Thursday, April 13, 2017
Wednesday, April 12, 2017
3/3/2017
TOOLS OF MONETARY
Reserve Requirement
Open Market Operation
Discount Rates
The RR- The fed sets the amount sets the amount
There is a recession, what should the fed does the reserve requirement
Decrease the reserve ratio
RR decrease MS increase i decrease I increase AD increase
Inflation what should the fed do?
Increase RR
RR increase MS decrease I decrease AD decrease
Open Market Operations is when the fed buys or sells government bonds (securities) this is the most important and widely used montary policy if the Feds buy bonds out of the economy and replaces them with money ms increase. If the fed sells bonds it takes money and gives security to the investor MS increase
The discount rate is the interest rate that fed charges commercial banks for short term loans. The federal fund rate is the interest rate that banks charge one another for overnight loans
Prime rate is the interest rate that banks charge their most credited worthy people
Loanable funds markets
Private sector supply and demand of loans brings together those who want to lend money shows effect R interest rate
O
Reserve Requirement
Open Market Operation
Discount Rates
The RR- The fed sets the amount sets the amount
There is a recession, what should the fed does the reserve requirement
Decrease the reserve ratio
RR decrease MS increase i decrease I increase AD increase
Inflation what should the fed do?
Increase RR
RR increase MS decrease I decrease AD decrease
Open Market Operations is when the fed buys or sells government bonds (securities) this is the most important and widely used montary policy if the Feds buy bonds out of the economy and replaces them with money ms increase. If the fed sells bonds it takes money and gives security to the investor MS increase
The discount rate is the interest rate that fed charges commercial banks for short term loans. The federal fund rate is the interest rate that banks charge one another for overnight loans
Prime rate is the interest rate that banks charge their most credited worthy people
Loanable funds markets
Private sector supply and demand of loans brings together those who want to lend money shows effect R interest rate
3/23/2017 - 3/24/2017
Fractional reserve system
Demanded deposit are created by FRS
FRS is the process in which bank keep a portion of their deposits in reserves, and loan out the excess
The money, the bank keeps on hand is called Required reserves ratio (percentage of cash kept back)
Banks must keep reserve deposit in there vaults or at the fed (federal reserves bank)
Total reserves or Actual reserves = RR + ER
New VS Existing Money
If the initial deposit in a bank comes from the FED or bank purchase of a bond or other money out of (buried treasure), the deposit immediately increases the money supply
The deposit then leads to further expansion of the money supply through the money creation process
Total change in MS if initial deposit is new $ = deposit plus money created by banking system
If a deposit in a bank is existing (already counted in M1; example currency or checks, depositing the amount does not change the MS immediately because it is already counted.
Existing Currency changes on deposited into a checking account only the composition of the money supply from coins/paper $ to checking account deposits.
Total change in the MS of deposits is depositing $ banking system created money only.
A Single bank can create $ by the amount of its reserve
The banking system as a whole can create $ by multiple of the excess reserves
MM X ER= expansion of money
Money Multiplier = 1/RR
Existing Currency changes on deposited into a checking account only the composition of the money supply from coins/paper $ to checking account deposits.
Total change in the MS of deposits is depositing $ banking system created money only.
A Single bank can create $ by the amount of its reserve
The banking system as a whole can create $ by multiple of the excess reserves
MM X ER= expansion of money
Money Multiplier = 1/RR
Tuesday, April 11, 2017
3/22/2017
Bonds are Loans or IOU's. that represent debt that the government or a corporation must repay to an investor
The hand holder has NO OWNERSHIP of the company
Nom interest rate decrease Value Bond increase
Nom interest rate increase Value Bond decrease
Stock owners can ear a profit in two ways
1. Dividends which are portions of a corporations profit, are paid out to stock holders
2. A capital gain is earned when a stock holder sell stock for more than that she paid for it
A stock holder sell stock at a lower price the purchase price suffered a capital loss
Federal Reserve Bank
Two names nick, the fed, control bank
Money Market
Demand for money has inverse relationship between nominal interest rates and the quantity of money demanded
1) What happens quantity demanded of money when IR increase?
Quantity demanded decrease because individuals would prefer to have interest earning assets instead of borrowed liabilities
2) When QD when IR decrease?
QD increase There is no incentive to convert cash into interest earning assets.
