Key terms money and banking

M1

currency and deposits

monetary base

currency and reserves

M1 money multiplier

M1/monetary base

Gordan Growth model

P0 = D1/(ke - g)

ke

required return on equity or discount rate

g

constant dividend growth rate

when loans go up by 1000 what happens to checking deposits if the people don’t hold loans as currency

they go up by 1000

if deposits go up by 500 what happens to reserves

they go up by 500

what does TIPS stand for

Treasury inflation backed securities

what does CPI stand for

Consumer price index

what is CPI associated with

inflation

CD

Certificate of deposite

who issues cds

banks

who issues bonds

government or other corporations

what is Counterparty Risk

The risk that the other side of financial contract won’t be able to fulfill their end of the bargain

what are countercyclical capital requirements

banks should hold more capital during booms and less during crunch’s

Glass-Stegall act

required separation of commercial and investment banking

what is face value also called par value

amount at time paid back at time of maturity