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Midterm 2 Book Notes

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ECO 304L
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MIDTERM 2 Chapter 7 1. Productivity a. Productivity- quantity of goods and services produced from each unit of labor input 2. How is it determained? a. Physical Capital- stock of equipment and structures used to produce goods and services b. Human Capital- knowledge and skills owrkers acquire through education, training and experice c. Natural Resources- inputs into production provided by nature d. Technical Knowledge- understanding of the best ways to produce goods and services 3. Economic Growth and Public Policy a. Foreign Direct Investment- a capital investment owned and operated by a foreign entity b. Foreign portfolio investment- an investment financed with foreign money but operate by domestic residents c. Inward oriented policies- attempt to increase productivity and living standards by avoiding interaction with the rest of the world d. Many economists think they should use outward oriented policies instead e. Brain Drain – emigration of skilled workers to better countries Chapter 8 1. Financial Institutions in the US Economy a. Financial Market- institutions which a person who wants to save can directly supply funds to a person who wants to borrow b. Bond- certificate of indebtedness that specifies obligations to the borrower and holder of the bond. i. Municipal- given by government ii. Date of Maturity- when it will be repaid iii. Principle- promise of interest and repayment iv. Term- length of bond till it matures v. Perpetuity- never matured, only gives back interest vi. Credit Risk- probability that borrower will fail to pay back the whole thing vii. Default- failure to pay viii. Junk bonds- very high interest c. Stock- ownership in a firm i. Claim to profits ii. Equity finance- sale of stock to raise money iii. Debt finance- sale of bonds d. Financial intermediaries- financial instituions which savers can indirectly provde fund to borrowers i. Banks- medium of exchange e. Mutual funds- institution that sells shares to the public and uses proceeds to buy a selection (portfolio) of various types of stocks, bonds or both i. Allows people with less money to diversify their holdings ii. Allows ordinary people access to the skills of professional money managers 2. 8-2 Saving and Investment in the National Income Accounts a. Acc
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