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Econ modules 22-26

Vocab set 1 for modules 22-26

interest rate the price, calculated as a percentage of the amount borrowed, charged by lenders to borrowers for the use of their savings for one year
savings-investment spending identity an accounting fact that states that savings and investment spending are always equal for the economy as a whole
budget surplus the difference between tax revenue and government spending when tax revenue exceeds government spending
budget deficit the difference between tax revenue and government spending when government spending exceeds tax revenue
budget balance the difference between tax revenue and government spending
National savings the sum of private savings and the government's budget balance; the total amount of savings generated within the economy
Capital Inflow the net inflow of funds int a country; the difference between the total inflow of foreign funds to the home country and the total outflow of domestic funds to other countries
wealth the value of 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 he or she wishes
liability a requirement to pay income in the future
Transaction costs the expenses of negotiating and executing a deal
Financial risk uncertainty about future outcomes that involve financial losses and gains
Diversification investment in several different assets with unrelated, or independent, risks, so that the possible losses are independent events
Liquid describes an asset that can be quickly converted into cash without much loss of value
illiquid describes an asset that cannot be quickly converted into cash without much loss of value
Loan a lending agreement between an individual lender and an individual borrower
Default when a borrower fails to make payments as specified by the bond contract
loan-backed security assets created by pooling individual loans and selling shares in that pool
financial intermediary an institution, such as a mutual fund, pension fund, life insurance company, or bank that transforms the funds it gathers from many individuals into financial assets
mutual fund a financial intermediary that creates a stock portfolio by buying and holding shares in companies and then selling shares of this portfolio to individual investors
pension fund a type of mutual fund that holds assets in order to provide retirement income to its members
life insurance policy a financial intermediary that sells policies guaranteeing a payment to a policyholder's beneficiaries when the policyholder dies
bank deposit a claim on a bank that obliges the bank to give the depositor his or her cash when demanded
bank a financial intermediary that provides liquid assets in the form of bank deposits to lenders and uses those funds to finance the illiquid investments or investment spending needs of borrowers
money any asset that can easily be used to purchase goods and services
currency in circulation actual cash held by the public
checkable bank deposits bank accounts on which people can write checks
money supply the total value of financial assets in the economy that are considered money
medium of exchange an asset that individuals acquire for the purpose of trading for goods and services rather than for their own consumption
store of value an asset that is a means of holding purchasing power over time
unit of account a measure used to set prices and make economic calculations
commodity money a medium of exchange that is a good, normally gold or silver, that has intrinsic value in other uses
commodity-backed money a medium of exchange that has no intrinsic value whose ultimate value is guaranteed by a promise that it can be converted into valuable goods on demand
Fiat money a medium of exchange whose value derives entirely from its official status as a means of payment
monetary aggregate an overall measure of the money supply
Near-moneys a financial asset that can't be directly used as a medium of exchange but can be readily converted into cash or checkable bank deposits
present value the amount of money needed at the present time to produce, at the prevailing interest rate, a given amount of money at a specified future time
net present value the present value of current and future benefits minus the present value of current and future costs
Bank reserves currency held by banks in their vaults plus their deposits at the Federal Reserve
T-account a simple tool that summarizes a business's financial position by showing, in a single table, the business's assets and liabilities, with assets on the left and liabilities on the right
reserve ratio the fraction of bank deposits that a bank holds as reserves
required reserve ratio the smallest fraction of deposits that the Federal Reserve allows banks to hold
bank run a phenomenon in which many of a bank's depositors try to withdraw their funds due to fears of a bank failure
Deposit insurance a guarantee that a bank'g depositors will be paid even if the bank can't come up with the funds, up to a maximum amount per account
Reserve requirements rules set by the Federal Reserve that set the minimum reserve ratio for banks
discount window an arrangement in which the Federal Reserve stands ready to lend money to banks
Excess reserves a bank's reserves over and above the reserves required by law or regulation
monetary base the sum of currency in circulation and bank reserves
money multiplier the ratio of the money supply to the monetary base; indicates the total number of dollars created in the banking system by each $1 addition to the monetary base
central bank an institution that oversees and regulates the banking system and controls the monetary base
commercial bank a bank that accepts deposits and is covered by deposit insurance
investment bank a bank that trades in financial assets and is not covered by deposit insurance
savings and loan (thrift) deposit-taking banks, usually specialized in issuing home loans
leverage the degree to which a financial institution is financing its investments with borrowed funds
balance sheet effect the reduction in a firm's net worth from falling asset prices
vicious cycle of deleveraging the sequence of events that take place when a firm's asset sales to cover losses produce negative balance sheet effects on other firms and force creditors to call in their loans
Subprime lending lending to home buyers who don't meet the usual criteria for borrowing
securitization the pooling of loans and mortgages made by a financial institution and the sale of shares in such a pool to other investors
Created by: danvilece