Exam 1 - Class Review Flashcards
What is the definition of money?
Anything that is generally accepted as payment for goods and services or in the repayment of debts.
What is inflation?
The economic condition of a continually rising price gap
What is deflation?
The economic condition of a continually falling price gap
What is disinflation?
A decrease in the rate of inflation
When wealth increases, the following…(rise/fall/are indeterminant)(Wealth effect)(Bonds):
Supply
Demand
Price of bonds
Interest rates
Quantity of bonds
Rises (x2 of demand), rises, falls, rise, rise
When there is an increase in expected inflation, the following…(rise/fall/are indeterminant)(Fisher effect)(Bonds):
Supply
Demand
Price of bonds
Interest rates
Quantity of bonds
Rises, falls, falls, rise, indeterminant
What are REPOS?
Repurchase agreements - an arrangement whereby the Fed or another party purchases securities with the understanding hat the seller will repurchase them in a short period of time, usually less than a week.
What is the equation for Present Value?
PV = FV* 1/((1+r)^n)
What are the principal money market instruments?
US Treasury bills, negotiable bank certificates of deposit, commercial paper, federal funds and security REPOS
What are the three characteristics of commercial paper?
Large corporations and banks, 270 days or less to maturity, unsecured
What do FNMA(Fannie Mae), GNMA(Ginne Mae), and FHLMC(Freddie Mac) do and what type of market are they part of?
These companies issue bonds (borrow money) to buy mortgages. They are part of the capital market.
What are federal funds?
Overnight bank-2-bank borrowing of reserves
What are the 2 nots of money?
Money is NOT wealth or income
What are the 3 functions of money?
Medium of exchange, unit of account, store of value
What are the components of M1?
Currency in circulation, demand deposits, traveler’s checks
