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Money and Banking Economics 3311
Mishkin money and banking test 1 summer II Karakaplan Tx State University
63
Economics
Undergraduate 3
07/17/2013

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Term
Gross Domestic Product
Definition
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
Term
Aggregate Income
Definition
- 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.
Term
GDP Deflator
Definition
nominal GDP/Real GDP = GDP2013/GDP2005(BM)= 10t/9t = 1.11 - 1 = 11%... Means prices have risen 11% since BM (2005)
Term
Security
Definition
Claim on issuers future income or asset
Term
Dow Jones Industrial Average
Definition
Top 30 Companies
Term
M2
Definition
Money Growth Rate (Annual)

-Typically goes down during recession but not always
Term
Relationship B/T Inflation rate and Money Supply
Definition
They have a positive relationship
Term
Monetary Policy
Definition
Management of money supply and interest rates conducted by the fed
Term
Fiscal Policy
Definition
Deals with government spending and taxation
Term
Foreign Exchange Market
Definition
Funds are converted from one currency to another
Term
IMF
Definition
International Monetary Fund - Basically a world bank that gives struggling countries loans to help them out
Term
Capital
Definition
Wealth that is employed to produce more wealth
Term
Primary Market
Definition
Financial market in which new issues of securityes such as bonds or stocks are sold to initial buyers
Term
Secondary Market
Definition
Preciously sold issues can be re sold

NYSE, NASDAQ, Foreign Markets, Futures
Term
Brokers
Definition
Agents who match buyers and sellers
Term
Dealers
Definition
Link buyers and sellers buy buying and selling at stated prices
Term
Exchanges
Definition
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
Term
OTC MKT
Definition
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
Term
Money Market
Definition
Finnacial Market in which only short term debt instruments are traded
Term
Capital Market
Definition
Longer term debt instruments are traded
Term
Commercial Paper
Definition
Short term debt instrument issued by large banks and well known corporations
Term
Repurchase Agreements (Repos)
Definition
Short term loans (Less than 2wks) for which treasury bills serve as collateral
Term
Federal Funds
Definition
Over night loans b/t banks for their deposits
Term
Federal Funds Rate
Definition
Closely watched barometer of the tightness of credit market conditions; also and interest rate on federal fund loans over night
Term
Mortgage Backed Securities
Definition
Bond like instrument backed byh a bundle of individual mortgages, whose interests and principals are collectively paid to holders of securities.

Bundles of loans.
Term
Foreign Bonds
Definition
Traditinal instruments sold in foreign currency
Term
Financial Intermediation
Definition
primary rount for moving funds from lenders to borrowers
Term
Economies of Scale
Definition
The reduction of transaction costs per dollar of costs of transactional increases
Term
Liquidity Services
Definition
Sertices that make it easier to provide customers to conduct transactions
Term
Asymmetric Information
Definition
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
Term
Adverse Selection
Definition
People who are most undesireable are the ones who most likely want to engage in financial transaction
Term
Moral Hazard
Definition
Problem created by Asymmetric INformation after the transaction occurs, the risk that the borrower might engage in undersireable activities (Gambling)
Term
Economies of Scope
Definition
The ability to use one resource to provide many different products and services
Term
conflicts of Interest
Definition
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.
Term
Thrift Institutions
Definition
Savings and Loan associations, mutual funds, credit unions
Term
Money Market Mutual Funds
Definition
Sell shares to aquire funds that are used to buy money market instruments, the interest of those instruments is paid to the shareholder
Term
Financial Panic
Definition
Widespread collapse of financial markets and intermediaries in an economy.
Term
Wealth
Definition
Total collection of pieces of property that serve to store value
Term
Medium of eexchange
Definition
Anything that is used to pay for goods & services
Term
Unit of Account
Definition
Anything used to measure value in an economy
Term
Store of value
Definition
Repository of purchasing power over time, used to save purchasing power from the time income is recieved until it is spent.
Term
Payments System
Definition
Method of conduction transations in an economy
Term
Commidity Money
Definition
Money based on precious metals
Term
Monetary Aggregates
Definition
measures of the money supply used by the fed
Term
M1
Definition
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
Term
Fixed Payment Loans
Definition
Lender provicdes funds, payment periods etc...
Term
rate of Capital gain
Definition
change in bonds price relative to initial purchase price
Term
interest rate risk
Definition
possible reduction in returns associated w change in interest rates
Term
Considerations for interest rates
Definition
wealth, exp return, risk, liquidity
Term
Theory of portfolio choice
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.
Term
demand curve
Definition
relationship bt quantity demanded and the price
Term
excess supply
Definition
quantity supplied exceeds quantity demanded
Term
asset market approach
Definition
an approach to determine asset prices using stocks of assets rather than flows
Term
interest rates relationship with bond price
Definition
negatively related... Int goes up, price goes down
Term
fischer effect
Definition
the outcome that when expected inflation occurs, interest rates will rise
Term
liquidity preference framework
Definition
determines the equilibrium interest rate in terms of the supply of and demand for money

Bs + Ms = Bd + Md
Term
income effect
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
Term
risk Structure of Interest Rates
Definition
relationship among interest rates on bonds w different terms to maturity
Term
term structure of interest rates
Definition
relationship among interest reates on bonds w different terms to maturity
Term
Expectations Theory
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
Term
Segmented Markets Theory
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
Term
Liquidity Premium theory
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
Term
Preffered habitat theory
Definition
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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