Banks, Money and the Credit market Flashcards
What is collateral?
What is money?
Money is a medium of exchange used to purchase a good.
How does money differ from Barter trade?
Money is more efficient that Barter trade. Barter trade can be time consuming and can exhaust resources.
What is a deferred payment?
A deferred payment is a purchase made in the present with a promise to pay in the future.
What is wealth?
Wealth is the amount you can spend without borrowing after paying of your debts and taking any money lent back. Example can be your house.
What is flow? Give economic example
Flow is a quantity per unit time. This can be gross income/net income.
What is stock? Give economic example
A stock is just a quantity at a given period of time. This can be your wealth. It does not depend on time.
What is the reduction of stock called?
Depreciation
What is depreciation
Depreciation is the rate at which your wealth losses value. Either through wear and tear or passage of time.
Net income vs Gross income
Gross income is the after tax income or disposable income. Net income is the Gross income but also takes into account the depreciation of current wealth.
How would you calculate Net income from Gross income and depreciation rate?
Gross income - Depreciation = Net income.
What is saving defined?
Saving is when your net income is greater than your consumption. Hence, your wealth grows.
What is interest rate?
The price of bringing some buying power forward.
What does the diminishing marginal returns of consumption describe?
The Diminishing marginal return is the value to the individual for an additional unit of consumption in a given period of time, declines more than it is consumed.
What is myopia? (economics)
Myopia is essentially short - sightedness. It is the idea that people experience present satisfaction such as hunger more intensely than they imagine at a future date.
