StudyGuideECON.docx - Terms and Important Thinkers white...

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Terms and Important Thinkers “white swan”: A white swan is a highly certain event with three principal characteristics: it is certain; it carries an impact that can easily be estimated; and, after the fact, we concoct an explanation that recognizes the certainty of occurrence, but again, shifts the focus to errors in judgment or some other human form of causation. “This time is different” phenomenon: C laiming that the old rules of valuation no longer apply and that the new situation bears little similarity to past disasters. Mortgage-backed securities : A type of asset- backed security that is secured by a mortgage or collection of mortgages Great Moderation: A reduction in the volatility of business cycle fluctuations starting in the mid-1980s, believed at that time to be permanent, and to have been caused by institutional and structural changes in developed nations in the later part of the twentieth century. Lender of last resort : A n institution, usually a country's central bank that offers loans to banks or other eligible institutions that are experiencing financial difficulty or are considered highly risky or near collapse. Moral hazard: The risk that a party to a transaction has not entered into the contract in good faith, has provided misleading information about its assets, liabilities or credit capacity, or has an incentive to take unusual risks in a desperate attempt to earn a profit before the contract settles. Liquidity crisis: A negative financial situation characterized by a lack of cash flow Insolvency crisis: When an organization, or individual, can no longer meet its financial obligations with its lender or lenders as debts become due. Leverage: The investment strategy of using borrowed money Underconsumption: Purchase of goods and services at a level lower than that of their supply. Adam Smith: 1 8th-century philosopher renowned as the father of modern economics , and a major proponent of laissez-faire economic policies Say’s Law: A n economic rule that says that production is the source of demand. Insufficient aggregate demand: An economic measurement of the sum of all final goods and services produced in an economy, expressed as the total amount of money exchanged for those goods and services Thomas Malthus: 18th-century British philosopher and economist famous for his ideas about population growth Karl Marx: Formed the basis of Marxism General Equilibrium Theory: Explain the behavior of supply, demand, and prices in a whole economy with several or many interacting markets, by seeking to prove that the interaction of demand and supply will result in an overall general equilibrium . John Stuart Mill: Irving Fisher: Neoclassical economist
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Efficient Market Hypothesis: An investment theory that states it is impossible to "beat the market " because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information.
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