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Macro 1 > (4) Financial markets > Flashcards

(4) Financial markets Flashcards

1
Q

money used as

A

medium of exchange, store of value, unit of account

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2
Q

why people hold money

A

transactions motive, speculative motive, precautionary motive, opportunity cost of holding money

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3
Q

two types of assets

A

money, bonds

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4
Q

does money pay interest rate

A

pays no interest, but used for transactions

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5
Q

do bonds pay interest rate

A

positive interest rate paid, but can’t be used for transactions

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6
Q

holding of money depends on

A

level of transactions, interest rate on bonds

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7
Q

bonds held indirectly by

A

money market funds

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8
Q

semantic trap

A

money, income, wealth

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9
Q

(financial) wealth =

A

value of all financial assets - all financial liabilities

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10
Q

what type of variable is wealth

A

stock

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11
Q

investment

A

purchase of new goods

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12
Q

financial investment

A

purchase of shares / other financial assets

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13
Q

increase in interest rate affect of demand for money

A

decrease; people put more of their wealth into bonds

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14
Q

Md relationship with nominal income

A

proportional

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15
Q

Md relationship with interest rate

A

negatively dependent on i

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16
Q

equilibrium in financial markets requires

A

money supply = money demand

17
Q

CB change supply of money by

A

buying / selling bonds in bond market

18
Q

expansionary open market operations

A

CB buy bonds to expand supply of money, which decreases interest rate

19
Q

contractionary open market operations

A

CB sells bonds to contract supply of money, raising interest rate

20
Q

assets of CB

A

bonds it holds

21
Q

liabilities of CB

A

stock of money in the economy

22
Q

open market operations used to

A

achieve desired interest rate

23
Q

how much do assets and liabilties increase by when CB buys bonds and issue money

A

the same

24
Q

higher price of bond on interest rate

A

lowered

25
Q

financial intermediaries

A

institutions that receive funds from people and firms, and use these funds to buy financial assets / make loans to other people and firms

26
Q

bank’s assets

A

reserves, loans, bonds

27
Q

bank’s liabilities

A

checkable deposits

28
Q

demand for CB comes from 2 sources

A

currency held by public, reserves held by banks

29
Q

CB money equilibrium condition

A

H = Hd (H is CB money)

30
Q

equilibrium interest rate

A

supply of CB money = demand for CB money

Macro 1 (6 decks)

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