Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Economics > Macro Four > Flashcards

Macro Four Flashcards

Money Supply, Financial/Banking System, Monetary Policy and Quantity Theory of Money

1
Q

What are the different uses of money as it evolved

A

To barter
As commodity money
As representative money
As token money

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is Commodity Money

A

The first type of money, has its own intrinsic value and doesn’t require the double coincidence of wants

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is Bartering and what does it require

A

trading one good or service for another and it requires a double coincidence of wants

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is Representative Money

A

Money is backed by gold held in a bank but may be represented by something else

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is Token Money

A

Bears no relation to anything of intrinsic value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are the functions of money

A

A medium of exchange or means of payments
A store of value
An unit of account or measure of values
A standard of deferred payment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are the characteristics of money

A

Acceptable to all
Limited in Quantity
Difficult to Forge
Durable
Portable
Divisible

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What does liquidity mean

A

The ease with which an asset can be converted into cash without loss of value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are the 6 most to least liquid assets

A

Cash
Sight Deposits
Time Deposits
Government Bonds
Shares
Physical Assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

If someone deposits £500, what is that to the bank

A

A liability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is a financial market

A

A market in financial assets, including the market for commodity futures and insurance products

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are the types of financial market

A

Money
Capital
Foreign Exchange

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What trading occurs in the money market

A

Providing short term lending/borrow

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What type of trading occurs in the capital market

A

Trading in securites such as shares and bonds in the medium to long term

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the Foreign exchange market

A

Trade in foreign currencies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What forms can bonds take

A

Corporate (firms) or Government (gilt)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What two markets make up the capital financial market and what do they do

A

Primary
For newly issued government bonds
Secondary
Where bonds are resold second hand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What two markets make up the foreign exchange financial market and what do they do

A

Spot
Immediate transfers
Forward
At some time in the future, by importers/exporters to protect against change

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Bills are sold at ____ and redeemed at ____

A

Sold at discount and redeemed at parity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What forms can bills take

A

Treausury (government) or Commerical (firms)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is a bond

A

A form of long-term borrowing and come with a guaranteed amount of annual interest called a coupon

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is a coupon

A

A guaranteed amount of annual interest on a bond

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

How is yield worked out (as a decimal)

A

Annual Coupon divided by Current Market Price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What happens to yield when a bonds price rises

A

Because the coupon is fixed, as a percentage of a higher price the yield must fall

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What are central banks

A

Acts as a national bank and provides services to the government

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What issue can arise from central banks acting as a “lender of last resorts”

A

Moral Hazards

27
Q

What are commerical banks

A

A financial institution that aims to make a profit by selling banking services to customers

28
Q

What are Investment Banks

A

A bank that doesn’t accept deposits from the public, would instead offer financial advice and help with the stock market.
Deals with financial markets on their own accord

29
Q

What makes up a Commerical Bank’s balance sheet

A

Assets, Liabilities and Equity

30
Q

Examples of Liabilties (and Equity) for a Commerical Bank

A

Long-term borrowing
Short term borrowing
Customers’ deposits
Share Capital
Reserves

31
Q

What are the three objectives of a commerical bank

A

Profitablilty
Security
Liquidity

32
Q

What is the fractional reserve banking system

A

Banks are required to keep a minimum proportion of their deposits as cash (called the reserve requirement)

33
Q

How is the money multiplier worked out

A

1 over the reserve requirement (as a decimal)

34
Q

What are the functions of a Central Bank

A

Help maintain macroeconomic stability
Bring about financial stability
Act as a lender of last resort
Acting as the banker’s bank
Government bank
International obligations

35
Q

What is the time lag that a change in the Bank Rate will affect output

A

1 year

36
Q

What is the time lag that a change in the Bank Rate will affect inflation

A

2 years

37
Q

What is the size of the effect of bank rate changes on output

A

0.2% - 0.35%

38
Q

What is the size of the effect of bank rate changes on inflation

A

0.2 pp - 0.4 pp

39
Q

What is helicopter money an alternative to and what does it do

A

It’s an alternative to quantitive easing and it is giving money directly to citzens

40
Q

What are factors influencing Base Rate Decisions (there are 7!)

