Macro chapter 26-28

productivity

the quantity of goods and services produced from each unit of labor

physical capital

the stock of equipment and structures that are used to produce gods and services

human capital

the knowledge and skills that workers acquire through education, training, and experience

natural resources

the inputs into the production of goods and services that are provided by nature, such as land, rivers, and mineral deposits

technological knowledge

society’s understanding of the best ways to produce goods and services

diminishing returns

the property whereby the benefit from an extra unit of an input declines as the quantity of the input increases

catch-up effect

the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich

Financial system

the group of institutions in the economy that help to match one person’s saving with another person’s investment

financial markets

financial institutions through which savers can directly provide funds to borrowers

bond

a certificate of indebtedness

stock

a claim to partial ownership in a firm

financial intermediates

financial institutes through which savers can indirectly provide funds to borrowers

mutual fund

an institution that sells shares to the public and uses the proceeds to buy portfolio of stocks and bonds

national saving

the total income in the economy that remains after paying for consumption and government purchases

private saving

the income that households have left after paying for taxes and consumption

public saving

the tax revenue that the government has left after paying for its spending

budget surplus

an excess of tax revenue over government spending

budge deficit

a shortfall of tax revenue from government spending

market for loanable funds

the market in which those who want to save supply funds and those who want to borrow to invest demand funds

crowding out

a decrease in investment that results from government borrowing

finance

the field that studies how people make decisions regarding the allocation of resources over time and the handling of risk

present value

the amount of money today needed to produce a future amount of money, given prevailing interest rates

future value

the amount of money in the future that an amount of money today will yield, given prevailing interest rates

compounding

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

risk aversion

a dislike of uncertanity

diversification

the reduction of risk achieved by replacing a single risk with a large number of smaller, imperfectly correlated risks

firm-specific risk

risk that affects only a single company

market risk

risk that affects all companies in the stock market

fundamental analysis

the study of a company’s accounting statements and future prospects to determine its value

efficient market hypothesis

the theory that asset prices reflection all publicly available information about the value of an asset

informational efficiency

the description asset prices that rationally reflect all available information

random walk

the path of a variable whose changes are impossible to predict