Chapter 5 Flashcards
Wealth
the total resources owned by an individual including all assets
Expected Return
return expected over the next period on one asset relative to alternate assets
Risk
degree of uncertainty associated with the return
Liquidity
the ease and speed with which an asset can be turned into cash
How does an increase in wealth affect the Qd of an asset?
increases Qd
How does an increase in expected return affect the Qd of an asset?
increases Qd
How does an increase in risk affect the Qd of an asset?
decreases Qd
How does an increase in liquidity affect the Qd of an asset?
increase Qd
5 Factors that shift demand curve for bonds
Positive Relationship: Wealth, Liquidity related to other assets
Negative Relationship: Exp. Interest Rate, Exp. Inflation, Riskiness related to other assets
3 Factors that shift supply curve for bonds
Positive Relationship: Profitability of investments, expected inflation, government deficit
2 Factors that shift demand for money
Income effect & Price-level effect
higher income=shift right
higher price level=shift right
Factor that shifts supply of money
Federal Reserve buying and selling bonds
Liquidity Preference Framework
Bs+Ms=Bd+Md
How does a change in income affect interest rates?
Increase in income=increase in iRate
How does a change in price level affect interest rates?
Increase in price level=increase in iRate
