ECON 3229: FINAL EXAM: SHIT I DON’T KNOW Liquidity premium theory o A premium that investors will demand when any given security can not be easily converted into cash, and converted at the fair market value. When the liquidity premium is high, then the asset is said to be illiquid, which will cause prices to fall, and interest rates to rise. Gramm–Leach–Bliley Act o It repealed part of the Glass–Steagall Act of 1933 , removing barriers in the market among banking companies, securities companies and insurance companies that prohibited any one institution from acting as any combination of an investment bank , a commercial bank , and an insurance company Glass Stegal Act o limited commercial bank securities activities and affiliations between commercial banks and securities firms McFadden Act o sought to give national banks competitive equality with state-chartered banks by letting national banks Branch to the extent permitted by state law Equations: Money Multiplier / Money supply o Monetary Base = Currency in Circulation + Reserves of Banks o Money Supply = Monetary Base x Money Multiplier o Simple Deposit Multiplier = ratio of the amount of deposits created by banks to the amount of new reserves. o Money Multiplier = M / B M= money multiplier B= monetary base Bank Balance Sheet o Bank Liabilities Checkable Deposits Nontransaction Deposits (CDs, savings accounts, etc.) Borrowings o Bank Assets Reserves Other Cash Assets Securities Loans **LARGEST CATEGORY OF BANK ASSETS** Other assets Fed Balance Sheet o Purchasing Power Parity
o The theory that exchange rates move to equalize the purchasing power of different currencies. Expectations Theory + Equation o Holds that the interest rate on a long-term bond is an average of the interest rates investors expect on short-term bonds over the lifetime of the long-term bond.