macro unit 4

Financial Asset

A nonphysical asset that entitles the buyer to future income from the seller.

Stock

Type of equity that represents ownership in a corporation.

Bond

An interest-bearing asset that represents a loan to a company or government.

Shareholder

An individual who owns shares in a company.

Rate of Return

The percentage of the initial amount gained or lost.

Liquidity

The ability to purchase goods and services with your assets.

Opportunity Cost

The loss of potential gain from other alternatives when one alternative is chosen.

Nominal Interest Rate

The interest rate actually paid for a loan.

Real Interest Rate

The nominal interest rate adjusted for inflation.

Money Supply

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

Central Bank

A government institution that issues currency, oversees and regulates the banking system, and implements monetary policy.

Open Market Operations

Purchases or sales of government debt (bonds) by the central bank.

Discount Rate

The interest rate the central bank charges on loans to banks.

Loanable Funds Market

A hypothetical market that brings together lenders and borrowers.

Budget Surplus

The difference between tax revenue and government spending when tax revenue exceeds spending.

Investment Tax Credit

An amount that firms are allowed by law to deduct from their taxes based on their investment spending.

Crowding Out

When a government deficit drives up the interest rate, leading to reduced investment spending.

Money Multiplier

The ratio of the money supply to the monetary base, indicating how much money is created from each dollar addition to the monetary base.

Commodity Money

A good used as a medium of exchange that has intrinsic value in other uses.

Flat Money

A medium of exchange whose value derives entirely from its official status as a means of payment.

Monetary Policy

The actions of central banks to achieve macroeconomic policy objectives such as price stability.