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| consists of the group of institutions in the economy that help to match one person's saving with another person's investment |
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| Are the institutions through which savers can directly provide funds to borrowers |
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| Are financial institutions through which savers can indirectly provide funds to borrowers |
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| A bond is a certificate of indebtedness that specifies obligations of the borrower to the holder of the bond |
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| Characteristics of a BOND |
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- the length of time until the bond matures
- Credit Risk; the probability that the borrower will fail to pay some of the interest principal
- Tax Treatment; the way in which the tax laws treat interest on the bond |
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-stock represents a claim to partial ownership in a firm and is therefore, a claim to the profits that the firm makes
- the sale of stock to raise money is called equity financing |
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| Are financial institutions through which savers can indirectly provide funds to borrowers |
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| National Saving, or Saving, is equal to: |
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Definition
S=I
S=Y-C-G
S=(Y-T-C)+(T-G) |
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| Government recieves more money than it spends |
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| Government runs a defecit because it spends more money than it recieves in tax revenue |
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| The defecit borrowing crowds out private borrowers who are trying to finance investments |
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Takes the form of a commodity with intrinsic value
-Gold, Silver, Cigarettes |
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Is used as money because of government decree
- It does not have intrinsic value
-I.e coins, currency, check deposits |
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| The paper bills and the coins in the hands of the public |
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| Bank money or scriptual money are funds held in demand deposit accounts in commercial banks |
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Serves as the nation's central bank
- designed to oversee the banking system
- regulates quantity of money in the economy |
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- To increase money supply, the Fed buys government bonds from the public
- to decrease money supply, the Fed sells government bonds to the public |
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| Are deposits that banks have received but have not loaned out |
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| Fractional-reserve Banking System |
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| Money Has three Functions in the Economy |
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-Medium of Exchange
-Unit of Account
-Store of Value |
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| The fraction of the deposit that the banks hold as reserves |
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| The Fed conducts open market operations when it buys government bonds from or sells government bonds to public |
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| Chapter 30 Money Growth and Inflation |
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Definition
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| Different forces influence real and nominal variables |
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The irrelevance of monetary changes for real variables
- changes in money suplly affect nominal variables but not real variables |
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a situation in which net exports are negative
Imports>Exports |
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| Factors that affect Net Exports |
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Definition
-The incomes of consumers at home and abroad
- the costs of transporting goods from country to country |
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