Chapter 6 complete

Key Concepts 
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Bond: A bond is a long-term debt obligation of a corporation that can generally be 
traded on the market. When a company needs fund, it sells a bond. When it sells a 
bond, it is actually borrowing money. 
•
Bond Price: Bond price = reciprocal of interest rate X coupon rate. 
•
Potential Gross National Product: The total amount of output that could be 
produced under full employment is called potential Gross National Product (GNP).  
•
GNP Gap: When actual GNP and potential GNP differ, there is a GNP gap or income 
gap. When actual GNP is less than potential GNP (i.e., full employment), this GNP is 
called contractionary gap and when actual GNP is more than potential GNP, this is 
called expansionary gap. Gaps are only defined relative to full employment. 
•
Inside Money: Inside money is based on the debt of endogenous economic units. It is 
money created within the private sector against some private debt. It consists of 
financial claims by one class of individuals and firms on others within the economy.  
•
Outside Money: Outside money on the other hand is money is based on the debt of a 
unit (the government) exogenous to the system. Thus, it is currency issued by 
government, gold, foreign and government securities. It is the liability of the 
government as a debtor and the claim of the private sector as a creditor.