Key Terms
Consumer Price Index (CPI): Measures price changes over time by comparing the cost of a fixed basket of goods and services over time.
Consumption smoothing: The idea that we prefer a smooth consumption pattern over our life rather than consumption that closely tracks our income, which is volatile.
Consumption timing: The concept of borrowing, saving, and investing to change the timing of consumption (e.g., saving your wages now so you can purchase goods when retired).
Credit-life insurance: A type of life insurance which covers the outstanding debt in the event of borrower’s death.
Covariate risk: An unexpected or unpredictable event, either positive or negative, that impacts the entire community such as a natural disaster; also called systemic risk.
Dissaving: Spending more money than one earns in income in a given period; the opposite of saving.
Ex ante risk management strategies: Strategies used to minimize risk and decrease the severity of potential future losses.
Ex post risk coping strategies: Strategies used to manage ongoing, current shocks.
Financial inclusion: Access of individuals and businesses to affordable financial products and services that meet their needs, such as deposit and savings bank accounts, payments, transactions, credit, and insurance.
Gross Domestic Product (GDP): A measure of economic output or the size of an economy. Calculated as market value of all final goods and services produced within a country during a specific period, typically a year.
Gross National Product (GNP): A measure of the total market value of all final goods and services produced during a specific period by a country’s factors of production regardless of their location. Equal to GDP plus net factor payments from abroad.
Household production: Goods and services produced in households (e.g., repairs, babysitting, cooking, elder care, gardening). Household production is not included in GDP.
Idiosyncratic risk: An unexpected or unpredictable event, either positive or negative, that impacts an individual person or family (e.g., the dead of a family’s breadwinner).
Income shock: A disruption in expected income. Income shocks are often the result of the loss of employment or the death of a breadwinner.
Inflation: The rate of increase in the average level of prices.
Insurers (Formal): These include commercial insurers, cooperatives and mutual funds that are regulated and licensed under the laws of the land. Formal insurers tend to have a dominant market share.
Insurers (Informal): Informal insurers include community-based organizations and non-governmental organizations (NGOs) that provide unregulated insurance. Informal insurers often dominate the market in number but not by market share.
Land: Physical plots of land but also all natural resources such as water, oil, and minerals that are used in the production process.
Long run: In macroeconomics, the period of time when wages and prices are fully flexible.
Macroeconomics: The study of the economy as a whole and how it interacts with the rest of the world.
Microeconomics: The study of the decision making of individuals and firms, and how they interact in markets.
Nominal GDP: GDP calculated using current market prices.
Premium load: The amount included in the insurance premium charged by an insurance company to cover its administrative and maintenance costs.
Puzzle: In economics, observed economic data or empirical findings which are inconsistent with theoretical predictions.
Real GDP: Measures the value of goods and services produced by an economy during a specific period, adjusted for inflation.
Real variable: Real variables are variables that adjust for changes in the price level over time. They are used to make intertemporal comparisons.
Welfare: The state of being happy and content; a synonym of well-being.
