Chapter 2 vocab Flashcards
What is production?
Value added by employment of labor and capital during the period
What is consumption?
Spending by domestic households on final goods and services
What is government spending?
Spending by the government on goods or services, excludes transfers
What is transfers?
Social Security payments, welfare and unemployment benefits
What is household wealth?
Present value of household expected income + households tangible assets
What is national wealth?
Sum of all households’, firms’ and governments’ wealth within the nation
What is saving?
Current income - current spending
How is saving rate calculated?
Saving/current income
What is private saving?
Private disposable income - consumption
How is government saving calculated?
Net government income - government purchases of goods and services
What is interest rate?
Rate of return promised by the borrower to a lender
What is real interest rate?
Rate at which the real value of an asset increases over time
What is nominal interest rate?
Rate at which the nominal value of an asset increases over time
How do you calculate the expected real interest rate?
r = i - p^e
if pi = p^e, real interest rate = expected real interest rate
r = real rate
i = nominal rate
p^e = expected inflation
