Econ0002 Study Guide Rated A+

Investment function (aggregate) {Ans: An equation that shows how investment spending in the economy as a whole depends on other variables, namely, the interest rate and profit expectations.}Liquidity risk {Ans: The risk that an asset cannot be exchanged for cash rapidly enough to prevent a financial loss.}Policy rate (base rate, official rate) {Ans: The interest rate set by the central bank, which applies to banks that borrow base money from each other, and from the central bank}Central bank {Ans: The only bank that can create base money. Usually part of the government. Commercial banks have accounts at this bank, holding base money.}Automatic stabilizers {Ans: Characteristics of the tax and transfer system in an economy that have the effect of offsetting an expansion or contraction of the economy. An example is the unemployment benefits system.}Strategy {Ans: An action (or a course of action) that a person may take when that person is aware of the mutual dependence of the results for herself and for others. The outcomes depend not only on that person's actions, but also on the actions of others.}Population of working age {Ans: A statistical convention, which in many countries is all