Unit 4: Financial Sector

________ or balance sheet- A tabular way to show the assets and liabilities of a bank.

________- A firms way of raising investment funds by issuing bonds to the public.

The ________ has three general tools of monetary policy that they control:

________ financing- The firms method of raising funds for investment by issuing shares of stock to the public.

In a(n) ________, the value of a pound of cheese would equal a dozen eggs.

________ is an asset and so are loans made to citizens.

When the ________ is decreased, the interest rate increases causing a decrease in private consumption and investment shifting AD to the left.

There is a(n) ________ between the nominal interest rate and the quantity of investment demanded.

The chance that an outcome or an investments ________ differ from the expected outcome.

________- Designed to fix a recession by lowering interest rates to increase aggregate demand, lower the unemployment rate, and increase real GDP, which may increase the price level.

________- Designed to avoid inflation by increasing interest rates to decrease aggregate demand, which lowers the price level and decreases real GDP back to full employment.

________ is given to investments with a higher rate of return.

It is the ________ wanted and needed at every real interest rate by borrowers in an economy.

________- This measures the maximum amount of new checking deposits that can be created by a single dollar of excess reserves.

When the ________ decreases then the real interest rate will increase.

The ________ is determined by the countrys central bank (FED)

________ pay fixed interest rates, as interest rates fall, the price rises.

Increasing the ________ decreases excess reserves in commercial banks and contracts the money supply.

When the demand for ________ increases then the real interest rate will increase.

________= currency in circulation + bank reserves.

Cash

A certificate that represents a claim to, or share of the ownership of a firm

The firms method of raising funds for investment by issuing shares of stock to the public

A certificate of indebtedness from the issuer to the bondholder

A firms way of raising investment funds by issuing bonds to the public

inflation

The paper and coin money used today

It is something that performs the function of money and has an alternative, non-monetary use

Money serves three functions

It follows the logic that your labor hours turn into money, the money turns into apples, the farmer then exchanges the money for an orchards apple crop, and so on

Units of currency measure the relative worth of goods and services

Money is a relatively good way to store value, when theres no inflation because it keeps its value

The quantity of money in circulation as measured by the Federal Reserve (the Fed) as M1 and M2

A measure of how easily an asset can be converted to cash

A system in which only a fraction of the total money deposited in banks is held in reserve as currency

The fraction of a banks total deposits that are kept on reserve

Regulation set by the Fed that states the minimum reserve ratio for banks

The cash reserves held by banks above and beyond the minimum reserve requirement

A tabular way to show the assets and liabilities of a bank

Anything owned by the bank or owed to the bank is an asset of the bank

Anything owned by depositors or lenders is a liability to the bank

This measures the maximum amount of new checking deposits that can be created by a single dollar of excess reserves

The amount of money held in order to transactions

The amount of money demanded as an asset

Plotted against the nominal interest rate, the transaction demand for money is a constant MDt

The demand for money is the sum of money demanded transactions and money demanded as an asset

Designed to fix a recession by lowering interest rates to increase aggregate demand, lower the unemployment rate, and increase real GDP, which may increase the price level

Designed to avoid inflation by increasing interest rates to decrease aggregate demand, which lowers the price level and decreases real GDP back to full employment

A traditional tool of monetary policy, it involves the Feds buying (or selling) of securities from (to) commercial banks and the general public

The interest rate paid on short-term loans made from one bank to another

The interest rate commercial banks pay on short-term loans from the Fed