Unit 4 Flashcards

1
Q

Liquidity

A

ease with which a financial asset can be accessed and converted into cash

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2
Q

rate of return

A

Net gain or loss of an investment over a specified time period

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3
Q

bonds (securities)

A

An interest-bearing asset often issued by businesses or the government

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4
Q

stocks (equities)

A

A security that gives you ownership in a company.

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5
Q

equity financing

A

ownership interest in property that may be offset by debts or other liabilities

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6
Q

What is the financial sector

A

a network of institutions that link borrowers and lenders

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7
Q

assets

A

tangible and intangible items that have value

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8
Q

interest rate (def)

A

price of a loan

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9
Q

interest bearing assets

A

assets that earn interest over time

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10
Q

what is the relationship between bond price and interest rates?

A

inverse

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11
Q

real IR def

A

percentage increase in purchasing power that a borrower pays (adjusted for inflation)

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12
Q

real interest rate formula

A

real IR= nominal IR - expected Inflation

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13
Q

nominal IR

A

percentage increase in money that a borrower pays

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14
Q

nominal IR formula

A

nominal IR= real IR + expected inflation

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15
Q

Double coincidence of wants

A

(barter system) before trade could occur, one had to have an item the other wanted

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16
Q

money

A

anything generally accepted as payment for goods/services

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17
Q

commodity money

A

something that performs the function of money and has an intrinsic value

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18
Q

Fiat Money

A

something that serves as money but has no other value

19
Q

purchasing power of money

A

amount of goods/services that a unit of money can buy

20
Q

Reserve requirement

A

Amount of funds that a bank holds in reserves to ensure that it is able to meet all liabilities in case of sudden withdrawals (demand deposits only)

21
Q

money multiplier formula

A

1/
reserve ratio

22
Q

fractional reserve banking

A

when banks hold a portion of deposits to cover potential withdrawals and then loan out the rest of the money

23
Q

demand deposits

A

money deposited in a commercial bank in a checking account

24
Q

required reserves

A

percent that banks must hold by law

25
excess reserves
amount that banks can loan out
26
balance sheet
record of a bank's assets, liabilities, and net worth
27
3 shifters of money supply
1. Reserve ratio/requirements 2. Discount rates 3. Open market operations
28
Discount rate
interest rate the fed charges commercial banks
29
open market operations
when the fed buys or sells govt. bonds. It is the most important and widely used policy
30
federal funds rate
interest rate banks charge one another for one-day loans or reserves. it is set by the banks
31
transaction demand for money
people hold money for everyday transactions
32
asset demand for money (why do people hold onto money)
people hold onto money since it's less risky than other assets
33
what is the relationship between interest rates and quantity of money demanded?
inverse
34
loanable funds market
shows the supply and demand of loans and shows the equilibrium real interest rate
35
private saving
amount households save instead of consume
36
public saving
amount govt. saves instead of spends
37
national savings
public and private savings
38
capital inflow
amount of money entering the country
39
capital outflow
amount of money leaving the country
40
net capital inflow formula
inflow - outflow
41
private investment
borrowing by businesses and consumers, deficit spending
42
money supply shifters (3)
1. change in private savings behavior 2. changes in public savings 3. changes in foreign investment
43
money demanded shifters (3)
-price level -real gdp -transaction costs
44
why is the supply of money a straight line
it is constant