CHEAT SHEET2 - - ECONOMIC GROWTH enhanced by: high rates of...

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- ECONOMIC GROWTH enhanced by: high rates of saving/investment and use of scarce saving to fund most productive projects. - FINANCIAL INTERMEDIARIES: commercial banks, credit unions, insurance companies - FINANCIAL MARKETS: collection of households, firms, governments, banks (lend and borrow). ORGANIZED 4 GROUPS: bond markets, loan markets, short-term securities markets, loan markets - GLOBAL FINANCIAL MARKETS: lenders seek high interest rate, borrowers seek lowest interest rate - BOND: promise to pay specified sums of money on specified dates, BOND MARKET: bonds issued by firms and gov. are traded - COUPON RATE: depends on the bond’s term, relationship varies over time but longer the length the higher interest required - BONDS CONT. An inverse relationship exists between the price of a bond and the interest rate on the bond - STOCK: certificate of ownership and claim to profits made by company - DIVIDEND: a payment received by stockholders for each share that they own - MONEY: any asset that can be used directly to make purchase - MONEY CONT. unit of account, basic measure of economic value, yardstick for measuring value, store of value, dollars in U.S., asset that serves as a meaning of wealth - MEASURING MONEY: M1 = Sum of currency outstanding and balances held in checking accounts and travelers checks, M2 = Savings accounts, small time deposits, money market mutual funds + M1 - MONEY SUPPLY CONSISTS OF: currency in hands of public, deposit balances held by commercial banks - MONEY SUPPLY = currency held by public + bank deposits - THE FEDERAL RESERVE SYSTEM: Central Bank of US, 2 MAIN RESPONSIBLITIES: Monetary Policy and Money Circulation/Influencing Interest Rates - FED. CONT. Created in 1913, consists of 12 regional banks, headquarters in D.C., The voting members of the federal open market committee consists of 7 governors of Board of Governors and 5 of the regional Federal Reserve Bank presidents including the president of the Federal Reserve Bank of New York. 14 year terms - DISCOUNT WINDOW LENDING: lending of reserves by Fed to commercial banks when banks are short on reserves. The lending of reserves directly increases reserves in banking system, thereby INCREASING money supply. - DISCOUNT RATE: the interest rate the Fed charges commercial banks that borrow reserves from it - - SHORT RUN FLUCTUATIONS: irregular in length/severity but have widespread impacts. Unemployment rises during recession and falls during an expansion. Recessions tend to be followed by decline in inflation, preceded by increase in inflation. - RECESSION: (Contraction) A period at which economy is growing at a rate significantly below normal, GDP falls for at least 6 months - EXPANSION: A period in which economy is growing at a rate significantly above normal, normally lasting longer than recessions. -
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This note was uploaded on 02/01/2011 for the course EC 202 taught by Professor Obst during the Spring '08 term at Michigan State University.

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CHEAT SHEET2 - - ECONOMIC GROWTH enhanced by: high rates of...

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