Econ Chapter 26/27/28

Productivity

The quantity of goods and services produced from each unit of labor

Physical capital

the stock of equipment and structures that are used to produce goods and services

Human capital

the knowledge and skill that workers acquire through education, training, and experience

Natural resources

The inputs into the production of goods and services that are provided by nature

Technological knowledge

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

Diminishing returns

the property whereby the benefit from one extra unit of an input declines as the quantity of the input increases

Catch-up effect

The property whereby countries that start off poor tend to grow more rapidly than countries that start rich

Financial system

The group of institutions in the economy that help to match one person's savings with another person's investment (we don’t invest in the market, we save)

Financial market

financial institution through which savers can directly provide funds to borrowers (stocks and bonds)

Bond

A certificate of indebtedness

Stock

a claim to partial ownership

Financial intermediaries

financial institution through which savers can indirectly provide funds to borrowers (bank)

Mutual fund

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

National saving

The total income in the economy that remains after paying for consumption and government purchases

Private saving

the income that households have left after paying taxes and consumption

Public saving

The tax revenue that the government has left after paying for its spending

Budget surplus

An excess of tax revenues, our government spending

Budget deficit

a shortfall of tax revenues from government spending

Market for loanable funds

The market in which those who work to save supply funds and those who want to borrow to invest demand funds

Crowding out

a decrease in investment that result from government borrowing

Present value

The amount of money needed today to produce a future amount of money, given the interest rate

Future value

The amount of money in the future that an amount of money today will yield, given the prevailing interest rate

Compounding

The accumulation of a sum of money in a bank account, the interest earned remains in the account to earn additional interest in the future

Diversificaion

The reduction of risk achieved by replacing a single risk with a larger number of smaller, imperfectly correlated risks

Firm-specific risk

Risk that affects only a single company

Market risk

risks that affect all companies in the stock market

Fundamental analysis

The study of a company's accounting statement average future prospects to determine its value

Efficient market hypothesis

The theory that asset prices reflect all publicly available information about the value of an asset

Informational Efficiency

The description of asset prices that rationally reflect all available information

Random Walk

the path of a variable whose changes are impossible to predict

Risk Aversion

a dislike of uncertainty

Finance

The management of large amounts of money, especially by governments or large companies.

The production function

a graph or equation showing the relation between output and input

Foreign direct investment

capital investment that is owned and operated by a foreign entity

Foreign portfolio investment

investment financed by a foreign company but operated by a domestic resident

date of maturity

The due date must be repaid

rate of interest

paid periodically until the due date

Credit risk

the probability that the borrower will fail to pay some of the interest or principal

Tax treatment

Interest on most bonds is taxable income

Organized stock exchange

officials who regulate where stocks and bonds are sold

Equality finance

sale of stock to raise money, selling to the public

Stock index

The average of a group of stock prices, used to track how the stock market is doing overall

Annuity

is a financial product or arrangement where you make a series of regular, equal payments over time or receive a series of regular, equal payments over time.

Utility

satisfaction, a measure of well-being of wealth

informationally efficient

Each stock price reflects all available information about the value of the country

Municipal Bonds

issued by state and local gov, owners are not required to pay federal income tax.

Diminishing returns to capital

as physical capital (k) rises, the extra output from an additional unit of k falls

Inward-oriented policies

aim to raise living standards by avoiding interactions

outward-oriented policies

promote integration with the world economy

Investment

purchase of new capital (does not equal putting money in stock)

adverse selection

a high-risk person benefits more from insurance, more likely to purchase

moral hazzard

people with insurance have less incentive to avoid risky behavior

bubbles

occur when speculators buy overvalued assets expecting prices to rise further