7.7: Key Terms
- Page ID
- 94632
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- Bureau of Labor Statistics
- a group within the United States Department of Labor that is the primary fact-finding agency for the US government in the fields of labor, statistics, and economics; serves as the principal agency of the US Federal Statistical System
- compounding interest
- the continual addition of interest to the original principal sum of a loan or deposit, often referred to as interest on interest
- compounding period
- the period between points in time when interest is paid or added to the principal
- consumer price index (CPI)
- a measure that examines the weighted average of prices of a basket of consumer goods and services such as transportation, food, and medical care
- discount rate
- the interest rate used to determine the present value of future cash inflows
- Federal Reserve
- the central bank system of the United States
- financial instrument
- an asset or bundle of assets, including monetary contracts between parties, that can be bought, sold, or traded for financial gain
- financial risk
- the possibility of losing money or purchasing power on an investment, business transaction, or venture or simply due to inflation
- Fisher effect
- an economic theory created by economist Irving Fisher that describes the relationship between inflation and both real and nominal interest rates
- future value (FV)
- the value that a current amount will grow to at a given interest rate over a given period of time
- gross domestic product (GDP)
- the total value of goods produced and services provided in a country during one year
- growth rate
- the percentage increase of a specific variable within a specific time period; synonymous with interest rate in the context of the time value of money
- interest
- the amount of money that is paid by a borrower to a lender for the use of their money, typically calculated from an annualized rate
- investment
- an asset or item acquired with the goal of generating financial gain through increased income or appreciation in value
- liquid asset
- an asset that can be readily converted into cash within a short period of time
- money market investments
- low-risk financial instruments such as T-bills, federal notes, commercial paper, certificates of deposit (CDs), repurchase agreements (repos), and bankers’ acceptances, among others
- money supply
- the total dollar value of legal tender that is available to consumers within an economy at any single point in time
- opportunity cost
- the loss of potential gain from other alternatives when a single alternative is chosen
- present value (PV)
- the current value of a future amount, calculated by discounting the future value back at a known discount or interest rate for a specified period of time
- real interest rate
- a rate of interest that has been adjusted to account for the effects of inflation
- single payment or lump sum
- a single payment or deposit made at one time, as opposed to a number of smaller payments or deposits made in installments
- time value of money (TMV)
- the concept that an amount of money is worth more today than the exact same amount of money at some point in the future
- Treasury investments
- debt obligations such as T-bills (Treasury bills), bonds, and notes issued by the US Department of the Treasury
- underinvested
- describes an insufficient amount of investment or an investment that is earning an insufficient rate of interest
- uninvested
- describes cash that is being held in reserve, is not invested in an account or financial instrument, and is not earning interest or any return