MACRO UNIT 5

vocab!

Interest Rate

Price charged by loaners, to get profit

Savings-investment spending identity

savings = investment spending

Budget Surplus

tax revenue > government spending

Budget Deficit

tax revenue < government spending

Budget Balance

The difference between tax revenue and government spending

National Savings

Private Savings + Budget Balance = Total Savings in Economy

Capital Inflow

Net inflow of funds into a country

Wealth

A household’s wealth = the value of its accumulated savings

Financial Asset

A paper claim that entitles the buyer to future income from the seller

Physical Asset

A claim on a tangible object that gives the owner the right to dispose of the object as they wish

Liability

The requirement to pay income in the future

Transaction Costs

Expenses of negotiating/executing a deal

Financial Risk

Uncertainty about future outcomes that involve financial gains/losses

Diversification

Investing in several different things

Liquid

EASY to make into cash (like gold)

Illiquid

NOT easy to turn into cash (like a house)

Loan

Borrowing $$

Default

Not paying a load back in time

Loan-backed Security 

A loan-backed security is an investment, similar to a bond, that is created by bundling a pool of individual loans and selling them to investors. The security's value and the payments made to investors are based on the cash flow generated by the underlying loans.

Financial Intermediary 

the ‘middleman’ (bank) that brings together buyer and seller

Mutual Fund

Pools together multiple investors’ funds to invest in a portfolio (diverse investments)

Pension Fund

A fund from which pensions are paid

Life Insurance Company

offer types of life insurance such as term, whole and universal

Bank Deposit

$ being put into a bank account

Bank

a place where people store their money

Savings =

(Income-Consumption-Taxes)+ (Taxes-Gov Spending)

National Savings =

I + Net Capital Outflow

Another equation→

Savings = Real GDP - C - G - I

Investment Spending

physical capital(buildings and machines)

Human Capital

Improvement on the labor force thru education

Financial Capital

funds from savings that are available for investment spending

Positive capital outflow

money is flowing out of the economy (country is investing abroad)

Negative Capital outflow

money is flowing in (foreigners are investing in us)

money

any financial assets that can be easily used to purchase goods/services

Currency in Circulation

cash held by the public

Checkable bank deposits

bank accounts on which people can write checks

Money Supply

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

Medium of Exchange

what is used instead of bartering (money,gold)

Store of Value

holding purchasing power over time

Unit of Account

A measure used to set prices and make economic calculations

commodity money

a good used as a medium of exchange WITH INTRINSIC value

Commodity backed money

like gold/silver-backed money (can be used as gold/silver also)

Fiat Money

Money with value determined by the Gov (just a piece of paper)

Monetary Aggregate

Measures of money supply in an economy (m1,m2,m3)

m1

Most liquid (cash, checking account)

m2

Things that can be CONVERTED into spendable money (savings account), as well as M1

NOT INCLUDED

credit cards, stocks,bonds,gold,physical,money in valuts

Near Moneys (m2)

Financial assests that cant be directly used but can be converted to use