The exercise was created 2019-12-02 by douglasrudin. Question count: 79.

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  • Absolute advantage When a country is better at producing a certain good, compared to another country
  • Alternative cost Describes the relative cost of producing a different goods/services, and constitutes what is being forgone when resources are being reallocated to another production
  • Aggregate output The total amount of output produced in the economy
  • Nominal appreciation An increase in price of domestic currency, compared to foreign currency -> increase in exchange rate
  • Arbitrage The expected rate of return of two financial assets must be equal
  • Bond A financial asset that promises a stream of known payment over some period of time
  • budget deficit An excess in government spending over government revenue
  • Budget surplus An excess in government revenue compared to government spending
  • Capital account In the balance of payement, a summary of a countrys asset transaction with the rest of the world
  • Comparative advantage When a country, when all types of production has been considered, is the best, or least bad att producing a certain good -> when the alternative cost for the production is lower than for another country
  • contractionary open market operation An open market operation in which the central bank sells bonds to decrease money supply
  • currency account In the balance of payments, the summary of a countrys payments to and from the rest of the world
  • Current yield The ratio the coupon payment to the price of the coupon bond
  • Nominal depreciation A decrease in domestic currency compared to foreign currency -> decrease in exchange rate
  • devaluation A decrease in fixed exchange system
  • Discount bond A bond that promises a single payment at maturity
  • Discount factor The value today of currency at some point in the future
  • Discount rate The interest rate used to discount a sequence of future payments, works with nominal and real interest rate as well
  • Dividends The portions of a firms profit that they pay out each period to their shareholders
  • Domestic demand for goods The sum of consumption, investments and government spending
  • Dynamics Movements of one or more economic variables over time
  • Endowment amount of goods owned by an individual
  • Equilibrium The equality between supply and demand
  • exogenous variable A variable that is not explained by a model, but is taken as a given
  • Expansion A period with positive GDP
  • Expansionary open market operation An open market operation, in which the central bank buys bonds to increase money supply
  • Fiscal contraction A policy aimed at reducing budget deficit by decreasing government spending or increasing taxes
  • Fiscal Policy A governments choice of taxes and government spending
  • Fixed exchange rate An exchange rate between the currencies of two or more countries. That is fixed at some level and is adjusted infrequently
  • Flexible exchange rate The exchange rate between two countries currencies, free to fluctuate
  • Foreign exchange Foreign currency; All currencies other than the domestic currency of a given country
  • GDP-deflator The ratio of nominal and real GDP. A measure of the overall price level. Gives an average price of the final good produced in the economy
  • GDP-growth The growth rate of real GDP in a year
  • Government spending The goods and services purchased by local and regional government
  • Gross domestic product A measure of aggregate output in the national income accounts
  • Human capital A set of skills owned by workers in the economy
  • Imports The purchases of foreign goods/services by domestic consumers, firms and governments
  • Inflation A sustained rise in the general price level
  • Inflation rate A rate at which the price level increases overtime
  • Interest parity condition An arbitrage relation stating that domestic and foreign bonds have the same rate of return, in terms of common currency
  • Intertemporal budget constraint Budget constraint that applies consumption choices over subsequent periods of time
  • investments Purchases of new houses/appartments by people, and purchases of capital goods by firms
  • IS-curve A downward sloping curve relating output to interest rate. The curve corresponds to the IS-relation. The equilibrium condition for the goods market
  • IS-relation An equilibrium condition stating that the demand for goods must be equal to the supply of goods, or that investments must be equal to savings
  • J-curve A curve that shows the initial detorioration in trade balance caused by real depreciation, followed by an improvement in trade balance
  • Liquid asset An asset that can be sold easily and at little cost
  • Liquidity Indicates money and assets at prompt disposal
  • Liquidity trap The case where nominal interest rates are equal to zero and monetary policy cannot, therefore decrease them
  • LM-curve an upward sloping curve relating interest rate to output. corresponds to the LM-relation, the equilibrium condition in the financial market.
  • LM-relation An equilibrium condition stating that the demand for money must be equal to the supply of money
  • Marchall lerner condition The condition to where a real depreciation leads to an increase in net exports
  • Maturity The lenght of time over which a financial asset promises to make profit to the holder
  • Monetary contraction A change in monetary policy, which leads to an increase in interest rate
  • Monetary expansion A change monetary policy, which leads to a decrease in interest rate
  • monetary-fiscal policy mix The combination of monetary and fiscal policies in effect at a given time
  • Money multiplier The increase in money supply resulting from a one euro increase in central bank money
  • multiplier The ratio of the change in output to a change in autonomous spending
  • Net capital Flows Capital flows from the rest of the world to the domestic market, minus the capital flow to the rest of the world from the domestic
  • Net exports The difference exports and imports. also called trade balance
  • Nominal exchange rate the price of the domestic currency in terms of foreign currency. The number of units of foreign currency you can get for one unit of domestic currency
  • Nominal GDP The sum of the quantities of final goods produced in an economy times their current price
  • Nominal interest rate the interest rate in terms of the national currency. It tells us how many euros one has to repay in the future in exchange for borrowing one euro today
  • Non-human wealth the financial and housing component of housing
  • Okun´s Law The relation between GDP growth and the change in the unemployment rate
  • open market operation The purchase or sale of government bonds by the central bank for the purpose of increasing or decreasing money supply
  • Price level The general level of price in a economy
  • Real appreciation An increase in the relative price of domestic goods in terms of foreign goods. -> an increase in real exchange rate
  • real depriciation A decrease in the price of domestic goods in terms of foreign goods -> an decrease in real exchange rate
  • Real exchange rate the relative price of domestic goods compared to foreign goods
  • Real GDP A measure of aggregate output. The sum of quantities produced in an economy times their price in the base year
  • Real interest rate The interest rate in terms of goods. It tells us how many goods one has to repay in the future in exchange for borrowing the equivalent one good today
  • Recession A period of negative GDP growth. Usually refers to at least to consecutive quarters of negative GDP growth
  • Stock A variable that can be expresses as quantity at a point in time (such as wealth)
  • Trade balance The difference between export and imports, also called net exports
  • Trade deficit A negative trade balance, that is, imports exceeds exports
  • Trade surplus A positive trade balance, that is, exports exceeds imports
  • Yield curve The relation between yield and maturity for bonds of different maturities
  • yield to maturity The constant interest rate that makes the price of an n-year bond today equal to the present value of future payments
  • Philips curve The curve that plots the relation between movement in inflation rate and unemployment rate

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