Macro Vocab

Stock

A stock is a piece of ownership in a company.

Bond

A bond is a loan you give to a company or government, and they pay you back with interest.

Opportunity Cost

It’s what you give up when you choose one thing over another.

Nominal Interest Rate

The interest rate you see advertised before inflation is considered.

Real Interest Rate

The actual interest rate you pay after adjusting for inflation.

Classical Economics

The idea that economies work best when the government stays out of it.

Demand-Pull Inflation

Prices go up because people want to buy more things than businesses can make.

Fractional Reserve Banking

Banks keep some of your money but lend out the rest to others.

Money Multiplier

A small deposit in a bank can turn into a larger amount of money through lending.

Cost-Push Inflation

Prices go up because it costs more to make things.

Supply-Side Economics

Helping businesses grow helps the whole economy.

Contractionary Monetary Policy

The government makes borrowing harder to slow down inflation.

Expansionary Monetary Policy

The government makes borrowing easier to boost the economy.

Discount Rate

The interest rate banks pay when they borrow from the central bank.

Federal Funds Rate

The interest rate banks charge each other for short-term loans.

Keynesianism

The idea that the government should help the economy during bad times.

Monetarism

The belief that controlling the money supply is the best way to manage the economy.

Reserve Requirement

The minimum amount of money banks must keep instead of lending out.

Excess Reserves

Extra money banks have that they don’t lend out.

Open Market Operations

When the central bank buys or sells government bonds to control money supply.

Sticky Wages

Wages that don’t go down easily, even if the economy is bad.

Flexible Wages

Wages that change based on supply and demand.

Stagflation

When prices go up, but the economy stays weak.

Loanable Funds Market

A place where people who save money meet people who want to borrow money.

Determinants of Demand

Things that change how much people want to buy.

Equation of Exchange

A formula that shows how money moves in an economy.

Velocity of Money

How fast money moves around in the economy.