Chapter 9

Economics 102 with Kelly at University of Wisconsin - Madison

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By: Eran Ben-Simon
Created: 2010-05-12
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budget surplus

is the difference between tax revenue and government spending when tax revenue exceeds government spending.

budget-deficit

is the difference between tax revenue and government spending when government spending exceeds tax revenue.

budget balance

is the difference between tax revenue and government spending.

Rate of return

Cost of project x 100

Capital inflow

is net inflow of funds into a country.

loanable funds market

is a hypothetical market that examines the market outcome of the demand for funds generated by borrowers and the supply of funds provided by lenders.

interest rate

is the price, calculated as a percentage of the amount borrowed, charged by the lender to a borrower for the use of their savings for one year.

rate of return

of a project is the profit earned on the project expressed as a percentage of its cost.

Rate of return = Cost of project x 100

A business will want a loan when the rate of return on its project is at least as great as the interest rate.
The equilibrium interest rate is the interest rate at which the quantity of loanable funds supplied equals the quantity of loanable funds demanded.
Crowding out is the negative effect of budget deficits on private investment.

Crowding out

is the negative effect of budget deficits on private investment.

financial asset

is a paper claim that entitles the buyer to future income from the seller.

physical asset

is a claim on a tangible object that gives the owner the right to dispose of the object as he or she wishes.

liability

is a requirement to pay income in the future.

Transaction costs

are the expenses of negotiating and executing a deal.

Financial risk

is uncertainty about future outcomes that involve financial losses and gains.

Financial Fluctuations

Read page 229 through 231 if you feel like it.

Financial risk is uncertainty about future outcomes that involve financial losses and gains.

For most people, the total loss in individual welfare from losing a given amount of money is considered larger than the total gain in welfare from gaining the same amount of money. Someone who sees it this way is said to be risk-averse. Being risk-averse means that you will expend more resources to avoid losing $1,000 than you will expend to gain $1,000.
Total risk of a business owner can be reduced by engaging in diversification

Total risk of a business owner can be reduced by engaging in diversification

investing in several different things so that the possible losses are unrelated, independent events.

loan

is a lending agreement between a particular lender and a particular borrower.

bond

is a promise by the seller to pay interest each year and to repay the principal to the owner of the bond on a particular date.

stock

is a share in the ownership of a company.

financial intermediary

is an institution that transforms the funds it gathers from many individuals into financial assets.

mutual fund

is a financial intermediary that creates a stock portfolio and then resells shares of this portfolio to individual investors.

pension fund

is a type of mutual fund that holds assets in order to provide retirement income to its members.

life insurance company

sells policies that guarantee a payment to a policy-holder?s beneficiaries when the policy-holder dies.

bank

is a financial intermediary that provides liquid assets in the form of bank deposits to lenders and uses those funds to finance the illiquid investments or investment spending needs of borrowers.

About this deck

By: Eran Ben-Simon
Created: 2010-05-12
Size: 26 flashcards
Views: 22

About StudyBlue

“Simply amazing. The flash cards are smooth, there are many different types of studying tools, and there is a great search engine. I praise you on the awesomeness.”
Dennis