in price. If the official price is set at too high a level, however, this will encourage over-supply in the long term and expensively accumulating stocks; while if the official price is set at too low a level, this will discourage supply in the long term and lead to shortages. See INTERNATIONAL COMMODITY AGREEMENT, PRICE SUPPORT, COMMON AGRICULTURE POLICY.
Fig. 19 Budget line. If a consumer has an income of £10 and the price of good X is 50 pence and the price of good Y is £1, he can buy 20 units of X or 10 units of Y, or some combination of both, for example 10 units of X and 5 units of Y. The slope of the budget line measures the relative prices of the two goods.
Building Societies Act 1986 a UK Act that gave BUILDING SOCIETIES new powers to augment their traditional business MORTGAGES by providing a range of other financial services for their customers. These include money transmission facilities (via cheque books), arranging insurance cover, obtaining traveller’s cheques and foreign currencies, managing unit trust pension schemes, buying and selling stocks and shares, and the provision of estate agency facilities. The Act has thus served to increase competition in the provision of financial services as between building societies, the COMMERCIAL BANKS and other financial institutions.
The Act also permits building societies to increase their capital resources and growth potential by incorporating themselves as JOINT-STOCK COMPANIES (as have the Abbey National and the Halifax), issuing shares and securing a stock exchange listing.
building society a financial institution that offers a variety of savings accounts to attract deposits, mainly from the general public, and which specializes in the provision of long-term MORTGAGE loans used to purchase property. In recent years, many of the larger UK building societies have moved into the estate agency business. Additionally, they have entered into arrangements with other financial institutions that have enabled them to provide their depositors with limited banking facilities (the use of cheque books and credit cards, for instance) and other financial services, a development that has been given added impetus by the BUILDING SOCIETIES ACT 1986.
Most notably, major building societies, such as the Abbey National and Halifax, have taken advantage of changes introduced by the BUILDING SOCIETIES ACT 1986 and the FINANCIAL SERVICES ACT 1986 and have converted themselves into public JOINT-STOCK COMPANIES, setting themselves up as ‘financial supermarkets’ offering customers a banking service and a wide range of personal financial products, including insurance, personal pensions, unit trusts, individual savings accounts (ISAs), etc. This development has introduced a powerful new competitive impetus into the financial services industry, breaking down traditional ‘demarcation’ boundaries in respect of ‘who does what’, allowing former building societies to ‘cross-sell’ these services and products in competition with traditional providers such as the COMMERCIAL BANKS, INSURANCE COMPANIES, UNIT TRUSTS, etc.
Building society deposits constitute an important source of liquidity in the economy and count as ‘broad money’ in the specification of the MONEY SUPPLY. See FINANCIAL SYSTEM.
built-in stabilizers see AUTOMATIC (BUILT-IN) STABILIZERS.
bulk-buying the purchase of raw materials, components and finished products in large quantities, thereby enabling a BUYER to take advantage of DISCOUNTS off suppliers’ LIST PRICES. A supplier may offer a price discount to encourage the placement of large orders as a means of obtaining extra sales in order to exploit fully the ECONOMICS OF SCALE in production and distribution. In many cases, however, the initiative lies with buyers, with powerful retailing and wholesaling groups exacting favourable price concessions from suppliers by playing one supplier off against another. See CHAIN STORE, OLIGOPSONY, MONOPSONY.
bull a person who expects future prices in a STOCK EXCHANGE or COMMODITY MARKET to rise and who seeks to make money by buying shares or commodities. Compare BEAR. See SPOT MARKET, FUTURES MARKET, BULL MARKET.
bullion precious metals, such as GOLD, silver, platinum, etc., that are traded commercially in the form of bars and coins for investment purposes and are used to produce jewellery and as industrial base metals. Some items of bullion, gold in particular, are held by CENTRAL BANKS and are used as INTERNATIONAL RESERVES to finance balance of payments imbalances.
bullion market a MARKET engaged in the buying and selling of precious metals such as GOLD and silver and gold and silver coins such as ‘Krugerrands’ and ‘Sovereigns’. The London Bullion Market is a leading centre for such transactions.
bull market a situation where the prices of FINANCIAL SECURITIES (stocks, shares, etc.) or COMMODITIES (tin, wheat, etc.) are tending to rise as a result of persistent buying and only limited selling. Compare BEAR MARKET. See SPECULATOR.
Bundesbank the CENTRAL BANK of Germany.
burden of debt INTEREST charges on DEBT that arise as a result of BORROWING by individuals, firms and governments. In the case of governments, interest charges on the NATIONAL DEBT are paid for out of TAXATION and other receipts. The term ‘burden’ would seem to imply that government borrowing is a ‘bad’ thing insofar as it passes on financial obligations from present (overspending) generations to future generations. The fundamental point to emphasize, however, is that the interest paid on the national debt is a TRANSFER PAYMENT and does not represent a net reduction in the capacity of the economy to provide goods and services, provided that
