Golden Rule

Business, Legal & Accounting Glossary

Definition: Golden Rule




What is the dictionary definition of Golden Rule?

Dictionary Definition


During a jury trial, an attempt to persuade the jurors to put themselves in the place of the victim or the injured person and deliver the verdict that they would wish to receive if they were in that person’s position. For example, if the plaintiff in a personal injury case has suffered severe scarring, the plaintiff’s lawyer might ask the jury to come back with the verdict they themselves would want to receive had they been disfigured in such a manner. As a rule, judges frown upon this type of argument, because jurors are supposed to consider the facts of a case in an objective manner.


Full Definition of Golden Rule


In Economics, The golden rule offers a guideline on how to operate a fiscal policy. According to Golden rule, a government, over an economic cycle, should utilize borrowings to solely make investments. Investment will eventually benefit future generations. Borrowings should not be used for current spending. For daily spending that offers benefits to today’s taxpayers, taxpayer money can be utilized. The core idea behind the Golden rule is to enable maintenance of stability in the allocation of resources during an entire economic cycle.

Macroeconomic theory explains why the Golden rule is required. Other things being equal, a rise in government borrowing increases the real interest rate. This leads to lower investments since an increase in real interest rate means low returns for investors. If the government does not utilize borrowings for investments, a fall in capital accumulation takes place that hampers economic growth.

Fiscal Policy

Fiscal policies are aimed at influencing the direction in which an economy is headed. It is through fiscal policies that a government makes changes to tax structure or incorporate fiscal allowances. Fiscal policy may be neutral, expansionary or contractionary.

Economic Cycle

The economic cycle, also known as the business cycle refers to periodic changes in economic operations of a nation. According to UK Treasury, two ends of an economic cycle include a period when above-average potential output takes place and a period when output is below-normal potential.

Borrowings

A budget deficit leads a government to increase its borrowings through the issuance of government debt. A budget deficit is indicated when total public expenditure is more than government revenue.


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Definition Sources


Definitions for Golden Rule are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 22nd April, 2020 | 7 Views.