Macroeconomics For Managers Ch. 4

Front 1

Income

Back 1

what you earn from working plus what you receive in interest and dividends

Front 2

flow

Back 2

expressed in units of time: weekly income, monthly income, yearly income, etc

Front 3

Saving

Back 3

the part of after-tax income that you do not spend. It is also a flow

Front 4

Financial wealth (wealth)

Back 4

value of all financial assets minus all financial liabilities

Front 5

Investment

Back 5

economists reserve for the purchase of new capital goods: machines, plants, buildings
NOT same as financial investment

Front 6

Finanial investment

Back 6

purchase of shares or other financial assets

Front 7

money

Back 7

use for transactions and pays no interest

Front 8

bonds

Back 8

pay a positive interest rate, (i) but they cannot be used for transactions

Front 9

Level of Transaction

Back 9

the portion of financial wealth, not in bonds, kept on hand to handle desired transactions

Front 10

Interest rate on Bonds

Back 10

the portion of financial wealth used to collect interest/wealth. unable to use for transacction

Front 11

Money market mutual funds

Back 11

the funds of many people pool together. the unds are then used to buy bonds. pay interest ratesslightly below bonds do to administrative cost

Front 12

Demand for Money

Back 12

-demand for checkable deposits and currency
-the sum of all the individual demands for money by the people in the economy.
-it depends on the overall level of transaction in the economy and on the interest rate
-level of transactions in a economy is proportional to nominal GDP

Front 13

Money Supply

Back 13

-supplied by the centeral bank
-equal to eh modey demanded

Front 14

LM relation

Back 14

"LM"= Liquidity Money

Front 15

Open market Operation

Back 15

a way the central banks changes the supply of money is by buying or selling bonds in the bond market. increase money supply by buying bonds by creating money. decrease- vise versa

Front 16

Expansionary Open Market Operation

Back 16

increase money supply by buying bonds by creating money.

Front 17

Contractionary Open Market Operation

Back 17

decrease money supply it sells bonds and it removes money from circulation

Front 18

Treasury bills/t-bills

Back 18

bonds issued by the government promising payment in a year or less

Front 19

determining bond intrest rate

Back 19

bond term-end payment minus bond price all over bond price. gives interest rate

Front 20

Financial Intermediaries

Back 20

institutions that receive funds from people and firms and use these funds to buy bonds or stocks or to make loans ot other people and firms

Front 21

Reserves

Back 21

1.inflow & outflow of cash is unequal need some on hand
2.transfering funds to other banks
3.federal reserve requirement its about 10%

Front 22

Reserve Ratio

Back 22

the ratio of bank reserves to bank chackable deposits is about 10% in US. other 90% used to make loans or buy bonds

Front 23

Central Bank Money

Back 23

liabilites of the central bank are the money it issues

Front 24

federal deposit insurance

Back 24

government insures each bank account up to $100,000, to help prevent bank runs

Front 25

Bank Runs

Back 25

fear that a a bank will close, so depositors withdraw money from their banks

Front 26

Narrow Banking

Back 26

restrict banks to holding liquid and safe government bonds. loans would have to be madewith other financial intermediaries.

Front 27

$Y

Back 27

Nominal GDP

Front 28

L(i)

Back 28

intrest function

Front 29

M^d

Back 29

money demand

Front 30

M^d=$YL(i)

Back 30

Demand for money equals nominal incom times a function of the interest rate. intrest rate having a negative effect on money demand

Front 31

M^s

Back 31

money supply

Front 32

M^s=M^d

Back 32

-for equalibrium the two must be equal
-money supply equals money supplied

Front 33

i

Back 33

intrest rate

Front 34

i=[$(amount)-$P^b]/$P^b

Back 34

intrest rate on bonds

Front 35

$P^b

Back 35

price of a bond today

Front 36

central bank balance sheet

Back 36

assets= Bonds
Liabilities=money(currency)

Front 37

CU^d=cM^d

Back 37

demand for currency equals currency on hand times money demanded
-used when decide how much money to hold in currency

Front 38

CU^d

Back 38

demand for currency

Front 39

c

Back 39

-called Proportion c: gives currency held by person as a ratio

Front 40

D^d=(1-c)M^d

Back 40

demand for checkable deposits equals checkable deposits times money demanded
-used to decide how much money to hold in chckable deposits

Front 41

D^d

Back 41

demand for checkable deposits

Front 42

(1-c)

Back 42

proportion of checkable deposites figured by subtracting the ratio of c (currency) from total whole (1)

Front 43

R^d=θ(1-c)M^d

Back 43

demand for reserves by banks equals the reserve ratio of checkable deposites by money demanded

Front 44

R^d

Back 44

Demand for reserves by banks

Front 45

θ

Back 45

Reserve ratio: the amount the reserve bank holds per dollar of chackable deposits

Front 46

R=θD

Back 46

demand for reserves equals ther reserve ratio times the dollar anout of checkable deposits

Front 47

D

Back 47

dollar amount of checkable deposits

Front 48

H^d

Back 48

demand for central bank money

Front 49

H^d=CU^d + R^d

Back 49

demand for central bank money equals the sum of the demand for currency and the demand for reserves.