P4 UTA ECON NOTES

Econometricians

Practitioners who transform economic models for estimation.

Keynes - Circular Flow

Money flows among households, firms, and government.

Hayek - Pretense of Knowledge

Acknowledges the limits of knowledge in designing economies.

Functions of Money

Medium of exchange, unit of account, store of value.

Coincidence of Wants

Factors like wants, time, space, and scales for efficient trade.

Unit of Account

Measure of value for goods and services.

Store of Value

Money's ability to retain worth over time.

Legal Tender

Currency recognized by law for payments. (court will not recognize a payout has been made unless it is cash being offered)

Intrinsic Value

Value of a good beyond its use as money.

Goldsmith Fable

Describes the creation of money by banks. (began lending his own gold while it was claimed by others who used paper money instead of the gold sitting in the bank for ease)

Federal Reserve

Central bank overseeing monetary policy and financial stability.

Money Definition M1

Includes currency, checkable deposits, and travelers checks.

Money Definition M2

Includes M1 and near-monies like savings deposits.

Money Definition M3

Includes M2 and large time deposits.

Asymmetric Info/Moral Hazard

Concepts related to imbalances in information and risky behavior.

Primary/Secondary Functions of Money

Primary functions like medium of exchange, unit of account, and store of value.

Token Money

Currency with face value exceeding intrinsic value. ($100 isn’t actually worth $100 irl cause it’s a mixture of paper and cotton representing value)

Tools of the Federal Reserve

Reserve requirement, open market operations, discount rate.

Monetary vs Fiscal Policy

Central bank vs. government-controlled economic policies. (monetary central bank controls interest rates and money supply to promote economic activity)—(fiscal gov controlled is the changing of gov expenditures/taxes/revenues to promote economic growth, control inflation, full employment)

Federal Funds Rate

Rate for overnight bank loans targeted by the Federal Reserve. (the target is the rate at which commercial banks borrow and lend their excess reserves to each other overnight) used when banks borrow and lend funds in order to meet reserve requirements prescribed by the monetary authorities.

M1 money supply

The most liquid form of money supply, including physical currency and demand deposits.

M2 money supply

A broader measure of money supply than M1, including M1 plus savings deposits, money market securities, and other near-money substitutes.

Time deposits

Funds deposited with a financial institution for a specified period, commonly known as certificates of deposit (CDs).

Near-monies

Financial assets that are not in the official money supply but can be quickly converted into cash or used as a substitute for money.

unit of account

standard numerical monetary unit of measurement of the market value (ammo can be used as currency at a gunshow but not at a gas station.

store of value

is the product worth the same over time

medium of exchange

tradin in adopt me or minecraft… no common currency

money multiplier

the amount of money that the banking system can generate with each dollar of reserves.

discount rate

the minimum interest rate set by the fed reserve for lending to other banks (interest rate used to calculate the present value of future cash flows from a project or investment)

expansionary monetary policy

authorities expand the money supply and boost economic activity by keeping interest rates low to encourage borrowing b companies, individuals and banks. (economy faces a recession, lower target for federal funds rate, feds buys securities, expanded money supply, downward pressure on other interest rates)

Contractionary monetary policy

monetary measure to reduce gov spending or the rate of monetary expansion by a central bank (periods of rising inflation, increases federal funds rate, decrease money supply, increases other interest rates)

financial crisis of 2007 and 2008

GREAT RECESSION. troubled asset relief program (TARP)- allocated $700 billion to make emergency loans, credit default swaps bundle of home loans to lower risk of default, during conflict of interests in government; people wanted firms to be regulated but firms were already highly regulated, bailed out institutions to avoid failure, BIG MORAL HAZARD.

open market operation

buy/sell gov bonds

dual mandate

try to control the prices to keep inflation in check, try to promote low employment

fiat currency

gov-issued currency that is not backed by commodity such as gold, ONLY BACKED BY DEBT, gives central banks greater control over economy, they can control how much money is printed.

fractional reserve

system in which only a fraction of bank deposits are required to be available for withdrawal. Enables the fed reserve to use an open market purchase (sale) of gov bonds to generate an expansion/ contraction of deposits. (Makes depository institutions somewhat fragile)

depository institutions

financial institution whose main source of funds is deposits from customers. (a bank)

commodity money

a physical goof that may be valued for other uses it provides (main forms are gold and silver as they could also be used for jewelry thus it had value beyond its use as an exchange medium)

bitcoin mining

processing transactions rewarded with newly minted coins…computers can generate new bitcoins by doing work that validates transactions and keeps the network secure. miners is how new bitcoin is entered into circulation (application specific integrated surfaces need to mine, miners keep network alive, difficulty goes up and down, block discovered every 10 minutes, allows cashbase transfers on internet with low fees)