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Economics
Test 2
59
Economics
Undergraduate 3
03/24/2014

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Term
National Income Accounts
Definition
a set of official government statistics on aggregate economic activity
Term
Gross Domestic Product (GDP)
Definition
1. a measure of the value of total output of goods and services produced within a country; 2. the value at current market prices of all final goods and services produced annually in a given country
Term
Final Goods And Services
Definition
goods and services sold to or ready for sale to parties that will use them for consumption, investment, government purchases, or exports
Term
Intermediate Goods
Definition
goods and services that firms buy for use as inputs in producing other goods and services
Term
Value Added
Definition
the dollar value of an industry's sales less the value of intermediate goods purchased for use in production
Term
National Income
Definition
the total income earned by a country's residents, including wages, rents, interest payments, and profits
Term
Domestic Income
Definition
the total income of all types, including wages, rents, interest payments, and profits, earned by factors of production used in producing domestic product
Term
Merchandise Balance
Definition
the value of a country's merchandise exports minus the value of its merchandise imports
Term
Current Account Balance
Definition
the value of a country's export of goods and services minus the value of its imports of goods and services plus its net transfer receipts from foreign sources
Term
Financial Inflow
Definition
purchases of domestic assets by foreign buyers and borrowing from foreign lenders, also often called capital inflows
Term
Financial Outflow
Definition
purchases of foreign assets by domestic residents or loans by domestic lenders to foreign borrowers, also often called capital outflow
Term
Base Year
Definition
the year used as a basis for comparison when computing real GDP or a price index
Term
GPD Deflator
Definition
a measure of the average price level of goods and services based on the ratio of nominal GPD to year real GPD, stated relative to the price of a chosen base year
Term
Price Level
Definition
a weighted average of the prices of goods and services expressed in relation to a base year value of 1.0
Term
Price Index
Definition
a weighted average of the prices of goods and services expressed in relation to a base year value of 100
Term
Producer Price Index (PPI)
Definition
a price index based on a sample of goods and services bought by business firms
Term
Bank
Definition
a financial institution whose principal business consists of accepting deposits and making loans
Term
Shadow Banking Systems
Definition
a term for investment banks, mutual funds, hedge funds, and other institutions that provide bank-like services but do not fall under the full range of regulations that apply to depository institutions
Term
Central Bank
Definition
a government agency responsible for carrying out monetary policy and often also for regulating a country's banking system
Term
Federal Reserve System (the Fed)
Definition
the central bank of the United States, consisting of twelve regional Federal Reserve Banks and a Board of Governors in Washington D.C.
Term
Balance Sheet
Definition
a financial statement showing what a firm or household owns and what it owes
Term
Assets
Definition
all the things that the firm or household owns or to which it holds a legal claim
Term
Liabilities
Definition
all legal claims against a firm by non-owners or against a household by nonmembers
Term
Transaction Deposit
Definition
a deposit from which customers can withdraw funds freely by check or electronic transfer to make payments to third parties
Term
Originate-To-Hold Model Of Banking
Definition
a model of banking that emphasized making loans and then holding the loans until maturity
Term
Insolvency
Definition
a state of affairs in which the net worth (capital) of a bank or other business falls to zero
Term
Liquidity
Definition
an asset's ability to serve directly as a means of payment, or be converted to cash without loss of nominal value
Term
Reserves
Definition
cash in banks' deposits with the Federal Reserve System
Term
Originate-To-Distribute Model Of Banking
Definition
a model of banking in which banks sell loans soon after they make them, and use the proceeds from the sale to make new loans
Term
Securitization
Definition
a process in which a specialized financial intermediary assembles a large pool of loans (or other assets) and uses those loans as a basis for issuing its own securities for sale to investors
Term
Government Sponsored Enterprises (GSE's)
Definition
specialized intermediaries that operate like private firms but are backed and controlled by the government and that engage in the business of securitizing home mortgage loans and, sometimes, other loans
Term
Subprime Mortgage
Definition
Mortgages with features like low down payments, variable interest rates, and prepayment penalties that make them attractive to low-income borrowers
Term
Money
Definition
an asset that serces as a means of payment, a store of purchasing power, and a unit of account
Term
Currency
Definition
coins and paper money
Term
M1
Definition
a measure of the money supply that includes currency and transaction deposits
Term
M2
Definition
a measure of the money supply that includes M1 plus retail money markets mutual funds shares, money market deposit accounts, and saving deposits
Term
Savings Deposit
Definition
a deposit at a bank that has limited, if any, checking privileges but which depositors can redeem at any time
Term
Time Deposit
Definition
a deposit at a bank or thrift institution from which deposits can withdraw funds without payment of a penalty only at the end of an agreed-upon period
Term
Equation Of Exchange
Definition
an equation that shows the relationship among the money stock (M), the income velocity of money (V), the price level (P), and real domestic product (Q); written as MV = PQ
Term
Velocity (Income Velocity Of Money)
Definition
the ratio of nominal GPD to the money stock; a measure of the average number of times that people use each dollar of the money stock each year to produce final goods and services
Term
Monetary Base
Definition
the sum of currency and reserve deposits, the monetary liabilities of the central bank
Term
Reserve Ratio
Definition
the ratio of a bank's reserve (reserve deposits at the central bank plus vaults cash) to its own deposit liabilities
Term
Target Reserve Ratio
Definition
the minimum amount of reserves a bank needs to hold that is consistent with regulations and safe banking practices
Term
Excess Reserves
Definition
the difference between the amount of reserves a bank actually holds and the minimum required by regulations
Term
T-Account
Definition
a simplified version of a balance sheet that shows only items that change as a result of a given set of transactions
Term
Deposit Multiplier
Definition
the quantity of total deposits for each dollar of total reserves in a simple banking system where deposits are the only form of money, equal to 1/Reserve ratio
Term
Money Multiplier
Definition
the total quantity of money that the banking system can create for each dollar of the monetary base
Term
Open Market Operation
Definition
a purchase or sale of government securities by a central bank
Term
Federal Funds Market
Definition
a market in which banks lend reserves to one another for periods as short as 24 hours
Term
Federal Funds Rate
Definition
the interest rate on overnight loans of reserves from one bank to another
Term
Discount Rate
Definition
the interest rate charged by the Fed on loans of reserves to banks
Term
Foreign-Exchange Markets
Definition
markets in which the currencies of different countries are traded for one another
Term
Appreciate
Definition
an increase in value of one country's currency relative to the currency of another country
Term
Depreciate
Definition
decrease in value of one country's currency relative to the currency of another country
Term
Real Effective Exchange Rate (REER)
Definition
a weighted average of the exchange rate of a country's currency relative to those of all trading partners
Term
Purchasing Power Parties (PPP)
Definition
a situation in which goods cost the same in one country as in another when prices are compared using the market exchange rate
Term
Currency Union
Definition
two or more countries that share a common currency
Term
Unit Labor Cost
Definition
wage rates adjusted to reflect changes in labor productivity
Term
Consumer Price Index (CPI or CPI-U)
Definition
a price index based on the market basket of goods and services for a typical urban household
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