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Financial Literacy - Basics

Terms in this set (26)

Assets
things that have earning power or some other value to their owner
Appreciation
a rise in value of an assets and the opposite of depreciation. When the value of a currency rises relative to another, it appreciates
Bull or Bear Market
the use of theses terms to describe markets comes from the way animals attack their opponents. these actions are metaphors for the movement of a market
Bankruptcy
when a court judges that a debtor is unable to make the payments owed to a creditor
Capital
money or assets put to economic use; the life-blood of capitalism
Capital gains
the profit from the sale of a capital asset, such as a share of property; subject to taxation; effectively a tax on capitalism
Collateral
an asset pledged by a borrower that may be seized by a lender to recover the value of a loa if the borrower fails to meet the required interest charges or repayments
Commodity
a comparatively homogenous product that can typically be bought in bulk; usually refers to raw material such as oil, cotton, cocoa, or gold
Creditor
a lender, whether by making a loan, buying a bond, or allowing money owed now to be paid in the future
Debt
the availability of this, and the willingness to take it on, is a crucial ingredient of economic growth; allows individuals, firms, and governments to make investments they would not otherwise afford; the price of this is interest
Durable Goods
a category of consumer goods that are not purchased frequently because they are made to last for a long times (usually 3+ years); total amount purchased each month is often looked at as an accurate indicator of the strength of the economy
Libor
short for London interbank offered rate; the rate of interest that top-quality banks charge each other for loans; often used by banks as a base for calculating the interest rate they charge on other loans; is a floating rate
Liquidity
how easily an asset can be spent, if desired
Opportunity cost
the cost of any action; what is given up to get something; exists for individuals, corporations, and governments
Time value of money
the idea that a dollar today is worth more than a dollar in the future, because the dollar in the hand today can earn interest during the time until the future dollar is received
Venture capital
private equity to help new companies grow; a valuable alternative source of finance for entrepreneurs, who might otherwise have to rely on a loan from a risk averse bank manager
Microeconomics
the study of the interactions of individual households and firms
Macroeconomics
the study of the economy as a whole
Gross Domestic Product (GDP)
total money value of all the goods and services produced in a country in one year; provides an indication of how well people are living in a particular country
Productivity
the amount of goods/services produced per unit of labor; influenced by
-access to resources
-amount of workforce
-latest technology
-government approval
Traditional economy
trading and bartering; tend to be rural, second- or third-world countries; each member has a specific role and societies are more satisfied; medicine and technology usually unavailable
Command economy
economic system control by central power, often federal government; tends to developed when a country finds itself in possession of a large amounts of valuable resources, things like agriculture left to the people; healthy supply of resources, usually affordable prices, often no shortage of jobs
Market economy
similar to free market; organizations run by the people determine how the economy runs, how supply is generated, and what demands are necessary
Mixed economy
dual economy; amalgamation of market and command; more or less free of government ownership except key areas like education and transportation; can suffer downfalls suffered in other economies
Law of demand
the claim that the quantity demanded for a good falls when the price of a good rises, assuming other conditions stay equal; necessities, medicine, and some luxuries do not follow this law
Price elasticity of demand
the amount the demand for a good or service changes in relation to its price; causes include
-available substitutes for a better price
-time (technology lowers price of things)
-trends
-luxury vs. necessity
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