Banking and Monetary Policy_Butkiewicz_Date_022510

Banking and Monetary Policy_Butkiewicz_Date_022510 - 25:...

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Chapter 4- Interest Rates Term = time/maturity BBB= an example of type of rating regarding safety of type of bonds 5: new housing construction is part of investment. Closed economy, example is Earth because only deals with inside its borders. Open economy deals with cross border transactions 6: net capital inflows may result from diversification. Can be negative (more $ out than in)- lender at a disadvantage, or positive-borrower owes money to lender. 9: people will hold off on spending if give incentive to save 15: factors- increasing technologies (communication). Now loan demand is decreasing because of our weak economy. 19: there has been an increase in private saving in the U.S. financial crisis. Most state and local governments are forced to have a balanced budget (if cost is too high, must make cuts). We are currently in a state of public dissaving. 23: 1/100 th percent= basis point for Finance
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Unformatted text preview: 25: money leaves countries with low interest rates for countries with high interest rates 28: Irving Fisher- Yale economist, 19 th century- early 20 th century. Came up with the Fisher equation that sates what you pay is equal to the real rate plus expected inflation. Lend $ only if return covers the cost of expected rate of inflation. Borrowers understand this concept and pay. 31: make a choice on which of the two assets (money or bonds) to hold 32: Swiss National Banks is an example of a central bank. Interest rate= what you lose from holding money instead of bonds (opportunity cost). 37: central bank can change money supply in the economy in order to change interest rates. Changes in real rates lead to changes in investments and economic captivity. Fed decreases rates to slow the economy down. -Even before credit cards it was not uncommon to have credit...
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