Macro Midterm Flashcards
Diminishing return
If one factor of production (number of workers, for example) is increased while other factors (machines and workspace, for example) are held constant, the output per unit of the variable factor will eventually diminish.
The catch-up effect
Countries that start off poor tend to grow more rapidly than countries that start off rich.
Financial system
Made up of financial institutions that coordinate the actions of savers and borrowers, match one person’s savings with another person’s investments.
Stock market
Represent a claim to partial ownership in a firm and has therefore a claim to the profits that the firm makes.
A piece of the company.
Bond market
A bond is a certificate of indebtedness that specifies obligations of the borrower to the holder of the bond.
When lend money to a company/ country
Budget surplus
When the government receives more money than it spends
Budget deficit
When the government spends more money than it receives in tax revenue
Government debts
The accumulation of past budget deficits
Crowding out
When governments borrowing to finance its budget deficits it reduces the supply of loanable funds available to finance investment by households and firms.
Diversification
The reduction to risk achieved by replacing a single risk with a large number of smaller unrelated risks.
Idiosyncratic risk
The risk that affects only a single person, firm or project.
Aggregate risk
The risk that affects all economic actors at once, the uncertainty associated with the entire economy.
Natural rate of unemployment
Unemployment that does not go away on its own even in the long run.
The amount of unemployment that the economy normally experiences.
Cyclical rate of unemployment
Refers to the year-to-year fluctuations in unemployment around its natural rate.
It is associated with short-term ups and downs of the business cycle.
Why is inflation important?
A slowly increasing price level keeps businesses profitable and prevents consumers from waiting for lower prices. It is crucial for the economic growth.