A

GDP growth and spare capacity
International data - costs of imports rising
Labour markets - unemployment/ wage rate
Trends in Foreign Exchange markets
Consumer Confidence
Business Confidence
Asset prices

41
Q

How can central banks influence the growth of the money supply

A

Volume of cash produced
Interest rates
Set reserve requirement
Open Market Operations
Quantitative easing

42
Q

First stage of quantitive easing (With permisson from…)

A

With permission from the Treasury, B.O.E credits its own account with newly created money, thus increasing the money supply

43
Q

Second stage of quantitive easing (Uses this money to buy..)
How would you show this on a graph

A

The B.O.E uses this money to buy financial assets (mostly bonds) in secondary capital markets from banks and financial institutions. This increases demand for bonds causing the price to rise

44
Q

Stage Three of Quantitive Easing (Given that government bonds…)

A

Given that government bonds have a fixed coupon (the amount of interest doesn’t change) the more expensive the bonds are the lower the yield
insert numerical example

45
Q

Stage Four of Quantitive Easing (This brings down the overall…)

A

This brings down the overall cost of borrowing across the economy as lower yields on bonds drive investors to other markets (…) As a result, banks can remain competitive as an investment even with lower interest rates

46
Q

What happens as Stages 3 and 4 are happening in an economy (Private sector… loanable funds)

A

Buying bonds increases the private sector’s assets and their ability to buy goods and services
Banks have more loanable funds making it easier to lend money, thus boosting consumption and investment

47
Q

Stage 5 of Quantitive Easing (Aggregate demand…)

A

Aggregate demand increases due to increased business and household confidence and debt financied consumption and investment

48
Q

Final stage of Quantitive Easing (Increased…)

A

Increased spending and employment return inflation in the UK to economy to its 2% target

49
Q

What is the Quantity Theory of Money

A

Money Supply X Velocity of Circulation == Price Level X Quantity of Goods/Services Sold

50
Q

What does Macroprudential mean and which regulator(s) manage it

A

Concerned with identitfying and monitoring risks to the overall stability of the financial system and acting to remove those risks
Financial Policy Committee (part of the BOE)

51
Q

What does Microprudential mean and which regulator(s) manage it

A

Has a focus on ensuring the stability of individual banks and financial institutions - identitying, monitoring and acting on risks to individual firms
Prudeuntial Regulation Authority (Part of the BOE)
FInancial Conduct Authority (Not a part of BOE)

52
Q

What is the primary function of the FPC

A

To maintain the stability of the financial system overall with a secondary objective in supporting the gov’s economic policy

53
Q

What is the primary function of PRA

A

Regulates and supervises individual banks, building societies, credit unions insurers and major investment firms
Responsible for stress tests

54
Q

What is the primary function of FCA

A

Aims to make sure financial markets work well by promoting competition and ensuring consumers get a fair deal and ensuring firms act with integerty. Acts similarly to regulator in good markets

55
Q

What are stress tests

A

Differs from year to year but looks at individual banks’ resilience to various adverse scenarios such as recession or rising unemployment

56
Q

What is a run on the bank

A

Mass deposit withdrawls from a bank

57
Q

What is a moral hazard

A

Exists when a firm or individual takes on too much risk knowing someone else will bear the significant portion of the cost

58
Q

Why can a bank fail

A

Recklessness
Low-capital ratio
Low Liquidity ratio
Governments let them fail
Run on the bank
Actions of regulator
Rogue employees

59
Q

How can recklessness occur in a bank

A

Weak regulations or a lack of “firewall” between investment and commerical wings
(Glass-Steagall Act of 1933 to protect depositors from losses through stock speculation)

60
Q

What is a bank’s capital ratio

A

A measure of how much of a bank’s funding comes from a form of equity (shares and reserves)

61
Q

Is a bank safer with higher or lower capital ratio

A

Higher, since this never has to be repaid (unlike liabilities)

62
Q

What is a bank’s liquidity ratio

A

A measure of the ratio between the bank’s liquid assets and the expected outflows from the bank

63
Q

Is a bank safer with higher or lower liquidity ratio

A

Higher, the more cash the business holds relative to withdrawals, the safer it will be

Economics (12 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions