Money/Banking Flashcards
Nominal interest Rate Formula
Real interest rate + Expected inflation rate
Real interest rate Formula
Nominal interest rate-inflation rate
Creditors benefit
When the economy experiences an unexpectedly low rate of inflation
Fiat Money
Something that is used as legal tender by government decree
Does a change in real interest rate cause movement along demand curve
Yes
Economic Agents who borrow funds are_____, the funds they borrow are called_____,and this activity occurs in the____
Debtors
Credit
Credit or loanable funds market
The credit demand curve
Reports the relationship between the quantity of credit demanded and the real interest rate
What are the functions of money in the economy
-Store of value
-Unit of account
-Medium of Exchange
Money Supply/M2
Adds together currency in circulation:
-Checking accounts
-Savings Account
-Travelers Checks
Quantity Theory of Money
Assumes that ratio of money supply to nominal GDP is constant
Inflation Rate
Growth rate of money supply - Growth rate of real GDP
Stockholders Equity
Assets - Liabilities
Decrease in Long-Term Investment
-Multiply long term investment by percentage
-Subtract the result of that from the original investment
CNN
Deposits made by the public into a savings account are referred to as
Demand deposits
Difference between nominal and real interest rates
-Nominal interest rate is the rate you pay on a loan
-The real interest rate is the nominal interest rate adjusted for inflation
Inflation is equal to?
The gap between the growth rate of the money supply and the growth rate of the real GDP
Functions that banks perform
-Identify profitable lending opportunities
-Transform short-term liabilities into long term assets
-Manage risk through diversification strategies
