# Econ 102

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1. Microeconomics
the study of how individuals and how firms make decisions and how they interact in markets
2. Macroeconomics
the study of economy-wide phenomena, incl. inflation, unemployment, and economic growth
3. GDP
Gross domestic product: measures total income of a nation, the market value of all final goods and services produced within a country in a given period of time
4. Y = C + I + G + NX
• Y=GDP
• C=consumption
• I=investment
• G=government purchases
• NX=net exports
5. Consumption
spending by households on goods and services, w/ exception of purchases of new housing
6. Investment
spending in capital-equipment, inventories, and structures including household spending on new housing
7. Government Purchases
spending on goods and services by local, territorial, provincial, and federal govts
8. Net exports
the value of a nation's exports minus the value of its imports, aka trade balance
9. GDP deflator
a measure of the price level, ratio of nominal GDP to real GDP times 100
10. GDP deflator eqn
11. CPI
Consumer price index: the overall measure of the cost of the goods and services bought by a typical consumer
12. CPI eqn
CPI=(price of basket of goods/services in current year)/(price of basket in base year) x 100
13. Inflation in year 2 equation
= (CPI in year 2-CPI in year 1)/(CPI in year 1)x100
14. Largest percentage of the CPI basket goes to ________
Transportation (19.3%)
15. Indexation
the automatic correction of a dollar amount for the effects of inflation by law or contract
16. COLA
cost-of-living-adjustment, automatically raises the wage when the CPI rises
17. Nominal interest rate
the interest rate that is usually reported without a correction for the effects of inflation
18. real interest rate
the interest rate that is corrected for the effects of inflation
19. calculate real interest rate:
real interest rate=nominal interest rate - inflation rate
20. Productivity
the quantity of goods and services produced from each hour of a worker's time
21. How productivity is determined
• physical capital per worker
• human capital per worker
• natural resources
• technological knowledge
22. Physical capital
the stock of equipment and structures that are used to produce goods and services
23. human capital
the knowledge and skills that workers acquire through education, training, and experience
24. natural resources
the inputs into the production of goods and services that are produced by nature, such as land, rivers, mineral deposits
25. technological knowledge
society's understanding of the best ways to produce goods and services
26. Deminishing returns
the benefit from an extra unit of input declines as the quantity of the input increases
27. Catch-up effect
countries that start off poor tend to grow more rapidly than countries that start off rich
28. Foreign direct investment
a capital investment that is owned and operated by a foreign entity
29. Foreign indirect investment
an investment that is financed with foreign money operated by domestic residents
30. Foreign portfolio investment
an investment that is financed with foreign money but operated by domestic residents
31. Externalities
the effect of one person's actions on the well-being of a bystander
32. Brain drain
the immigration of many of the most highly educated workers to rich countries, where they can enjoy a higher standard of living
33. Property rights
the ability of people to exercise authority over the resources they own
34. Financial System
the group of institutions in the economy that help to match one person's savings with another person's investment
35. Two groups of financial systems
• Financial Markets
• Financial intermediaries
36. Difference between the two groups of financial systems?
In financial markets savers know who they are lending their money too, in financial intermediaries savers don't know who their money is being lent to
37. Bond
a certificate of indebtedness that specifies the obligation of the borrower to the holder of the bond
38. debt finance
the sale of a bond to raise money
39. Par value
dollar amount the borrower will pay back sometime in the future
40. Coupon rate
borrower will pay an interest rate every year to the lender for the length of the bond
41. Treasurer bills
bonds that mature in less than 2 years, no coupon rate, the difference b/w what you pay for the bond and the par value acts as the interest
agencies that look at each bond and assign them a grade
43. stock
represents ownership in a firm, and is, therefore, a claim to its profits
44. equity finance
the sale of a stock to raise money
45. Stock index
the average of a group of stock prices, ex. the Dow Jones Industrial Average, the S&P/TSX Composite Average
46. Financial Intermediaries
financial institutions through which savers can indirectly provide funds to borrowers
47. Bank
Primary function-take deposits from savers and use these deposits to make loans to people who want to borrow
48. Mutual funds
institution that sells shares to the public and uses proceeds to buy a portfolio of stocks and bonds
49. Accounting
refers to how various numbers are defined and added up
50. In a closed economy, NX=_____
0
51. National Saving
(S), the total income in the economy that remains after paying for consumption and gov't purchases
52. Private saving
income that households have left after paying for taxes and consumption
53. Public saving
tax revenue that the gov't has left after paying for its spending
54. Market for Loanable Funds
the market in which those who want to save supply funds and those who want to borrow to invest demand funds
55. Gov't debt
the sum of past budget deficits and surpluses
56. Crowding out
a decrease in investment that results from government borrowing
57. Natural rate of unemployment
the amount of unemployment the economy normally experiences
58. Cyclical unemployment
the year-to-year fluctuations in unemployment around the natural rate
59. LFS
Labour force survey
60. Labour force
the total number of workers, including both the employed and the unemployed
61. LF eqn
LF=number of employed+number of unemployed
62. Unemployment rate
percentage of the labour force that is unemployed
63. Unemployment rate eqn
U=(#of unemployed)/(LF) x 100
64. LFPR
Labour force percentage rate: percentage of the adult population that is in the labour force
65. LFPR eqn