Definitions Flashcards
What is GDP?
Gross Domestic Product - the total monetary value of all the finished goods and services produced within a country’s borders in a specific time period
What is GDP per capita?
The GDP averaged out over the population of a country
What is federal reserve?
The US central bank
What are ‘subprime’ mortgages?
Mortgages lent to people who are seen as a bad credit risk because they have irregular work/low wages or have been in debt before.
What is Fannie Mae/Freddie Mac?
US ‘government backed’ mortgage lenders
What is Dow Jones?
Stock market index of US shares - the average of how high the shares are in the market
What is interbank lending market?
A market where banks lend to other banks
What is Libor?
London InterBank Offered Rate - the interest rate charged on the interbank lending market.
What is Mortgaged Backed Securities?
Financial assets deriving their value from mortgages. These can be bought and sold on financial markets.
What is Auction Rate Securities?
Financial assets where large institutions raise funds by selling these bonds. Anyone who wishes to withdraw their investments can exit via regular auctions
What is paradox of thrift?
When everyone increases their savings then total expenditure is reduced and so this causes an issue reducing output and causing unemployment.
What does the term ‘baby-sitting’ mean?
Baby-sitting is an analogy to describe paradox of thrift.
What are bubbles?
Bubbles in economics are defined as high volumes of trade at unsustainably high prices.
Unsustainable as these prices are far removed from the intrinsic value of the good
What is Moral Hazard?
Agents may use money in ways that go outside what the bank (the principal) wants even though it is using the bank’s money.
What is the aggregate demand equation?
AG = C + I + G + (X-Z)
What happens to aggregate demand if consumption and investment go down?
If everything else stays the same then aggregate demand will also go down
What must aggregate demand be the same as?
GDP, as aggregate demand is the total amount of spending in the economy as is GDP
What is a liquidity trap?
The situation where zero interest rate does not raise an economy out of a recession
What are exchange rates?
Generally currencies on the foreign exchange market are, like other markets, exchanged at a given price.
What occurred due to globalisation?
Globalisation resulted in countries being dependent on one another’s economies in order to continue to grow and improve. However if one country’s economy were doing badly this would negatively impact any country invested in the country through globalisation
What are bank runs?
Bubbles often bring on bank runs.
Bank runs are the result of large numbers of a bank’s customers turning up at once to claim their money.
Usually caused by rumours that a bank is in financial difficulty.
What is The International Monetary Fund?
The International Monetary Fund is the international organisation that aims to secure short-term economic stability. It has a variety of roles but its main role was to overcome perceived failures in capital markets by providing loans to governments.
What are gilts?
Gilts are bonds issued by the government (especially the UK government). They constitute the main form of borrowing by the government with the sale price of the gilts going to the UK Treasury.
Why are guilts issued? (2 main reasons)
To overcome a shortage of cash because of irregularities of the flow of taxation
To cover a gov budget deficit (taxes
