March 17, 2018 

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YIELD: The rate of return on a financial asset. In some simple cases, the yield on a financial asset, like commercial paper, corporate bond, or government security, is the asset's interest rate. However, as a more general rule, the yield includes both the interest earned from an asset plus any changes in the asset's price. Suppose, for example, that a $100,000 bond has a 10 percent interest rate, such that the holder receives $10,000 interest per year. If the price of the bond increases over the course of the year from $100,000 to $105,000, then the bond's yield is greater than 10 percent. It includes the $10,000 interest plus the $5,000 bump in the price, giving a yield of 15 percent. Because bonds and similar financial assets often have fixed interest payments, their prices and subsequently yields move up and down as economic conditions change.

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Lesson 2: Economic Science | Unit 2: Theory Page: 6 of 20

Topic: Abstraction <=PAGE BACK | PAGE NEXT=>

Economic theories are abstractions of the real world.

Three ways to abstract:
  • Words. The earliest human method of abstraction was to represent objects with words. Words also represent ideas. But words can have different meanings.
  • Graphs. Pictures, especially graphical pictures. Many economic theories are abstractly represented with graphs. A picture or graph can be less confusing that words.
  • Equations. Graphs are two-dimensional pictures of mathematical equations. Economic theories are often abstractly represented by equations. Equations can represent relationships between three or more things, like that for X, Y and Z:
Y = 3 + 2X - 4Z

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A mathematical connection between marginal product and total product stating that marginal product IS the slope of the total product curve. If the total product curve has a positive slope (that is, is upward sloping), then marginal product is positive. If the total product curve has a negative slope (downward sloping), then marginal product is negative. If the total product curve has a zero slope (horizontal), then marginal product is zero.

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Approximately three-fourths of the U.S. paper currency in circular contains traces of cocaine.
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