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The market calue of all final goods and services produced in a country during the course of a year.
-Excludes purchase of goods that have been produced in the past
-Purchase of stocks and bonds |
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- Total income of factors of production from producing goods and services in the economy during a year.
-Best thoyght of as being equal to aggregate output. |
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| nominal GDP/Real GDP = GDP2013/GDP2005(BM)= 10t/9t = 1.11 - 1 = 11%... Means prices have risen 11% since BM (2005) |
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| Claim on issuers future income or asset |
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| Dow Jones Industrial Average |
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Money Growth Rate (Annual)
-Typically goes down during recession but not always |
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| Relationship B/T Inflation rate and Money Supply |
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| They have a positive relationship |
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| Management of money supply and interest rates conducted by the fed |
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| Deals with government spending and taxation |
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| Funds are converted from one currency to another |
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| International Monetary Fund - Basically a world bank that gives struggling countries loans to help them out |
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| Wealth that is employed to produce more wealth |
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| Financial market in which new issues of securityes such as bonds or stocks are sold to initial buyers |
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Preciously sold issues can be re sold
NYSE, NASDAQ, Foreign Markets, Futures |
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| Agents who match buyers and sellers |
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| Link buyers and sellers buy buying and selling at stated prices |
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Where buyers and sellers of securities or their agents or brokers meet in one central place to conduct trades
-NYSE, Chicago Board of Trade for Commoditites |
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| Over the Counter market - Dealers at different locations who have an inventory of securities stand ready to buy and sell securities "Over the counter" to anyone who comes and accepts their prices |
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| Finnacial Market in which only short term debt instruments are traded |
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| Longer term debt instruments are traded |
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| Short term debt instrument issued by large banks and well known corporations |
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| Repurchase Agreements (Repos) |
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| Short term loans (Less than 2wks) for which treasury bills serve as collateral |
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| Over night loans b/t banks for their deposits |
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| Closely watched barometer of the tightness of credit market conditions; also and interest rate on federal fund loans over night |
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| Mortgage Backed Securities |
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Bond like instrument backed byh a bundle of individual mortgages, whose interests and principals are collectively paid to holders of securities.
Bundles of loans. |
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| Traditinal instruments sold in foreign currency |
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| primary rount for moving funds from lenders to borrowers |
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| The reduction of transaction costs per dollar of costs of transactional increases |
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| Sertices that make it easier to provide customers to conduct transactions |
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Unequal knowledge that each party to a transaction has about the other party
-They don't know bob's gambling habit, he doesn't know their loan policy |
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| People who are most undesireable are the ones who most likely want to engage in financial transaction |
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| Problem created by Asymmetric INformation after the transaction occurs, the risk that the borrower might engage in undersireable activities (Gambling) |
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| The ability to use one resource to provide many different products and services |
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| Type of moral hazard. When a person has multiple onjectives and as a result does not work in your own best interest, but his/her own. |
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| Savings and Loan associations, mutual funds, credit unions |
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| Money Market Mutual Funds |
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| Sell shares to aquire funds that are used to buy money market instruments, the interest of those instruments is paid to the shareholder |
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| Widespread collapse of financial markets and intermediaries in an economy. |
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| Total collection of pieces of property that serve to store value |
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| Anything that is used to pay for goods & services |
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| Anything used to measure value in an economy |
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| Repository of purchasing power over time, used to save purchasing power from the time income is recieved until it is spent. |
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| Method of conduction transations in an economy |
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| Money based on precious metals |
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| measures of the money supply used by the fed |
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currency including paper money, coins in the hands of the non-bank public, discludes ATM money and bank vault cash...
Currency + Travelers checks + Demand Depositits + Other checkable Deposits |
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| Lender provicdes funds, payment periods etc... |
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| change in bonds price relative to initial purchase price |
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| possible reduction in returns associated w change in interest rates |
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| Considerations for interest rates |
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Definition
| wealth, exp return, risk, liquidity |
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| Theory of portfolio choice |
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Definition
| theory of how much of an asset people want to hold int he rporftolio with the amounts determined by wealth, exp return, risk and liquidity. |
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| relationship bt quantity demanded and the price |
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| quantity supplied exceeds quantity demanded |
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| an approach to determine asset prices using stocks of assets rather than flows |
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| interest rates relationship with bond price |
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Definition
| negatively related... Int goes up, price goes down |
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| the outcome that when expected inflation occurs, interest rates will rise |
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| liquidity preference framework |
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Definition
determines the equilibrium interest rate in terms of the supply of and demand for money
Bs + Ms = Bd + Md |
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Definition
| higher level of income causes the demand for money at each interest rate to increase and the demand curve to shift to the right |
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| risk Structure of Interest Rates |
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Definition
| relationship among interest rates on bonds w different terms to maturity |
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| term structure of interest rates |
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Definition
| relationship among interest reates on bonds w different terms to maturity |
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Term
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Definition
| The interest rate of a long term nond will equal the average of the short term interest rates that people expect to occur o=ver the life of the bond |
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Definition
markets for diff maturities bonds are completely seperated and the interest rates are determined solely by the supply and demand for that maturity.
Different maturity bonds are not subs for eachother |
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Term
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Definition
Interest rates on long term bonds will equal an average of short term interest rates expected to occur over the life of the long term bonds plus a liquidity premium that responds to supply and demand conditions for that bonds.
-Bonds of diff maturities are subs, just not perfect subs |
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| investors have a preference of bonds of one maturity over another... Usuall only purchase short term bonds. will purchase other if the exp return is high enough |
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