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Macro > Chapter 6: Money > Flashcards

Chapter 6: Money Flashcards

1
Q

Finance

A

Providing the funds used for investment

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2
Q

Money

A

What is used to pay for goods and services

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3
Q

Physical capital

A

Tools, instruments, machines and other items that are used to produce goods and services

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4
Q

Financial capital

A

Funds that firms use to buy physical capital

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5
Q

Gross investment

A

Total amount spent on purchase of new capital and on replacing depreciated capital

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6
Q

Depreciation

A

Decrease in quantity of capital that results from wear and tear and obsolescence

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7
Q

Net investment

A

Change in the quantity of capital

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8
Q

Wealth

A

The stock of assets held by a person at a single point in time

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9
Q

Income

A

Money received by a person over some period of time

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10
Q

Saving

A

Amount of income not paid in taxes or spent on consumption

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11
Q

Financial capital markets

A

Transform saving and wealth into investment and capital

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12
Q

Bond

A

A promise to make specified payments on specified dates

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13
Q

Stock

A

A certificate of ownership and a claim on the firms profit

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14
Q

Loan markets

A

Businesses and households obtain loans from banks

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15
Q

Liquidity

A

Refers to how easy it is to buy and sell shares of a security without affecting the assets price

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16
Q

Volatility

A

A statistical measure of the dispersion of returns for a given security or market index

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17
Q

Financial institutions

A

A firm that borrows and lends in different markets

-Banks, pension funds, insurance companies

18
Q

Net worth

A

Total market value of what a financial institution has lent minus the market value of what it has borrowed

19
Q

Effects of new worth

A
  • Positive: solvent

- Negative: insolvent

20
Q

Illiquidity

A

A firm with no available physical cash.

There can be illiquidity but solvency

21
Q

Relationship between price of assets and interest rate

A
  • If price rises, interest rate falls

- If price falls, interest rate rises

22
Q

Functions of money

A
  • Medium of exchange
  • Unit of account
  • Store of value
23
Q

Money as a medium of exchange

A

An object generally accepted in exchange for goods and services. It eliminates the need for barter

24
Q

Money as a unit of account

A

An agreed measure for stating prices of goods and services

25
Q

Money as a store of value

A

It can be held and exchanged later fpr goods and services

26
Q

Bitcoins defects as money

A
  • Not a medium of exchange
  • Not a unit of account
  • Not a store of value
27
Q

Depository institutions

A

A firm that takes deposits from households and firms and makes loans to other households and firms

28
Q

Types of depository institutions

A
  • Commercial banks
  • Thrift institutions
  • Money market mutual funds
29
Q

Commercial banks as depository institutions

A

A firm that is licensed to receive deposits and make loans

30
Q

Assets in which banks transform deposits

A
  • Cash assets
  • Securities
  • Loans
31
Q

Money market mutual funds as depository institutions

A

A fund that sells shares and holds liquid assets

32
Q

Benefits of depository institutions

A
  • Create liquidity
  • Pool risk
  • Lower the cost of borrowing
  • Lowers the cost of monitoring borrowers
33
Q

How much money is their in the economy

A

Deposits+currency

34
Q

What’s desired reserve ratio?

A

Ratio of banks reserves by total deposits that a bank plans to hold

35
Q

Reserve requirement ratio

A

The minimum amount of reserves that must be held by a a bank

36
Q

Real money

A

The quantity of money measured in constant dollars and equals miney divided by price level

37
Q

Nominal interest rate

A

The opportunity cost of holding money.

Increase in nominam interest rate decreases the quantity of real money demanded

38
Q

Quantity of money people want to hold depends on:

A
  • Nominal interest rate
  • Real GDP
  • Financial innovation
39
Q

Money market equilibrium

A

Occurs when the quentity of money demanded equals the quantity of money supplied

40
Q

Who determined the quantity of money supplied?

A

European Central Bank

Macro (6 decks)

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