• VALUE ADDED
• This usually refers to FIRMS, where it is defined as the value of the firm’s OUTPUT minus the value of all its inputs purchased from other firms. It is therefore a measure of the PROFIT earned by a particular firm plus the wages it has paid. As a rule, the more value a firm can add to a product, the more successful it will be. In many countries, the main form of INDIRECT TAXATION is value-added tax, which is levied on the value created at each stage of production. However, it is paid, ultimately, by whoever consumes the finished product.
• Another definition of value added refers to the change in the overall economic value of a company. This takes into account changes in the combined value of its SHARES, ASSETS, DEBT and other liabilities. Part of the pay of company bosses is often linked to how much economic value is added to the company under their management.
• VALUE AT RISK
• Value at risk models, widely used for RISK MANAGEMENT by BANKS and other financial institutions, use complex computer algorithms to calculate the maximum that the institution could lose in a single day’s trading. These models seem to work well in normal conditions but not, alas, during financial crises, which is arguably when it is most necessary to know how much value is at RISK.
• VARIABLE COSTS
• Part of a firm’s production costs that changes according to how much OUTPUT it produces. Contrast with FIXED COSTS. Examples include some purchases of raw materials and workers’ overtime payments. In the long run, most costs can be varied.
• VELOCITY OF CIRCULATION
• The speed with which MONEY whizzes around the economy, or, put another way, the number of times it changes hands. Technically, it is measured as GNP divided by the MONEY SUPPLY (pick your own definition). It is an important ingredient of the QUANTITY THEORY OF MONEY.
• VENTURE CAPITAL
• PRIVATE EQUITY to help new companies grow. A valuable alternative source of finance for ENTREPRENEURS, who might otherwise have to rely on a loan from a probably RISK AVERSE bank manager. The United States has by far the world’s biggest venture capital industry. Some economists reckon that this is why more innovative new firms have become successful there. As legend has it, with a bright idea, a garage to work in and some venture capital, anybody can create a Microsoft. However, the bursting of the dotcom BUBBLE in 2000 threw American venture capital into a severe RECESSION, damaging its reputation for financing profitable INNOVATION.
• VERTICAL EQUITY
• One way to keep TAXATION fair. Vertical equity is the principle that people with a greater ability to pay should hand over more tax to the GOVERNMENT than those with a lesser ability to pay. (See EQUITY and HORIZONTAL EQUITY.)
• VERTICAL INTEGRATION
• Merging with a company at a different stage in the production process, for instance, a car maker merging with a car retailer or a parts supplier. Unlike HORIZONTAL INTEGRATION, it is likely to raise ANTITRUST concerns only if one of the companies already enjoys some MONOPOLY power, which the deal might allow it to extend into a new market.
• VISIBLE TRADE
• Physical EXPORTS and IMPORTS, such as coal, computer chips and cars. Also known as merchandise trade. Contrast with INVISIBLE TRADE. (See BALANCE OF PAYMENTS.)
• VOLATILITY
• The most widely accepted measure of RISK in FINANCIAL MARKETS is the amount by which the price of a security swings up and down. The more volatile the price, the riskier is the SECURITY. Not least because there is no obvious alternative, economists often use past volatility to forecast the future risk of a security. However, as the saying goes, past results are not necessarily guides to future performance.
• VOLUNTARY UNEMPLOYMENT
• Unemployment through opting not to work, even though there are jobs available. This is the joblessness that remains when there is otherwise FULL EMPLOYMENT. It includes FRICTIONAL UNEMPLOYMENT as a result of people changing jobs, people not working while they undertake JOB SEARCH and ¬people who just do not want to work.