Macroeconomics Lecture 6: Tradeoffs Involving Time

This set of vocabulary flashcards covers key financial concepts and economic definitions from the lecture on intertemporal tradeoffs, including valuation methods and household savings mechanisms.

Intertemporal transformation

The movement of resources between different time periods, such as saving money today to spend it $T$ years from now.

Compound interest

The process where interest is earned on a growing balance, effectively meaning that an investor earns interest on their interest.

Real rate of return

The growth of buying power over time, calculated as the nominal rate of return ($i$) minus the inflation rate ($ext{π}$).

Present Value (PV)

The discounted value of the future, representing the amount of money that would need to be invested today to produce a specific future payment.

Net Present Value (NPV)

The sum of all costs and benefits associated with a project, using present values to make the costs and benefits comparable.

Stock (or share)

A proportionate claim to a company's dividends and proportionate voting rights in elections for the board of directors.

Time preferences

The psychological discounting of future utility, where individuals act as if they value future utility less than present utility.