Class 1 Expanded Discussion Outline

Class 1 Expanded Discussion Outline - Class 1 Discussion...

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Class 1 Discussion Outline. The economy is a collection of assets [stock variables] used in activity that generates income [flow variables]. All economic activity involves money mediated exchange. The quantity of money and how it flows is the financial system. This stock and flow of money influences, governs and controls real economic activity that is the primary concern of agents in the economy. 1) Learning Objectives: a. Understand the meaning of ‘system’ a.i. Learn the six elements of an economic or financial system. a.i.1. Designate each as a “stock” or “flow” or “regulator” a.i.1.a. A “stock” is like the balance in your bank account a.i.1.b. A “flow” is deposits and withdrawals in a given month a.i.1.c. A “regulator” is your desired purchases and interest earned on the balance in your account. a.ii. Know the principles [economic logic] that govern the functioning of a financial system—how the elements of a system are connected and influence each other—‘feedbacks’. b. Practice: Design a scheme or partial system that connects the variables listed below in Section III of this outline: (2 a) with (3 b, e, i) I. The Six Elements of the Financial System 1. The financial system has six parts, each of which plays a fundamental role in an economy. The parts are: a. Money : medium of exchange: used to pay for purchases and store wealth. b. Financial instruments: used to transfer resources from savers to investors and to transfer risk to those best equipped to bear it. c. Financial markets : allow exchange of financial instruments quickly and cheaply. d. Financial institutions : provide a myriad of services, including access to financial markets, and produce and collect information about prospective e. Central banks : monitor and stabilize the economy. f. Government
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Diagram of Economic Activity Inner Arrows: Money Measure of Economic Activity Outer Arrows: Real Economic Activity House Holds: Own all economic Resources—directly or indirectly through ownership of firms. Own all Financial Assets—directly or indirectly through ownership of firms. Receive all Income—directly or indirectly through ownership of assets. Pay all taxes; firms collect some taxes from households and pay taxes for them! Firms: Are contractual entities between of members of House Holds -that manage the provision of goods and services through using resources -act as intermediaries that: - allocate resources among competing uses - manage and distribute risk - provide liquidity to the economy - create the majority of stuff that underlies information.
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Government: - Creates and Manages property rights called the rule of Law - Enforces the regulations or “rules” of the economy - Adjudicates disputes - Provides for the general protection of Economy - Assures some minimum measure of Equity across households. Financial Instruments,
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This note was uploaded on 02/22/2012 for the course MANEC 453 taught by Professor Jerrynelson during the Winter '10 term at BYU.

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Class 1 Expanded Discussion Outline - Class 1 Discussion...

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