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92 Cards in this Set
- Front
- Back
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the group of institutions in the economy that help to match one person's saving with another person's investment
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financial system
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financial institutions through which savers can directly provide funds to borrowers
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financial markets
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a certificate of indebtedness
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bond
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a claim to partial ownership in a firm
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stock
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bonds that are extremely risky and pay high interest rates
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junk bonds
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financial institutions through which savers can indirectly provide funds to borrowers
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financial intermediaries
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an institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds
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mutual fund
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the total income in the economy that remains after paying for the consumption and government purchases
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national saving (saving)
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the income that households have left after paying for taxes and consumption
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private saving
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the tax revenue that the government has left after paying for its spending
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public saving
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an excess of tax revenue over government spending
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budget surplus
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a shortfall of tax revenue from government spending
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budget deficit
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the market in which those who want to save supply funds and those who want to borrow to invest demand funds
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market for loanable funds
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what is the source of demand for loanable funds
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investment
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what is the source of supply for loanable funds
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saving
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a decrease in investment that results from government borrowing
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crowding out
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the field that studies how people make decisions regarding the allocation of resources over time and the handling of risk
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finance
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the amount of money today that would be needed, using prevailing interest rates, to produce a given future amount of money
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present value
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the amount of money in the future that an amount of money today will yield, given prevailing interest rates
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future value
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the accumulation of a sum of money in a bank account, where the interest earned remains in the account to earn additional interest in the future
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compounding
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a dislike of uncertainty
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risk averse
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the reduction of risk achieved by replacing a single risk with a large number of smaller unrelated risks
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diversification
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risk that affects only a single company
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firm-specific risk
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risk that affects all companies in the stock market
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market risk
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the study of a company's accounting statements and future prospects to determine its value
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fundamental analysis
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the theory that asset prices reflect all publicly available information about the value of an asset
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efficient markets hypothesis
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the description of asset prices that rationally reflect all available information
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informational efficiency
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the path of a variable whose changes are impossible to predict
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random walk
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a mutual fund that buys all the stocks in a given stock index
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index fund
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the total number of workers, including both the employed and the unemployed
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labor force
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the percentage of the labor force that is unemployed
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unemployment rate
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the percentage of the adult population that is in the labor force
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labor force population rate
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the normal rate of unemployment around which the unemployment rate fluctuates
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natural rate of unemployment
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the deviation of unemployment from its natural rate
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cyclical unemployment
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individuals who would like to work but have given up looking for a job
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discouraged workers
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unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills
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frictional unemployment
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unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one
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structural unemployment
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the process by which workers find appropriate jobs given their tastes and skills
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job search
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a government program that partially protects workers' incomes when they become unemployed
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unemployment insurance
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a worker association that bargains with employers over wages, benefits, and working conditions
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union
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the process by which unions and firms agree on the terms of employment
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collective bargaining
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the organized withdrawal of labor from a firm by a union
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strike
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above equilibrium wages paid by firms to increase worker productivity
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efficiency wages
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the set of assets in an economy that people regularly use to buy goods and service from other people
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money
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an item that buyers give to sellers when they want to purchase goods and services
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medium of exchange
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the yardstick people use to post prices and record debts
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unit of account
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an item that people can use to transfer purchasing power from the present to the future
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store of value
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the ease with which an asset can be converted into the economy's medium of exchange
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liquidity
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money that takes the form of a commodity with intrinsic value
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commodity money
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money without intrinsic value that is used as money because of government decree
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fiat money
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the paper bills and coins in the hands of the public
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currency
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balances in bank accounts that depositors can access on demand by writing a check
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demand deposits
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the central bank of the US
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Federal Reserve (Fed)
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an institution designed to oversee the banking system and regulate the quantity of money in the economy
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central bank
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the quantity of money available in the economy
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money supply
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the setting of the money supply by policy makers in the central bank
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monetary policy
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deposits that banks have received by have not loaned out
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reserves
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a banking system in which banks hold only a fraction of deposits as reserves
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fractional-reserve banking
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the fraction of deposits that banks hold as reserves
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reserve ratio
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the amount of money the banking system generates with each dollar of reserves
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money multiplier
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the purchase and sale of US government bonds by the Fed
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open-market operations
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regulations on the minimum amount of reserves that banks must hold against deposits
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reserve requirements
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the interest rate on the loans that the Fed makes to banks
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discount rate
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the interest rate at which banks make overnight loans to one another
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federal funds rate
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a theory asserting that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate
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quantity theory of money
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variables measured in monetary units
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nominal values
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variables measured in physical units
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real variables
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the theoretical separation of nominal and real variables
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classical dichotomy
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the proposition that changes in the money supply do not affect real variables
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monetary neutrality
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the rate at which money changes hands
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velocity of money
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the equation M x V = P x Y relates to the quantity of money, the velocity of money, and the dollar value of the economy's output of goods and services
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quantity equation
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the revenue the government raises by creating money
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inflation tax
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the one for one adjustment of the nominal interest rate to the inflation rate
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Fisher effect
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the resources wasted when inflation encourages people to reduce their money holdings
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shoeleather costs
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the costs of changing prices
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menu costs
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an economy that does not interact with other economies in the world
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closed economy
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goods and services that are produced domestically and sold abroad
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exports
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the value of a nations exports minus imports
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net exports
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net exports is also called?
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trade balance
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an excess of exports over imports
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trade surplus
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an excess of imports over exports
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trade deficit
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a situation in which exports equal imports
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balanced trade
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the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners
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net capital outflow
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net capital outflow must always equal
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net exports
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S/I/NCO equation
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Saving=Domestic Investment+ Net Capital Outflow
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the rate at which a person can trade the currency of one country for the currency of another
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nominal exchange rate
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an increase in the value of a currency as measured by the amount of foreign currency it can buy
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appreciation
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a decrease in the value of a currency as measured by the amount of foreign currency it can buy
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depreciation
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the rate at which a person can trade the goods and services of one country for the goods and services of another
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real exchange rate
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a theory of exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries
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purchasing power parity
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a government policy that directly influences the quantity of goods and services that a country imports or exports
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trade policy
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a large and sudden reduction in the demand for assets located in a country
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capital flight
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