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18 Cards in this Set
- Front
- Back
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the price of stock divided by earnings per share; high means evidence for bubbles |
price earnings ratio |
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limits on the amount that people can borrow to buy stock |
margin requirements |
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requirements to shut down trading temporarily if prices fall sharply |
circuit breakers |
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the interest rate that makes the present value of the bond's payments equal to its price |
yield to maturity |
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the increase in wealth that comes from a price increase |
capital gain |
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(P1 - P0 ) + X where x is a direct payment |
return |
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[(P1 - P0 ) + X ] / P0 |
rate of return |
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the relationships among interest rates on bonds with different maturities |
term structure of interest rates |
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three events in the financial system with crisis |
asset price decline, insolvencies, liquidity crisis |
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sharp decrease in bank lending because lower prices decrease borrowers' collateral which is required to overcome adverse selection and moral hazard in loan markets |
credit crunch |
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progression of great depression |
stock market crash --> uncertainty --> bank failures -- >credit crunch ----> falling aggregate demand (all the while we had a sharp fall in money supply) |
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important distinction about bailouts |
some are giving away money, others are loans or asset purchases that even profit taxpayers |
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loan from the FEd to a bank often during liquidity crises |
discount loan |
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two costs from government giveaways |
direct payments from taxpayers to bank and moral hazard |
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purchases of stock by the government |
equity injections |
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also known as a liquidity trap; happens because no one will lend at negative interest rates |
zero-bound problem |
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sharp increase in net capital outflow that occurs when asset holders lose confidence in an economy |
capital flight |
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process of capital flight spreading from one country to another |
contagion |
