when listing in answer use commas instead of "and" // not included: fisher effect // NO OWNER EQUITY ON TEST
private savings
the total sum of domestic savings by households
disposable income * MPS
formula for private savings
tax revenue - government expenditures - transfer payments
formula for public savings (budget balance)
budget defict
when government expenditures and transfers exceeds tax revenues - gov needs to issue bonds to borrow in order to pay for a portion of its spending - budget balance is negative
budget surplus
when tax revenues exceed government expenditures and transfers allowing the government can lower its long-term debt - budget balance is positive
balanced budget
when tax revenues equal government expenditures exactly
government debt
the sum of the budget balances over the years
foreign capital inflow - domestic fund outflow
formula for net capital inflow
foreign capital inflow
when a foreigner saves in theĀ US via treasury bonds, stocks, etc
domestic funds outflow
when a domestic household saves in a foreign market via stocks, government bonds, etc.
investment, government
a nations total level of savings = _______ spending for ______
private savings + budget balance + net capital inflows
national savings formula
interest rate
the price of a loan stated as a percent of the principal (the amount borrowed)
credit risk
how likely the borrower (in a loan) is to default
default
to not pay back a loan
expected inflation
the higher inflation is expected to be, the higher the interest rate
nominal interest rate
interest rate paid on a loan
real interest rate
nominal interest rate adjusted to account for changing price levels
nominal interest rate - inflation rate
formula for real interest rate
inflation, raises
borrowers like _______ because it _____the real interest rate
deflation, lowers
lenders like _____ because it ______ real rate of interest, giving more power to the dollar
loanable funds market
a hypothetical market that brings together those who want to lend money and those who want to borrow
changes in perceived business opportunities, changes in government borrowing
shifters of demand for loanable funds (2)
savers
______ supply loanable funds to earn interest (like a higher interest rate)
changes in private savings behavior, changes in capital inflows
shifters of supply of loanable funds
households, foreigners
who supplies funds?
firms, government
who demands funds?
banks
a financial institution that accepts deposits and makes loans; also known as depository institutions and commercial banks
fractional reserve system
a system in which only a fraction of bank deposits are backed by actual cash on hand and available for withdrawal
federal reserve
our nationās central bank - regulates commercial banks by distributing loans and receiving deposits and selling/purchasing treasury bonds
required reserve ratio
a minimum percentage of all deposits that banks must keep on hand to meet their depositorās demands
monetary policy
tool the Fed uses to control the money supply of the US to either reduce the price level in an inflationary period or increase employment in a recessionary period
T-account
a method for analyzing a businessā assets and liabilities
assets
a future economic payment (money promised to the bank in the future)
liability
a future economic obligation (money the bank must pay out in the future)
equal
assets must _____ liabilities
deposits
money that customers put into their bank account
required reserves
a percentage/portion of customer deposits that banks are legally obligated to keep on hand by the Fed
excess reserves
reserves that are above the required reserve ratio that a bank can lend out or use to purchase treasury bonds
treasury bond
government bonds with a term under a year - these can be purchased by banks using excess reserves to earn interest from the Fed
owner equity
money (profit) owed to the owners of the bank (shareholders) - if bank collects interest when loans are repaid, that interest is added to this and excess reserves
money supply
total amount of money in circulation or in existence in a country
M1
the broadest definition of money supply (money that includes all currency) cash, coins, deposits in checking accounts, and travelers checks
the Fed
the sole controller of the American money supply
cash, new money
when you put ______ into a checking account you can create ____ _______ and increase M1
1/reserve requirement
money multiplier formula
cash, flexible
when interest rate is lower, people are more likely to hold their wealth as _____ because it is more ______
theory of liquidity preference
theory that states that equilibrium interest rate determined by the supply and demand of money
aggregate price level, RGDP, income, technology, institutions
shifters of money demand (change inā¦ā 5)
federal reserve, monetary policy
shifters of money supply (2)
President
the Board of Governors and Chairperson in the Federal Reserve are chosen by the _________
full employment, price stability
what is the dual mandate for the federal reserve board of governors ?
federal funds rate
rate at which commercial banks lend to each other but affects all other interest rate
unemployment
in expansionary monetary policy, the Fed is targeting ___________
inflation
in contractionary monetary policy, the Fed is targeting __________
open market operations
when the Fed buys or sells T-Bills to its' member commercial banks
open market purchase
Fed is buying T-Bill from a commercial bank
discount rate
the interest rate set by the Federal Reserve for lending to other banks
discount rate, interest on reserves, required reserve ratio
other monetary tools the Fed can use (3)
liquidity trap
Ā a scenario in which the central bank adds money into the market with the goal of stimulating the economy, but fails to lower the interest rates because the interest rate is already reaching or is zero
interest on reserves
Ā when commercial banks can deposit reserves ($) in the Fed and earn interest