Chapter5: Economics and Banking

This set of flashcards covers vocabulary based on lecture notes on economics, banking, market structures, and international finance.

Economics

The study of how individuals, businesses, governments, and nations allocate their limited resources to satisfy their unlimited wants and needs.

Scarcity

One of the key concepts of economics, referring to the limitation of resources where the demand for a good or service is greater than its availability.

Microeconomics

The study of individuals and business decisions.

Macroeconomics

The branch of economics that looks at the decisions of countries and governments.

Factors of Production

The resources used to produce goods and services, often categorized as Land, Labour, Capital, Entrepreneurship, and Knowledge.

Circular Flow Model

A model depicting how money circulates through the economy from individuals to firms for labor and goods/services, and from firms to individuals for wages and products.

Productivity

The measure of how efficiently goods and services are being produced, calculated as the ratio of aggregate output to aggregate input.

Labor Productivity

A measure of economic output (Gross Domestic Product, or $GDP$) per hour worked.

Total Factor Productivity

The portion of growth in output not explained by growth in labor or capital, often called \text{"innovation-led growth."}

Free Market Economy

An economic system in which the production and distribution of goods and services are determined by supply and demand with minimal government intervention.

Mixed Economy

The world's dominant economic organization where some resources are planned by the government while citizens control others.

Planned Economy

An economic system where the state uses advanced planning mechanisms to determine production levels and regulate prices.

Capitalism

An economic system that promotes the creation and ownership of capital and wealth, focusing on the unfettered exchange of goods and services.

Socialism

An economic and political system based on the idea that shared public or state ownership of resources leads to a more equal society.

Communism

A political and economic system aiming to eliminate class struggles by having the public own the means of production, with no private property or currency.

Privatization

The process of converting businesses previously owned by the government to private ownership.

Nationalization

The process by which a government takes control of industries, such as oil and media, as seen in Venezuela.

Laissez-faire

An economic principle of leaving things alone and avoiding government intervention in the market.

Perfect Competition

A market structure characterized by many buyers and sellers, homogeneous products, and no single participant having market power.

Monopolistic Competition

A market structure where many sellers offer differentiated products that serve a similar purpose but are perceived as different by consumers.

Oligopoly

A market situation where there are a few sellers, and the cost of entering the industry is typically high.

Monopoly

A market structure with only one seller, which can be natural (regulated public utilities) or legal (based on patents).

The Law of Supply and Demand

An economic theory stating that when supply is greater than demand, prices fall, and when demand is greater than supply, prices rise.

Equilibrium Price

The price at which the quantity demanded by buyers equals the amount that sellers are willing to sell.

Gross Domestic Product ($GDP$)

The market value of all final goods and services produced domestically by an economy in a given year.

Gross National Product ($GNP$)

The value of all products and services produced by the citizens of a country, both domestically and internationally, minus income earned by foreign residents.

Business Cycle

The economic ups and downs consisting of four phases: prosperity, recession, depression, and recovery.

Recession

A slowdown in economic activity characterized by a decrease in $GDP$ for two consecutive quarters.

Unemployment Rate

The percentage of the labour force who are at least $15$ years old, are unemployed, and are actively seeking work.

Frictional Unemployment

Unemployment that occurs when workers move between jobs and locations.

Structural Unemployment

Unemployment resulting from the termination of jobs due to shifts in the economy.

Price Stability

A state where the average price for goods and services either does not change or changes very little.

Inflation

An increase in the overall price level, often resulting from the money supply growing too big relative to the size of the economy.

Consumer Price Index ($CPI$)

The most widely publicized measure of inflation, determined by price changes of a hypothetical basket of goods bought by a typical household.

Producer Price Index ($PPI$)

A measure that tracks the average change in prices at the wholesale level.

Leading Economic Indicators

Statistics that signal future economic activity, such as stock prices or building permits, used to predict changes before they occur.

Lagging Economic Indicators

Statistics that reflect changes that have already occurred, such as the inflation rate or the length of unemployment.

Monetary Policy

Actions taken by the Bank of Canada to manage the money supply and interest rates to stabilize the economy.

Open Market Operations ($OMO$)

The tool for monetary policy involving the buying or selling of government securities (bonds) to manage the money supply.

Bank Rate

The interest rate the Bank of Canada charges commercial banks for short-term loans.

Fiscal Policy

The government's use of spending and taxation power to influence the total supply of money in the economy.

M-1

The narrowest measure of the money supply, including cash and funds held in demand deposits like chequing accounts.

M-2

A measure of money supply that includes M-1 plus near-cash items like savings accounts, time deposits, and money market mutual funds.

The World Bank

An important source of economic assistance providing loans and grants to some of the world's poorest nations.

International Monetary Fund ($IMF$)

A United Nations agency governed by $191$ member countries focused on international monetary cooperation and exchange rate stability.

Exchange Rate

The price of one currency expressed in another currency within the foreign exchange market.

Digital Currencies

Electronic forms of currency accessible only via computers or mobile phones, which can be centralized (like bank-regulated digital money) or decentralized (like cryptocurrencies).