Money & Banking

Topics: Bond, Money supply, Monetary policy Pages: 13 (1864 words) Published: May 24, 2014
Assignment on Blackboard: Due January 24
Bond market: the market where interest rates are determined
Lending someone the use of your dollars for a specific time period Bonds are debts that have to be paid back
Interest rates
Rates tend to move in the same direction
Stock market: most widely followed financial market
Share of stock is a share of ownership in a corporation
Stock is always in existence as the corporation exists
Consumers care about what is going in the stock market because it is a reflection of the health of the economy If economy is doing better, we are more likely to buy things Financial intermediaries: institutions that channel funds from savers to investors Banks

Insurance companies
Financial crises: major disruptions in financial markets that are characterized by sharp declines in asset prices and the failures of many financial and nonfinancial firms Financial innovation: banks today are very different than they were before ATMs

Credit card such as Mastercard and Visa
Money: anything that Is generally accepted in payment for goods and/or services or in the repayment of debts Money and wealth are not the same
Business cycle: the up and down movement of aggregate output in the economy Before a recession, there is a downturn in the money growth rate but there is no measure that ties the business cycle to the money growth rate Price level: the average price of goods and services in tan economy CPI

PCE
Inflation: the continual increase in the price level
Deflation: decrease in the price level
For the aggregate economy, deflation is bad
Harder to pay back debts
Disinflation: still have inflation, but its not as high as it was If you grow your money growth rapidly for a long period of time, you are going to have higher inflation Monetary policy: management of money supply and interest rates The Federal Reserve is responsible for conducting monetary policy Treasury is responsible for paying the government’s bills such as tax revenue Fiscal policy: decisions about government spending and taxations Congress is responsible for conducting fiscal policy

Budget deficit: tax revenue is less than expenses
Government pays bills buy borrow money
Bills and bonds
Budget surplus: tax revenue is more than expenses
Pay off money borrowed
Foreign exchange market: the market where one currency is converted into another currency Exchange rate affects what the consumer can buy
When dollar is strong, foreign products are less expensive
Its harder for our businesses to sell their products

Terms
GDP: the market value of all final goods and services produced in a country during a specified time period (usually a year) Nominal GDP: GDP calculated using current prices
Real GDP: GDP calculated using constant prices
Growth rate: percentage change in a variable
((ending-beginning)/beginning)x100

Definitions
Flow of funds
Direct finance: borrowers borrow funds directly from lenders in financial markets by selling them securities saver chooses the borrower
indirect finance: using a financial intermediary to channel funds from savers to borrowers purchasing shares in a mutual fund
Debt market: contractual agreement by the borrower to pay the holder of the instrument fixed dollar amounts at regular intervals until a specified date when a final payment is made bond: type of debt

maturity number of time periods until that instrument’s expiration date short term: less than a year
treasury bill
federal funds: loan from a bank to a bank
discount bank: loan from federal reserve to a bank
commercial paper: issued by corporations
intermediate term: one to 10 years
car loan
treasury note
long term: 10 years or longer
mortgage
treasury bonds
Equity market: claims to share in the net income and the assets of a business stock market
dividends: payments to the shareholders
residual claimant: the right of the stockholder to whatever remains after all other claims against the firm’s assets have been...
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