Question

1) Definitions  

Define the 7 following terms very briefly. (Not more than two sentences per definition.)

a) Current Population Survey

b) behavioral equation

c) liquidity trap

d) leverage ratio (for a commercial bank)

e) reservation wage

f) discount bond

g) user cost of investment

Answer 1

A- The Current Population Survey is a monthly survey of about 60,000 U.S. households which is conducted by the United States Census Bureau for the Bureau of Labor Statistics.

B- A behavioural equation describes how an economic agent responds to changes in other model elements. An example is the consumption function which says that consumption expenditures is sensitive to income.

C- A liquidity trap is a situation in which interest rates are low and savings rates are high which makes the monetary policy ineffective.

D- The leverage ratio is a measure of the bank's core capital to its total assets.

E- A reservation wage is the lowest wage at which a worker is willing to join a labor force.

F- A discount bond is a bond that is issued for less than its face value.

G- The user cost of capital investment is the unit cost for the use of a capital asset for one period--that is, the price for obtaining one unit of capital services.