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Economics 2 > Unit 10: Banks, Money, & The Credit Market > Flashcards

Unit 10: Banks, Money, & The Credit Market Flashcards

1
Q

Money

A

Facilitates exchange, can be used to purchase goods and services, accepted as payment

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2
Q

Wealth

A

Stock of things owned or value of that stock

Ex. Market value of home, car, land, assets, bonds, etc.

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3
Q

Human Capital

A

The stock of knowledge, skills, behavioral attributes, personal characteristics that determine labor productivity or earnings of an individual

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4
Q

Income

A

The amount of profit, labor earnings over a year

Maximum amount that can be consumed without changing your wealth

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5
Q

Earnings

A

Wages, salaries, or other income

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6
Q

Stock

A

Quantity measured at a point in time, but does not depend on time

Ex. wealth

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7
Q

Flow

A

Quantity measured per unit of time

Ex. Income and hourly wage

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8
Q

Depreciation

A

Loss in value of a form of wealth caused by passage of time or use

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9
Q

Consumption

A

How much you spend on consumer goods

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10
Q

Saving

A

When what is being spent is less than net income, savings take place and wealth rises

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11
Q

Investment

A

Expenditure on newly produced capital goods

Ex. Buildings, equipment, machinery

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12
Q

Interest Rate

A

Price of bringing some buying power forward in time

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13
Q

Diminishing Marginal Returns to Consumption

A

As you consume an additional unit of a good the value of that consumption declines

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14
Q

Pure Impatience

A

Characteristic of a person who values additional consumption of a good now over an additional consumption later

Caused by:
1. myopia (imagine satisfaction to be higher now than in future)
or
2. prudence (know you may not be around later)

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15
Q

Balance Sheets

A

Record of assets, liabilities, and net worth of an economic factor

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16
Q

Assets

A

Anything of value that is owned

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17
Q

Liability

A

Anything of value that is owed

18
Q

Net Worth

A

Assets - Liabilities

19
Q

Bank

A

Firm that creates money through bank deposits in the process of supplying credit

20
Q

Central Bank (aka Commercial Bank Reserves)

A

Only bank that can create base money

Part of the government, and commercial banks usually have accounts here

21
Q

Maturity Transformation

A

Practice of borrowing money short-term and lending it long-term

Ex. Bank takes deposits that it promises to repay at none or short notice and makes long term loans that can be repaid over years

22
Q

Mortgage

A

Loan contracted by households and businesses to purchase property without paying total value at one time, includes interest

23
Q

Liquidity Risk

A

Risk that an asset cannot be exchanged for cash rapidly enough to prevent financial loss

24
Q

Default Risk

A

Risk that credit given as loans will not be repaid

25
Q

Bank Run

A

When depositors withdraw funds from bank because of fear they might go bankrupt and not honor its liabilities (not repay funds owed to depositors)

26
Q

Short-term Interest Rate

A

The price of borrowing base money

27
Q

Policy Rate

A

Interest rate set by the central bank, which applies to banks that borrow base money from each other and from the central bank

28
Q

Bank Lending Rate

A

Average interest rate charged by commercial banks to firms and households

Typically above policy interest rate

29
Q

Government Bonds

A

Financial instrument issued by governments that promises to pay flows of money at specific intervals

30
Q

Yield

A

Interest rate on a government bond

31
Q

Present Value

A

Value today of a stream of future income or other benefits

32
Q

Insolvent

A

Value of an entity’s assets are less than value of its liabilities

33
Q

Liquidity

A

Ease of buying/selling a financial asset at a predictible price

34
Q

Equity

A

An individual’s own investment in a project

35
Q

Collateral

A

Asset that borrower pledges to a lender as security for a loan

If borrower is not able to pay loan, then lender becomes owner of the asset

36
Q

Credit Rationing

A

When those with less wealth borrow on unfavorable terms compared to those with more wealth

37
Q

Credit-Excluded

A

Description of Individuals who are unable to borrow on any terms

38
Q

Credit-Constrained

A

Individuals who are able to borrow only on unfavorable terms

39
Q

Base Money

A

Cash held by households, firms, banks and the balances held by commercial banks in their accounts at the central bank

40
Q

Broad Money

A

Stock of money in circulation

Broad money = bank money + base money

41
Q

Leverage Ratio

A

Value of total liabilities divided by total assets

42
Q

Discount Rate

A

Measure of a persons impatience

Slope of a persons indifference curve for consumption now and later minus one

Economics 2 (3 decks)

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