Money, interest and GDP Flashcards
What are money and other financial assets?
Stocks, not flows
What are some forms of household wealth?
- Money (bank/wallet)
- Short term securities
- Long term bonds
- Real capital (Farms, houses, family business)
What are the two aspects of liquidity?
- Uncertainty about how much money can be obtained by selling it
- How easy it is to make a sale
What is the present value of an asset?
The value now of the future payment or payments to which ownership of the asset gives a claim
If the market interest rate falls, the value of an income producing asset will:
Rise
How does a bond’s distance to the maturity date affect its responsiveness to interest rates?
The closer to the date, the smaller the effect
What is the demand for money?
The amount of wealth that everyone in the economy wishes to hold in the form of money
What are the three motives for holding money?
- Transactionary
- Precautionary
- Speculative
What is the precautinary balance?
Money held to cushion against uncertainties about the timing of cash flows
When does monetary equilibrium occur?
When the demand for money equals the supply of money
What is the LM curve?
It shows all of the combinations of income and interest rate for which money demand equals money supply
