Define the following terms briefly and concisely and indicate their importance to the study of economics
a. entrepreneurship
b. investment
c. capital
d. innovation
e. discounting
a. Entrepreneurship is the act of starting new firms, introducing new products and technological innovations, and taking the risks that are necessary in seeking out business opportunities. It is essential for the success of a market economy.
b. Investment is the flow of resources into the production of new capital goods. The capital stock of the nation cannot grow without net new investment.
c. Capital refers to a stock of plant, equipment, and final goods in business inventory. The factor of production, capital, is essential for production of consumer goods and additional capital goods.
d. Innovation consists of the act of putting the new idea (or invention) into practical use. It is one possible source of economic profit.
e. Discounting is the process of computing the present value of a stream of future monetary payments, given some interest rate. The present value of a payment X at a point n years in the future where the interest rate on funds is r equals: X/(1 + r)n. When the interest rate rises, the present value of the stream of payments decreases.
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A bank run __________ possibly mushroom into a bank panic because the quality of a bank's portfolio of loans __________ made public information by bank examining agencies
A) can; is B) can; is not C) cannot; is D) cannot; is not
Which of the following best explains why the chained consumer price index generally results in a lower rate of inflation than the regular consumer price index?
a. The chained index is based on a comprehensive bundle of goods and services, while the regular CPI considers only changes in the prices of food and energy. b. The chained index makes allowance each month for shifts away from goods that have become relatively more expensive; the regular CPI does not adjust for this factor. c. The chained consumer price index considers the impact of both rising and falling prices, whereas the regular consumer price index considers only the impact of goods and services with rising prices during the period. d. The chained consumer price index considers only the prices of goods and services purchased by households, whereas the regular CPI also includes the price changes of investment assets such as stocks and real estate.