Principles of Economics: Production, Growth, and Finance

Productivity

Output produced per unit of labor input.

Physical Capital

Stock of equipment and structures for production.

Human Capital

Knowledge and skills acquired by workers.

Natural Resources

Inputs from nature for producing goods.

Labor

Work performed by individuals for wages.

Catch-Up Effect

Lower-income countries grow faster than richer ones.

Production Function

use to describe relationship between input quantity used in production and output quantity.

Total Factor Productivity

Efficiency of all inputs in production.

Financial System

group of Institutions in economy that helps to match savings with investments.

Financial Markets

financial institutions for savers to lend funds directly.

Financial Intermediaries

Institutions through savers can indirectly provide funds to borrowers

Bond

Certificate of indebtedness issued by borrowers.

Stock

Claim to partial ownership in a firm.

Equity Finance

Raising money through selling stock.

Gross Domestic Product (GDP)

Total income and expenditure in an economy.

National Saving

Income remaining after consumption and government spending.

Private Saving

Household income after taxes and consumption.

Public Saving

Government revenue left after spending.

Budget Surplus

Excess of tax revenue over government spending.

Budget Deficit

Shortfall of tax revenue from government spending.

Investment

Purchase of new capital like equipment.

Market for Loanable Funds

Market where savers supply and borrowers demand funds.

Saving Incentives

Policies encouraging individuals to save more.

Investment Incentives

Tax advantages for firms investing in capital.

Government Debt

Accumulation of past government borrowing.

Balanced Budget

Government spending equals tax revenue.

Present Value

Current worth of future cash flows.

Future Value

Value of an investment at a future date.

Compounding

Earning interest on previously earned interest.

Market Risk

Risk affecting all investments in the market.

Firm-Specific Risk

Risk affecting a single company's stock.

Efficient Market Hypothesis

Asset prices reflect all available information.

Diversification

works to lessen the risk of made by replacing the the risk with a lower risk

Fundamental Analysis

Evaluating a stock's value based on fundamentals.

PRESENT VALUE

The amount of money today that would be needed, using prevailing interest rates, to produce a given future amount.

FUTURE VALUE

Future value refers to the amount of money you will receive in the future using the current amount of money.

COMPOUNDING

The growing of a certain amount of sum with interest and uses the same interest money to gain more.

RISK AVERSION

is a dislike for the unknown results.

FIRM-SPECIFIC RISK

also known as unsystematic risk, refers to the risk associated with a particular company or organization.

MARKET RISK

also called systematic risk, is the potential for an investor to experience losses due to factors that affect the entire market or a significant portion of it.

FUNDAMENTAL ANALYSIS

is a method used by investors to evaluate the intrinsic value of a security by analyzing various economic, financial, and other qualitative and quantitative factors.

EFFICIENT MARKET HYPOTHESIS (EMH)

posits that financial markets are 'informationally efficient,' meaning that asset prices reflect all available information at any given time.

INFORMATION EFFICIENCY

Information efficiency refers to the degree to which market prices reflect all relevant information about a security.

RANDOM WALK

The random walk theory suggests that stock price movements are unpredictable and follow a random path.

UNEMPLOYMENT

Unemployment is the state of being without a job despite actively seeking work.

LABOR FORCE

The total number of workers, including both the employed and the unemployed.

UNEMPLOYMENT RATE

The percentage of the labor force that is unemployed.

LABOR-FORCE PARTICIPATION RATE

The percentage of the adult population that is in the labor force.

NATURAL RATE OF UNEMPLOYMENT

The normal rate of unemployment around which the unemployment rate fluctuates.

DISCOURAGED WORKERS

Individuals who would like to work but have given up looking for a job.

FRICTIONAL UNEMPLOYMENT

Unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills.

STRUCTURAL UNEMPLOYMENT

Unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one.

UNEMPLOYMENT INSURANCE

A government program that partially protects workers' incomes when they become unemployed.

UNION

A worker association that bargains with employers over wages, benefits, and working conditions.

EFFICIENCY WAGES

Above-equilibrium wages paid by firms to increase worker productivity.

GROSS DOMESTIC PRODUCT (GDP)

The total value of all goods and services produced in a country over a specific time period.

LABOR FORCE PARTICIPATION RATE CALCULATION

The labor-force participation rate is calculated by dividing the labor force by the adult population.

UNEMPLOYMENT RATE CALCULATION

The unemployment rate is calculated by dividing the number of unemployed individuals by the labor force.

LABOR FORCE CALCULATION

The labor force is calculated by adding the number of employed individuals to the number of unemployed individuals.

Technological Knowledge

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

The bond market

involves selling bonds of borrowers to savers

the stock market

involves selling to stock in the company

Stock

a claim to partial ownership in a firm

Bank

financial intermediaries that takes in deposits from savers and use these to make loans for borrowers

Mutual Funds

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

Accounting

refers to how various numbers are defined and added up

Identity

an equation that must true because of how variables are defined

Supply of loanable funds

Comes from people who have extra income that they want to save or lend out.

Demand of loanable funds

Comes from households and firms who wish to borrow to make investments.

Individual Retirement Accounts

Allow people to shelter some of their saving from taxation.

Investment tax credit

Gives a tax advantage to any firm building a new factory or buying a new equipment.