Macroeconomics

Large open economy:

An open economy that

can influence its domestic interest rate; an economy

that, by virtue of its size, can have a substantial im-

pact on world markets and, in particular, on the

world interest rate. (Cf. small open economy.)

Laspeyres price index:

A measure of the level of

prices based on a fixed basket of goods. (Cf. Paasche

price index.)

Leading indicators:

Economic variables that fluc-

tuate in advance of the economy’s output and thus

signal the direction of economic fluctuations.

Leverage:

The use of borrowed money to supple-

ment existing funds for purposes of investment.

Life-cycle hypothesis:

The theory of consump-

tion that emphasizes the role of saving and borrow-

ing as transferring resources from those times in 

life when income is high to those times in life

when income is low, such as from working years 

to retirement.

Liquid:

Readily convertible into the medium of

exchange; easily used to make transactions.