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Economics 133(01)
Macroeconomics
33
Economics
Undergraduate 2
03/07/2012

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Term
Financial System
Definition
consists of the group of institutions in the economy that help to match one person's saving with another person's investment
Term
Financial Markets
Definition
Are the institutions through which savers can directly provide funds to borrowers
Term
Financial Intermediaries 
Definition
Are financial institutions through which savers can indirectly provide funds to borrowers 
Term
Bond
Definition
A bond is a certificate of indebtedness that specifies obligations of the borrower to the holder of the bond
Term
Characteristics of a BOND
Definition

- 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

Term
The Stock Market
Definition

-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 

Term
Financial Intermediaries 
Definition
Are financial institutions through which savers can indirectly provide funds to borrowers
Term
Mutual Fund
Definition
Term
National Saving, or Saving, is equal to:
Definition

S=I

S=Y-C-G

S=(Y-T-C)+(T-G)

Term

Budget Surplus

 

T>G

Definition
Government recieves more money than it spends
Term

Budget Defecit 

 

G>T

Definition
Government runs a defecit because it spends more money than it recieves in tax revenue 
Term
Crowding out affect
Definition
The defecit borrowing crowds out private borrowers who are trying to finance investments
Term
Liquidity 
Definition
Term
Commodity Money 
Definition

Takes the form of a commodity with intrinsic value

 

-Gold, Silver, Cigarettes

Term
Fiat Money 
Definition

Is used as money because of government decree

- It does not have intrinsic value 

-I.e coins, currency, check deposits 

Term
Currency
Definition
The paper bills and the coins in the hands of the public 
Term
Demand Deposits
Definition
Bank money or scriptual money are funds held in demand deposit accounts in commercial banks 
Term
The Federal Reserve
Definition

Serves as the nation's central bank

- designed to oversee the banking system 

- regulates quantity of money in the economy 

Term

Open Market Operations 

 

Definition

- To increase money supply, the Fed buys government bonds from the public

- to decrease money supply, the Fed sells government bonds to the public 

Term
Reserves 
Definition
Are deposits that banks have received but have not loaned out 
Term
Fractional-reserve Banking System 
Definition
Term
Money Has three Functions in the Economy
Definition

-Medium of Exchange

-Unit of Account

-Store of Value 

Term
Reserve Ratio
Definition
The fraction of the deposit that the banks hold as reserves
Term
Open Market Operations 
Definition
The Fed conducts open market operations when it buys government bonds from or sells government bonds to public 
Term
Chapter 30 Money Growth and Inflation 
Definition
Term
Classical Dichotomy
Definition
Different forces influence real and nominal variables 
Term
Monetary Neutrality 
Definition

The irrelevance of monetary changes for real variables 

- changes in money suplly affect nominal variables but not real variables 

Term
Trade Defecit
Definition

a situation in which net exports are negative 

 

Imports>Exports

Term
Factors that affect Net Exports 
Definition

-The incomes of consumers at home and abroad

- the costs of transporting goods from country to country 

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