Economic growth
increase in the Real GDP in a time period, Increase in the Real GDP per capita over a period of time.
Capital
wealth in the form of money or property owned by a person or business and human resources of economic value
Human Capital
the skills and knowledge gained by a worker through education and experience
entrepreneurs
individuals who start new businesses, introduce new products, and improve management techniques
Diminishing Returns
a level of production in which the marginal product of labor decreases as the number of workers increases
average labor productivity
total output divided by the quantity of labor employed in its production
Savings
Current Income minus spending on current needs
National Savings
the total savings in an economy from households, business, and the government
y=C+I+G+MX main formula,
S=Y-C-G
Private Savings
Total savings from households + Businesses after taxes
Sp = Y - T - C.
Public Savings
total savings of government: Taxes minus government spending
S=T-G
Savings Rate
the proportion of disposable income that is saved
Life-cycle savings
young people borrow, middle agers pay off debts and save, and older people draw down their savings; on average, net savings over a lifetime is usually little or nothing
ex. Retirement, to buy a house
precautionary savings
Saving for protection against unexpected setbacks, such as the loss of a job or a medical emergency.
ex. Saving during good times, Insurance
Balance Sheet
A financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time.
assets
the value one owns
Liabilities
the debt one owes
financial intermediaries
financial institutions through which savers can indirectly provide funds to borrowers
Federal Reserve System
the central bank of the United States
Stocks
shares of ownership in a company
Bonds
a certificate issued by a government or private company which promises to pay back with interest the money borrowed from the buyer of the certificate: The city issued bonds to raise money for putting in new sewers.
Dividends
a part of a company's profit that is divided among the people with shares in the company
Coupon Payments
regualer interest payments made to the bondholder
Coupon rate
THe interest rate that a bond issuer will pay to a bondholder
diversification
the act of introducing variety (especially in investments or in the variety of goods and services offered)
reserve-deposit ratio
This refers to the fraction of deposits banks hold in reserves
Money Supply, M1
Currency + Checkable deposits
Money Supply, M2
M1 + Savings deposits, including MMDA's + Small time deposits (>100,000) +MMMF held by individuals
Open-Market Operations
the buying and selling of government securities to alter the supply of money
Quantity Equation
the equation m x v = p x y, which relates the quantity of money, the velocity of money, and the dollar value of the economy's output of goods and services
p=v/y *m
National Savings Formula
s=y-c-g
I=s
investments =national savings
public savings formula
T-G
Private Savings Formula
Y-C-T
Budgets
T=G is balanced
T-G<0 deficient budget
T-G>0 Budget Surplus