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27 Cards in this Set
- Front
- Back
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asymmetric information
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situation in which one participant in an economic transaction has more information than the other participant.
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financial institution
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(financial intermediary) firm that helps channel funds from savers to investors.
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diversification
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the distribution of wealth among many assets, such as securities issued by different firms and governments.
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security
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claim on some future flow of income, such as a stock or bond.
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default
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failure to make promised payments on debts.
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adverse selection
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the problem that the people or firms that are most eager to make a transaction are the least desirable to parties on the other side of the transaction.
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bond
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(fixed-income security) security that promises predetermined payments at certain points in time. At maturity, the bond pays its face value. Before that, the owner may receive coupon payments.
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bank
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financial institution that accepts deposits and makes private loans.
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financial crisis
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major disruption of the financial system, typically involving sharp drops in asset prices and failures of financial institutions.
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direct finance
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savers provide funds to investors by buying securities in financial markets.
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covenant
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provision in a loan contract that restricts the borrower's behavior.
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centrally planned economy
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(command economy) system in which the government decides what goods and services are produced, who receives them, and what investment projects are undertaken.
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aggregate price level
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an average of the prices of all goods and services.
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economic growth
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increases in productivity and living standards; growth in real GDP.
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financial market
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a collection of people and firms that buy and sell securities or currencies.
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mutual fund
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financial institution that holds a diversified set of securities and sells shares to savers.
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stock
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(equity) ownership share in a corporation.
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interest
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payment for the use of borrowed funds.
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investors
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people who expand the productive capacity of businesses.
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savers
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people who accumulate wealth by spending less than they earn.
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inflation rate
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percentage change in the aggregate price level over a period of time.
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microfinance
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(microlending) small loans that allow poor people to start businesses.
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private loan
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loan negotiated between one borrower and one lender.
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indirect finance
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savers deposit money in banks that then lend to investors.
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nominal GDP
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the total value of all final goods and services produced in an economy in a given period.
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real gross domestic product (real GDP)
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the measure of an economy's total output of goods and services.
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moral hazard
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the risk that one party to a transaction will act in a way that harms the other party.
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