ch. 3 Flashcards
GDP
measure overall health of economy. value of all goods and services produced in a country.
Business Cycle
- Expansion
- Peak.
- Contraction
- Trough`
Recession
declining GDP for 6 months
Depression
decline in GDP for 18 months
Economic indicators
- leading indicator: future
- coincident indicator: present
- lagging indicator: past
Schools of Economic thought
- classical - lower taxes and less govt regulation
- keynesian - mixed, fiscal & monetary policy
- monetarists - supply of money
Each attempts to stimulate the economy positively
Economic policy tools
monetary policy and fiscal policy
Federal Reserve Board tools
reserve requirement ($ in circulation), discount rate (rates for federal loans), quantitative easing (buy & sell US govt securities thru open market operations)
interest rates
the cost of money. Key interest rates:
- discount rate
- federal funds rate
- broker call loan rate
- prime rate
discount rate
interest rate the fed charges for loans to member banks. (more symbolic than actually used)
Federal Funds rate
rate that member banks charge each other for overnight loans
Broker call loan rate
rates charged from banks to BDs for client’s margin purchases
prime rate
rate that banks charge to their most creditworthy corporate customers on loans
reserve requirement
% of their depositors’ assets in an account with the federal reserve. meant for increased liquidity
money supply
M1 - cash & checking accts
M2 - M1 + money markets, CDs 100k+ overnight repurchase agreements, time deposits 100k-
M3 - M1+M2+ time deposits 100k+, repurchase agreements greater than 1 day
disintermediation
people take $ out of low yields and invest in higher yields
moral suasion
implying or expressing their views on the economy, can slightly influence the economy
fiscal policy
determined by congress and the president.
London Interbank Offerd Rate (LIBOR)
measure of short term rates around the world. rate charged by and between financial institutions
