Term
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Definition
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Term
| Savings-Investment Spending Identity |
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Definition
savings = investment spending
1. Total income = total spending
2. Total income = consumer spending + savings
1. Total spending = Consumer spending + Investment spending
1. Consumer spending + savings = Consumer spending + Investment spending
2. Savings = Investment spending |
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Term
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Definition
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Term
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Definition
NS = private savings + budget balance
private savings: (DI - C) |
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Term
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Definition
| Capital Inflow = Total inflow of foreign funds - Total outflow of foreign funds |
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Term
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Definition
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Term
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Definition
| Requirement to pay money in the future |
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Term
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Definition
IOU issued by borrower (seller)
Promises to pay fixed sum of interest each year and repay principal to the owner of bond by a particular date.
Seller sells multiple standardized bonds with given interest rate and maturity date to whoever wants to buy them
Pros: Low transaction costs, liquid
Cons: Have ratings - Bonds with higher default risk have to pay higher interest rate |
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Term
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Definition
Pools individual loans and then sells shares in that pool (securitization)
Pros: liquidity, diversification
Cons: difficult to assess the true quality |
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Term
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Definition
A share in the ownership of a company
Pros: reduce financial risk, higher returns over time than bonds
Cons: owning stock is riskier than owning bond |
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Term
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Definition
Lending agreement between individual lender and individual borrower
Pros: Tailored to needs of borrower and their ability to repay
Cons: High transaction costs |
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Term
| Three Tasks of Financial System |
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Definition
1. Reducing transactions costs -
Getting loans
Selling bonds
2. Reducing risk -
Financial Risk
Selling shares
3. Providing liquidity -
Danger in needing to get money back before term of loan is up
Stocks, Bonds, Banks |
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Term
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Definition
How quickly something can be converted to cash
liquid = quick
illiquid = slow |
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Term
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Definition
| investing in several assets with unrelated/independent risks lowers total risk of loss |
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Term
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Definition
| Expenses of actually putting together and executing a deal. |
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Term
| 4 main types of financial assets |
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Definition
| Loans, bonds, stocks, bank deposits |
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Term
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Definition
Institutions that transform funds gathered from many individuals into financial assets
Ex. mutual funds, pension funds, life insurance companies, banks |
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Definition
| financial intermediary that creates a stock portfolio by buying and holding shares in companies and then selling shares of the stock portfolio to individual investors |
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Term
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Definition
institution that helps resolve conflict between lenders' needs for liquidity and financing needs of borrowers who don't want to use stock or bond markets
provides liquid financial assets in form of deposits to lenders and uses their funds to finance the illiquid investment spending needs of borrowers |
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Term
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Definition
| actual CASH in hands of public |
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Term
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Definition
Most liquid assets:
- Currency in ciculation
- Traveler's checks
- Checkable bank deposits |
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Term
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Definition
M1 + Assets that are near-moneys:
- Currency in ciculation
- Traveler's checks
- Checkable bank deposits
- Savings account deposits
- Time deposits
- Money market funds (mutual funds that only invest in liquid assets) |
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Term
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Definition
| financial assets that arent' directly usable as a medium of exchange but can be readily converted into cash or checkable bank deposits |
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Term
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Definition
| The fraction of bank deposits that a bank holds as reserves is its reserve ratio |
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Term
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Definition
Smallest fraction of bank deposits that a bank must hold
(given value?) |
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Term
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Definition
| Reserves over and above the amount needed to satisfy the minimum reserve ratio |
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Term
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Definition
Ratio of the money supply to the monetary base
Tells the dollars created in the banking system by each $1 addition to the monetary base
1/rr |
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Term
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Definition
| MB = Currency in circulation + Reserves held by banks |
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