Downward sloping
monet shifters
change in price level
change in income
change in taxation that affects investment
The hand holder has NO OWNERSHIP of the company
Nom interest rate decrease Value Bond increase
Nom interest rate increase Value Bond decrease
Stock owners can ear a profit in two ways
1. Dividends which are portions of a corporations profit, are paid out to stock holders
2. A capital gain is earned when a stock holder sell stock for more than that she paid for it
A stock holder sell stock at a lower price the purchase price suffered a capital loss
Federal Reserve Bank
Two names nick, the fed, control bank
Money Market
Demand for money has inverse relationship between nominal interest rates and the quantity of money demanded
1) What happens quantity demanded of money when IR increase?
Quantity demanded decrease because individuals would prefer to have interest earning assets instead of borrowed liabilities
2) When QD when IR decrease?
QD increase There is no incentive to convert cash into interest earning assets.
Downward sloping
monet shifters
change in price level
change in income
change in taxation that affects investment
3/21/2017
Purpose of financial institutions
A. Store $
B. Store $
-savings accounts
-checking accounts
-CD (penalty)
C. Loans $ -car, house, business
Interest - price level for the use of borrowed money
Principal- amount that you can borrow
Types tof financial intermediaries
1. commercial bank (well fargo)
2. Savings and loans Institution
3. Credit Unison
4. Mutual Fund Compares
5. Finance Companies
The Financial System
Assets- Anything plus monetary value owned by a person or business
Financial asset - a paper claim that entitles the buyers to future income from the seller
Physical asset- a claim on a tangible object (example house, car)
Liability a requirement to pay money in the future (usually with interest)
5 major financial assets:
Loans,
Stocks,
Bonds,
Loans backed securities,
and bank deposits
The time Value of Money- a dollar is worth more today than it is tomorrow. you are losing money every second you are not investing it.
Real interest Rate- Real = Nominal interest rate - expected inflation
The intend return on an investment for lending
The rate we get at the bank. The amount of interest that lenders must charge to make a return and adjust for inflation
Future value If you invest (lend) money ti someone it will compound (grow) according to the following equation
FV = PV (1+ i)
I = nominal Interest Rate , t = time
Present Value Is the amount of money I need to invest now, in order to get some amount (FV is known) in the future PV = FV / (1 + i )
Time value of money
:Let V = future value of dollar
P = present value of $
R = real interest rate ( nominal - inflation rate ) expressed as a decimal
A. Store $
B. Store $
-savings accounts
-checking accounts
-CD (penalty)
C. Loans $ -car, house, business
Interest - price level for the use of borrowed money
Principal- amount that you can borrow
Types tof financial intermediaries
1. commercial bank (well fargo)
2. Savings and loans Institution
3. Credit Unison
4. Mutual Fund Compares
5. Finance Companies
The Financial System
Assets- Anything plus monetary value owned by a person or business
Financial asset - a paper claim that entitles the buyers to future income from the seller
Physical asset- a claim on a tangible object (example house, car)
Liability a requirement to pay money in the future (usually with interest)
5 major financial assets:
Loans,
Stocks,
Bonds,
Loans backed securities,
and bank deposits
The time Value of Money- a dollar is worth more today than it is tomorrow. you are losing money every second you are not investing it.
Real interest Rate- Real = Nominal interest rate - expected inflation
The intend return on an investment for lending
The rate we get at the bank. The amount of interest that lenders must charge to make a return and adjust for inflation
Future value If you invest (lend) money ti someone it will compound (grow) according to the following equation
FV = PV (1+ i)
I = nominal Interest Rate , t = time
Present Value Is the amount of money I need to invest now, in order to get some amount (FV is known) in the future PV = FV / (1 + i )
Time value of money
:Let V = future value of dollar
P = present value of $
R = real interest rate ( nominal - inflation rate ) expressed as a decimal
Monday, April 10, 2017
3/20/2017
Unit 4
The barter system goods and services are traded directly, there is no money exchanged.
What is money?
Money is anything that is generally accepted in payment for goods and services.
Money is NOT the same as wealth or income.
Wealth is the total collection of assets that store value.
Income is flow of earnings prevent of time
Money can be used as a
1) medium of exchange as good and services
2) unit of account measuring the value of goods and services
3) store of value consumption and savings
3 types of money
Representative money Commodity money Fiat money
IOU'S Gold,Silver, Cigarettes Coins, Money because government says it
Characteristic of Money
1) Durability
2) Portability
3) Divisibly
4) Uniformity
5) limited supply
6) Acceptability
3 Types of Money
Liquidity is ease with which an asset can be access and converted into cash ( liquidized)
M1( High Liquidity) Coin = Currency, and checkable deposits, demand deposits
M2 ( Medium Lucidity) M1 plus savings deposits (market money accounts)
CDS = certificate of deposits and mutual funds below $100k
M3 (Low Liquidity) M2 plus time deposits adobe $100k
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