Week 3 - Modelling Aggregate Demand Part II Flashcards
What are Automatic stabilizers
Used to dampen the response of the economy to shocksa
What is Discretionary fiscal policy
When the government actively chooses to change its spending or taxation to influence the economy
What is the AD formula for an Open macro economy
AD = A + c(Y* - NT) + I + G + X - zY*
What is Money
Money is any generally accepted means of payment for the delivery of goods or settlement of debt
What are the 4 Functions of money
- Store of value
- Medium of exchange
- Standard of deferred payment
- Unit of account
What is Fiat money
A currency without intrinsic value (government issued, not backed by a physical commodity)
What is Commodity money
A currency with intrinsic value e.g., gold/silver coins
What is Representative money
A currency that doesn’t have inherent value but represents a claim to something of value, like a commodity
What are Commercial banks
A financial intermediary, coordinating activities between savers and borrowers
What are Bank reserves
The portion of a commercial bank’s assets held in a liquid form, to meet possible withdrawals from depositors
What is the Reserve ratio
The percentage of all deposits that banks keep on hand to meet withdrawals
What is the Money supply
The value of all the stock of money in circulation
What is the Monetary base
The value of currency either in circulation or held in reserves held by commercial banks at the central bank
What is a Financial asset
A type of asset that represents a claim to future cash flows or a stream of income
What is Liquidity
The ease and speed at which an asset can be converted into cash or used for immediate exchange
What are Bills
Short term asset with a known date of repurchase at the known price
- High liquidity
What are Bonds
Debt securities where an investor lends money to a government or corporation in exchange for periodic interest payments and the return of the bond’s face value at maturity
- Medium liquidity
What are Perpetuities
A type of a bond which is never repurchased by the issuer. Interest payments made forever
- Medium liquidity
What are Equities
Company shares, entitling the owner to receive corporate dividends
- Low liquidity
What is Financial panic
A sudden, widespread loss of confidence in the financial system, leading to large number of depositors wishing to withdraw their deposits simultaneously
What is a Solvency crisis
When an institution’s assets have become less than its liabilities
What is a Liquidity crisis
When an institution struggles to meet financial obligations due to a shortage of liquid assets
What is a Subprime mortgage
A housing loan issued to low-income high-risk borrowers
What is Securitization
When an institution packages and sells pools of assets as tradable securities to investors
