Hey! How are you doing Econ students? This is Mr. Clifford. Welcome to ACDC Econ Right now we are going to cover some vocabulary that you need to understand the financial sector. I am making this short video to help you differentiate between all these key terms Let’s start with the very basic one There is a huge difference between income and wealth Income is the amount of money that comes to individuals for doing their job. But, wealth is the accumulated value of all their assets An asset is something that you own that has value So for a student, your car, clothes, your video game console are all examples of assets. In addition to assets, there’s also liabilities. Liabilities are financial obligations that you have to pay. So if you have a student loan or a car loan, that’s a liability. Now, these examples I’m using are for an individual but it also applies to businesses. They too have assets and liabilities. And, so does the government. Let’s talk about the government’s income. The government taxes individuals and businesses and gains tax revenue. If in a given year they spend less than their tax revenue, then they have a budget surplus. But, that hasn’t happened much in the United States. Instead, we run a budget deficit. That’s when annual government spending is greater than the tax revenue. And that brings us to the difference between the deficit and the debt. A budget deficit shows that the government is overspending in one year. But when you add all those budget deficits, you come up with the debt. Which is right there. Yeah, I know. Let’s go back and talk about financial assets. One of the key terms that you are going to see is the idea of liquidity. Liquidity is how easy it is to convert assets to cash without losing time or money. For example, if your asset was a house that’s not very liquid. It takes a lot of time, energy, and money to turn around and sell a house. There’s 3 types of financial assets that I want to talk to about to help you understand the difference. The first one are loans, which is an agreement between lenders and borrowers. Now, obviously, when you lend money you expect to get something in return and that is called an interest rate. You are going to be learning a whole lot about interest rates and using them when you learn about banking and monetary policy. Now it’s time for a question. Is a lone an asset or is it a liability? Well it depends, are you lending the money or are you borrowing the money? So, for the lender, it’s an asset and for the borrower, it’s a liability. The second financial asset that you are going to see is the idea of bonds. Bonds are IOU’s issued by the government or businesses. So, for example, If a business needs the money to buy some equipment it can issue a bond and they promise to pay back that money plus the interest rate to the person who bought the bond. And that same process also applies to governments. The last financial asset that I’m going to talk about is the idea of stocks. Stocks are share of ownership in a company and unlike bonds it is not an IOU. You are actually a partial owner of that corporation and you are entitled to some of their profits. Now, I bet you took this economics class expecting to learn a whole lot more about stocks but unfortunately that’s not really what we talk about. Although the stock market fluctuates and goes up and down with the general economy, it is not really an economic indicator. In general, the stock market doesn’t cause the economy to go up or down, it reacts when it goes up or down. Now that you have a general understanding of some of the key vocab, you are ready to move on to harder concepts in this unit. You are going to talk about money, banking, and something called monetary policy. If you like these videos make sure to subscribe. Also, take a look at the next video that is going to explain the 3 functions of money and the unit playlist that has a bunch of videos explaining all the key concepts and all the key graphs. Alright, till next time.