ECON

capitalism

economic system in which private individuals or businesses own capital goods

gross domestic product

standard measure of the value added created through the production of goods and serves in a country during a certain period

direct investment

investment in a foreign business enterprise designed to acquire a controlling interest in the enterprise

human capital

economic value of a worker’s experience and skills

capital

broad term that can describe anything that confers value or benefit to its owners

physical capital

consists of intangible, human-made objects that a company buys or invest in and uses to produce goods

opportunity cost

value of what you lose when choosing between two or more options

trade-off

situation where you have to make a compromise between two things or where you exchange all or part of one thing for another

production-possibilities frontier

curve on a graph that illustrates the possible quantities that can be produced of two products if both depend upon the same finite resource for their manufacture

absolute advantage

ability of an individual, company, region, or country to produce a greater quantity of a good or service with the same quantity of inputs per unit of time

comparative advantage

economy’s ability to produce a particular good or service at a lower opportunity cost than its trading partners

marginal cost

change in total production cost that comes from making or producing one additional unit

efficient market hypothesis

states that share prices reflect all information and consistent alpha generation is impossible

keynesian

macroeconomic theory of total spending in the economy and its effects on output, employment, and inflation which believes that government intervention can stabilize the economy

behavioral economics

study of psychology that explores why people sometimes make irrational decisions and why and how their behavior does not follow the predictions of economic models

surplus value of labor

Marxian economic concept that professed to explain the instability of the capitalist system; human labor was the source of economic value where the total worth of the work’s labor only accounts for a mere portion where the remainder is “surplus labor” and the value it produces is “surplus value”

means of production

inputs needed for the creation of a good or service

market equilibrium

market price where the quantity of goods supplied is equal to the quantity of goods demanded or where the demand and supply curves intersect

aggregate expenditure

sum of all the expenditures undertaken in the economy by the factors during a specific time period

aggregate income

the total income of all businesses, people, and governments in an economy

nominal GDP

GDP given in current prices without adjustment for inflation

real GDP

an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year

base year

the year with which the values from other years are compared

consumer price index

index that measures the monthly change in prices paid by U.S. consumers

market basket

selected group of products or assets designed to track the general performance of a specific market segment

business cycle

a cycle of expansion and contraction that economies undergo over time

fiscal policy

use of government spending and tax policies to influence economic conditions especially macroeconomic conditions

expansionary fiscal policy

focuses on expanding the economy to counteract cyclical downtowns which can be implemented by using monetary policy to expand the money supply or increase government spending and/or tax cuts to stimulate the economy

contractionary fiscal policy

used to slow down an economy when inflation grows too fast by reducing the money supply and spending by increasing interest rates, increasing reserve requirements, or reducing the money supply

supply side policy

measures governments take to increase the availability or affordability of goods and services

budget deficit

phenomenon of expenses exceeding revenue which is often used to refer to government spending or budgets

budget surplus

economic term describing a situation when income exceeds expenditures

automatic stabilizers

mechanisms built into government budgets without any vote from legislators that increase spending or decrease taxes when the economy slows

crowding effect

economic theory that argues rising public sector spending drives down or even eliminates private sector spending- government crowds out their spending by increasing its own

purchasing power

value of a currency expressed in terms of the number of goods or services that one unit of money can buy

purchasing power parity

economic theory that compares different countries’ currencies through a “basket of goods” approach

price ceiling

mandated maximum amount a seller is allowed to charge for a product or service

price floor

established lower boundary on the price of a commodity in the market often set up to ensure that the market price of a commodity doesn’t fall below a level that would threaten the financial existence of producers of the commodity

binding price floor

GREATER than the equilibrium market price

non-binding price floor

LOWER than the equilibrium market price

substitution effect

decrease in sales for a product when consumers switch to cheaper alternatives when its price rises

interest rate effect

effect of an increase or decrease in aggregate demand in an economy due to changes in interest rates set by the central bank of a country

aggregate demand

measurement of the total amount of demand for all finished goods and services produced in an economy

aggregate supply

total supply of goods and services produced within an economy at a given overall price in a given period

aggregate supply curve

describes the relationship between price levels and the quantity of output that firms are willing to provide

recessionary gap

macroeconomic term used when a country’s real GDP is lower than its GDP at full employment

inflationary gap

macroeconomic concept that measures the difference between the current level of real GDP and the GDP that would exist if an economy was operating at full employment; current real GDP must be HIGHER than the potential GDP

closed economy

economy that does not participate in international trade or does not import or export goods and services from another country

aggregation

connection between economic interaction at the micro and the macro levels

circular flow

economic model that illustrates how money moves from producers to consumers and back again in an endless loop

quantity theory of money

states that the general price level of goods and services is proportional to the money supply in an economy

equity financing

process of raising capital through the sale of shares when companies, often start-ups, have a need for cash

