Economics dictionary terms beginning with the letter R

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Random walk refers to a price movement that is entirely random, it may move up or down with an equal probability.
The term random walk was first introduced by Karl
Pearson in 1905.

Rate of discount is the rate that is applied to a series of futue cash flows in order to calculate the present value of those cash flows.

Rate of economic growth is the annual percentage increase in the real Gross Domestic Product.

Rate of profit is the total profit expressed as a percentage of the total capital employed in a business.

Rational choice theory argue that theory economic agents are rational in that they acarefully balancecosts against benefits to arrive at action that maximizes personal advantage.

Rational consumer is a consumer that seeks to allocate their income between various goods so as to maximise their total utility.

Rational economic behaviour involves economic agents pursuing activities so as to maximise their utility subject to relevant budget constraints. For examples consumers decide on issues such as work, leisure, consumption and saving to maximise their utility.

Rational expectations is a school of economic thought that argues that economic agents form their expectations of the future using all relevant information so that they will not make systematic errors in the future.

Rationalisation is the process of reorganising production so as to avoid unnecessary overlap and duplication and thereby reduce inefficiency and costs.

Rationing occurs when there is a restiction on the amount of a good available for purchase.

Reaction function of a firm shows how a firm it will vary its optimal level of output in reaction to different output levels of a competitor firm.

Real balance effect if the money supply is held constant and prices fall then because consumers may wish to maintain a constant level of real money balances, then they will reduce their nominal money holdings implying a lower rate of interest and an increase in consumer and investment expenditure.

Real business cycle theory argues that changes in the business cycle are brough about by aggragte supply rather than aggegate demand shocks.

Real exchange rate measures changes in a country's price competitiveness by combining changes in the exchange rate domestic price level and foreign price level. If the exchange rate depreciates and the domestic price level increases by less than the foreign price level a country's real exchange rate depreicates.

Real income measurees changes in the nominal income agains rises in the general price level. If nominal incomes increaes by more than the general price level then the real income increases. Whereas, if nominal incomes increases by less than the general price level then the real
income decreases.

Real national income measures the change in the nominal national income relative to the Gross Domestic Product (GDP) deflator. If nominal national income increases by more than the GDP deflator then the real national income rises.

Real value is the nominal value divided by a prioce index. For the real value to increase the nominal value needs to rise relative to the price index.

Real wage unemployment is involuntary unemployment caused by high real wages relative to their equlibrium value.

Recession a situtation where real ouput falls for two consecutive quarters.

Recesssionary gap is the gap between the full employment level of national income and aggregtae demand where the former is greater than the latter than the latter.

Recognised bank a bank that is recognised by the authorities and therefore has a banking licence to operate in the domestic market.

Refaltionary policy refers to either fiscal or monetary polices or a combination of the two that is designed to stimulate aggregate demand. On the fiscsl front it includes increases in givernment expenditure and tax cuts, while on the monetary side it involves cutting short term interest rates and expanding the money supply.

Regional Development Agencies are made up of 9 agencies in the United Kingom which aim to promote economic growth and jobs in the region for which they are responsible.

Regional unemployment is unemployment that is associated with low economic activity in a particular region. It can be associated with the decline of a key industry which has knock on effects on other firms in the region.

Regression analysis a statisitcal technique used by economists to find the relationship between to or more economic variables.

Regressive tax is a tax which takes a decereasing percentage of the taxpayers income as the tax payers income increases. The class example is a pool tax which requires a fixed payment regardless of the taxpayers income.

Regulatory capture occurs when the regulator of an industry tends to fsavour the interests of the firms it regulates rather than the consumers of the product or service.

Relative price the price of one good in terms of another good. For example, Good X is twice the price of Good Y.

Replacement cost the cost of replacing an exisiting asset.

Replacement ratio is the ratio of a workers after tax wage when employed to their net income when unemployed.

Restrictive practice occurs when firms engage in practices and collusion designed to limit cometition and raise the price of their products.

Retail banks are banks that deal with normal high street
banking activities such as taking in deposits and making loans.

Retail price index a UK price index that measures the changes in the price of a basket of goods purchased by a typical household.

Revaluation involves a country changing the peg of its currency under a fixed exchange rate so that less domestic currency units have to be given to obtain a unit of foreign currency. For  example if there is £0.6/$1 then a revaluation of the pound would be a new fixed rate of £0.5/$1.

Reverse Repo (or Reverse Repurchase Agreement)  is when a party buys a security from another and agree to sell it back to the other party in the future. (For the other party that sells the security and agrees to buy it back in the future at a higher price it is known as a repo). In effect the reverse repo is a loan backed by the collateral of the security because of the short term nature it is classifed as a money market instrument.

Reverse Takeover occurs when a private company takes over a company that is listed on the stockmarket.

Risk is a concept which captures the possibility that the actual rate of return from an investment will be lower than the expected rate of return on the investment. A zero risk investment is where the actual rate of return will be equal to the expected rate of return with certainty.

Risk averse means that an individual is only willing to take on increased risk if there is a sufficient increase in the expected rate of return to compensate.

Risk lover means that an individual is willing to take on increased risk for a lower expected rate of return.

Risk neutral means that an indivudal will take on increased risk for the same expected rate of return.