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42 Cards in this Set

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Economic Growth
Increases in skills and knowledge of the work force, as and or increases in quantity or quality of physical capital
Interest Rate
Price, calculated as a percentage of the amount borrowed, charged by lenders to borrowers for the use of their savings for one year
Savings-investment spending identity
Savings and investment spending are always equal for the economy as a whole
Budget Surplus
The difference between tax revenue and government spending when tax revenue exceeds government spending
National Savings
Equal to the sum of private savings and the budget balance
Private Savings
Disposable income minus consumptions.
Capital Inflows
The net flow of funds into a country.
Financial assets
Financial markets are where households invest their current savings and their accumulated savings, or wealth, by purchasing financial assets.

It is also a paper claim that entitles the buyer to future income from the seller.
Physical asset
A claim on a tangible object, such as a preexisting house or a preexisting piece of equipment.
Liability
Requirement to pay money in the future.
Types of financial assets
Loans
Stocks
Bonds
Bank Deposits
Tasks of a Financial System
Transaction Costs
Reducing Risk
Providing Liquidity
Transaction Costs
The expenses of actually putting together and executing a deal.
Bonds
Allows companies to borrow large sums of money without incurring large transaction costs.
Reducing Risk
Uncertainty about future outcomes that involve financial losses and gains. Can be done through diversification
Types of financial assets
Loans
Stocks
Bonds
Bank Deposits
Tasks of a Financial System
Transaction Costs
Reducing Risk
Providing Liquidity
Transaction Costs
The expenses of actually putting together and executing a deal.
Bonds
Allows companies to borrow large sums of money without incurring large transaction costs.
Reducing Risk
Uncertainty about future outcomes that involve financial losses and gains. Can be done through diversification
Loan Backed Securities
Assets created by pooling individual loans and selling shares in that pool
Financial intermediary
An institution that transforms funds gathered from many individuals into financial assets
Mutual Fund
A financial intermediary that creates a stock portfolio buy buying and selling shares of the stock portfolio to individual investors
Money
Money is any asset that can easily be used to purchase foods and services
Currency in circulation
The cash held by the public
Money Supply
The total value of financial assets in the economy that are considered money
Medium of exchange
An asset that individuals use to trade for goods and services rather than for consumption
Store of value
A means of holding purchasing power over time
Unit of Account
A measure used to set prices and makes economic calculations
Commodity Money
A good used as a medium of exchange that has intrinsic value in other uses
Fiat Money
A medium of exchange whose value derives entirely from its official status as a means of payment
Bank Reserves
Currency held in bank vaults or bank deposits held at the federal reserve
Reserve Ratio
The fraction of bank deposits that a bank holds as reserves
Excess reserves
A banks reserves over and above its required reserves
Monetary Base
The sum of currency in circulation and bank reserves
Federal Reserve
A central bank that decides how much money individual banks must reserve, and how large the monetary base will be.

Over sees and regulates the banking system and controls the monetary base.
Commercial bank
Accepts deposits and is covered by deposit insurance
Investment Bank
Trades in financial assets and is not covered by deposit insurance
Four function of the federal reserve
Provide Financial Services
Supervise and regulate banking institutions
Maintain the stability of the financial system
Conduct Monetary Policy
Shifts in the Money Demand Curve
Changes in the Aggregate Price Level
Changes in Real GDP
Changes in Technology
Loanable funds Market
A hypothetical market that illustrates the market outcome of the demand for funds generated by borrower and the supply of funds provided by lenders
Real interest rate
Nominal interest rate-Inflation Rate