debt financing

occurs when a firm raises money for working capital or capital expenditures by selling debt instruments to individuals and/or institutional investors

quantitative easing

form of monetary policy wherein the central bank purchases long-term securities to lower interest rates in the short to medium term

nationalization

the process of taking privately-controlled companies, industries, or assets and putting them under the control of the government

privatization

occurs when a government-owned business, operation, or property becomes owned by a private, non-government party

income tax

type of tax that governments impose on income generated by businesses and individuals within their jurisdiction

wealth tax

tax based on the market value of assets owned by taxpayer; tax levied on the net fair market value of a taxpayer’s assets

corporate tax

tax on the profits of a corporation based on taxable income after expenses have been deducted

quotas

time-bound restrictions government impose on trade which is done by placing limits on the value or number of goods exported or imported

tax break

a benefit the government offers that reduces your total tax liability

megacities

urban areas with more than 10 million inhabitants

retail investment

process through which cities grow, and higher and higher percentage of the population comes to live in the city

commodification

transformation of things that normally exist outside the market into commodities or objects of trade

financial crisis

situations where asset prices see a steep decline in value, businesses and consumers are unable to pay their debts, and financial institutions experience liquidity shortages

pegged/fixed currency

when the currency of one country is usually tied to a stronger currency (e.g. the Euro or US dollar)

floating currency

monetary system that is not backed by gold or assets and tends to fluctuate in value due to supply and market expectations of the currency’s value against others

default

the failure to repay a debt including interest or principal on a loan or security

bailout

when a business, an individual, a government, or an international organization provides money and/or resources to a failing company/government

housing bubble

sustained but temporary condition of over-valued prices and rampant speculation in housing markets

speculation

when investors buy something expecting to make money off the fact that its price will most likely rise in the future (self-fulfilling prophecy)

subprime mortgage

type of loan granted to individuals with poor credit scores where the interest rate charged is at a much higher rate to compensate for carrying more risk

credit rating agencies

issue letter grades to companies supposedly based on objective and independent assessments

Troika

European Commision (EC), European Central Bank (ECB), and the International Monetary Fund (IMF)

financial securities

security that represents the ownership of a fraction of a corporation’s assets and profits

stock

security that represents the ownership of a fraction of a corporation’s assets and profits equal to how much stock they own

common stocks

stock that entitles the owner to vote at shareholders’ meetings and to receive any dividends paid out by the corporation

preferred stocks

owners of this stock do not have voting rights, though they have a higher claim on assets and earnings than the common stockholders

meme stock

shares of a company that have gained viral popularity due to heightened social sentiment

initial public offering

process of offering shares of a private corporation to the public in new stock issuance for the first time

dividends

distribution of profits by a corporation to its shareholders;

venture capitalists

private equity investor that provides capital to companies exhibiting high growth potential in exchange for an equity stake

angel investor

high net-worth individual who provides financial backing for small startups or entrepreneurs, typically in exchange for ownership equity in the company

derivatives

type of financial contract whose value is dependent on an underlying asset, group of assets, or benchmark

derivatives - options

gives the buyer the option to buy or sell an underlying asset at a stated (strike) price

call option

allow the holder to buy an asset at a stated price within a specific timeframe

put option

allow the holder to sell the asset at a stated price within a specific timeframe

derivatives - futures

a financial product in which you agree to either buy or sell an underlying asset at a specific price and date

margin account

account with a brokerage firm that allows an investor to buy securities including stocks, bonds, or options- all with cash loaned by the broker

maintenance margin

minimum amount of equity (total value of securities in the margin account minus anything borrowed from the brokerage firm) that the investor needs to have at all times as long as the securities purchased are in the margin account

margin call

a broker’s demand that an investor deposit additional money or security into an account so that it is brought up to the minimum value

short selling

strategy that speculates on the decline in a stock or other security’s price

short squeeze

takes place when the price of a heavily shorted stock rises sharply, forcing short-sellers who had bet against the stock to buy it at those prices to avoid further losses

trading halt

temporary suspension of trading for a particular security or securities at one exchange or across numerous exchanges

depository trust and clearing corporation

the intermediary for settlement of stocks in the public securities market

clearing houses

SEC-registered organizations that act as a central depository for securities

GameStop

company that owns stores mostly based in malls that sell video games, consoles, peripherals, and assorted knicknacks, and merchandise; during COVID-19, more people were buying goods online instead of in stores so Wall Street investors started betting heavily against the company believing that its brick-and-mortar business model is doomed

Robinhood

American financial services company known for offering commission-free trades of stocks and exchange-traded funds via a mobile app

cryptocurrency

digital or virtual currency secured by cryptography and based on a network that is distributed across a large number of computers and makes it nearly impossible to counterfeit or double-spend

marginal benefit

maximum amount a consumer is willing to pay for an additional good or service