Econ Unit 2

private property

property owned by individuals or companies, not by the government or the people as a whole

Entrepreneurship

the process of starting, organizing, managing, and assuming the responsibility for a business

Rule of Law

principle that the law applies to everyone, even those who govern

Institutions of Capitalism

Private property, markets, entrepreneurship, rule of law

Markets

Bring buyers and sellers together to exchange goods and services

command economy

An economic system in which the government controls a country's economy.

market economy

an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

mixed economy

An economy in which private enterprise exists in combination with a considerable amount of government regulation and promotion.

money supply

the total value of financial assets in the economy that are considered money

Liquidity

the ease with which an asset can be converted into cash

Mutual funds

An investment that holds a wide range of different investment instruments, providing diversification

fractional reserve banking

a banking system that keeps only a fraction of its funds on hand and lends out the remainder

default

failure to pay back a loan

mortgage

a specific type of loan that is used to buy real estate

credit card

A plastic card used to make purchases now and pay for them later.

interest

A sum paid or charged for the use of money or for borrowing money

principal

The amount of money borrowed

monetary policy

managing the economy by altering the supply of money and interest rates

reserve requirement

the percentage of deposits that banking institutions must hold in reserve

check clearing

the process by which banks record whose account gives up money and whose account receives money when a customer writes a check

bank holding company

a corporation that owns banks

federal funds rate

the interest rate at which banks make overnight loans to one another

discount rate

The interest rate on the loans that the Fed makes to banks

store-value cards

Cards that are prepaid, providing the card holder with immediate money

Investing

The process of setting money aside to increase wealth over time for long-term financial goals such as retirement

financial system

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

financial assets

claims on real assets or the income generated by them

liability

an amount owed

financial intermediaries

financial institutions through which savers can indirectly provide funds to borrowers

hedge fund

A private investment organization that employs risky strategies that often made huge profits for investors

Diversification

Spreading out investments to reduce risk

portfolio

A collection of financial assets

prospectus

an investment report to potential investors