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Notes for Test 1

Notes for Test 1 - 1.16.08 Chapter 1 CPI(consumer price...

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1.16.08 Chapter 1 1. CPI (consumer price index-retail price) and PPI (Producer price index-wholesale price) measure the overall price of goods and services in an economy 2. Inflation rate-rate of change in price of goods and services 3. Price stability-keeping inflation as low as possible-this is the number one goal of the FED 4. M1-M2 % change, SA= month to month % change, seasonally-gives inflation rate from month to month which isn't very important because youre looking for overall trends 5. Core measure of prices-price of everything minus food and energy 6. Fed's goals: o Keep inflation low and steady o Sustained economic growth o Retail sales are one of the 10 most important things released o 70% of US GDP comes from independent spending, so if retail sales go down, 70% of economic growth goes down 7. Chapter 2 8. Financial System-transfers funds from initial lender to the ultimate borrower o Indirect Finance-initial lender and ultimate borrower transact indirectly (goes from lender to bank, etc then to ultimate borrower) a. The middle men are financial intermediaries b. Depository institutions-bank/commercial banks c. Contractual savings institutions-life ins company whole life insurance d. Investment intermediaries-mutual funds, money market funds 1.18.07 Jobless claims-number of people in the US in the given week who filed for the first time to get unemployment compensation. If the number is above 400,000 for many weeks- recession, below 300,000 for many weeks- expansion 9. Financial system-moving funds from initial lender to the ultimate buyer
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10. Direct finance-initial lender and ultimate buyer transact directly, this happens in a financial market 11. Debt v. equity markets- o The stock market is influenced by the economy more than it influences it. o US govt bond market-most important market open. It is a market in which borrowes and lenders transact directly. 12. Open market reserves, governemtn buys own bonds 13. In the US, interest rates tend to move together 14. Interest rate in the US bond market is ultimate rate, adjustment of that one will affect all other interest rates. 15. Equity=stock markets, debt=loan/bond markets 16. Time o Maturity-the date on which the financial payment is promised Short term US bonds=treasury bills (T-Bills) T-notes T-bonds 17. Money vs. Capital Markets o Money market=short term financial market o Capital market-longer than one year 18. Primary vs. Secondary Markets o The stock market is secondary market o Primary is where it is sold for the first time 19. Other Markets o Commercial paper market-short term corporate bond-money market mutual fund o Eurodollars-bank accounts-US dollar denominated bank accounts held at banks outside US-both US and foreign owned, banks in the US borrow from these banks o Federal funds market 1.23.08 20. Fed lowered rates 75 basis points-3 1/2% one week early o They did this because they see recession coming and they want to cut it big before next week's meeting so that they can cut it again.
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