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Just some useful notes for the AP Macro... (WIP)
(4.1) What are financial assets?
Financial assets are written claims where buyers have the right to future incomes from sellers. i.e., loans, bonds, land, homes, cars, etc. Also have different levels of liquidity (how easily they can be turned into cash)
(4.1) Properties of a loan
Loans are both an asset and a liability and are critical to the growth of the aggregate economy.
(4.1) Opportunity cost of holding money?
The opportunity cost of holding money is the interest that money could be earning in an interest-bearing asset, like a bond.
(4.1) What is the relationship between bond prices and interest rates?
There is an inverse relationship between bond prices and interest rates. i.e., Interest Rates↓ means Demand↑ which means Price↑ and vice versa
(4.2) Fisher Equation?
NIR = RIR + Inflation
(4.2) Nominal interest rates vs real interest rates?
Nominal interest rates are charged by banks on loans, but are not adjusted for inflation.
Real interest rates are the real rate of return on investments and loans, and they are adjusted for inflation.
(4.2) Expected vs Actual Inflation
Expected inflation is what banks use to set a nominal interest rate for terms of a customer loan and savings vehicles; Actual inflation is calculated after the loan term is over.
