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Money and Banking Chapter 1 Notes

by: Sarah Quinn

Money and Banking Chapter 1 Notes ECON 3303

Marketplace > University of Texas at Arlington > Economcs > ECON 3303 > Money and Banking Chapter 1 Notes
Sarah Quinn
GPA 3.25
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About this Document

These notes cover chapter 1 from the book.
Money and Banking
Don Blackburn
Class Notes
Econ, Money, Banking




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This 2 page Class Notes was uploaded by Sarah Quinn on Thursday February 4, 2016. The Class Notes belongs to ECON 3303 at University of Texas at Arlington taught by Don Blackburn in Spring 2016. Since its upload, it has received 55 views. For similar materials see Money and Banking in Economcs at University of Texas at Arlington.


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Date Created: 02/04/16
Interest rate is basically cost to rent the money. Preferred stock gives preferred share to receive  dividends. Asymmetric information: knowing more information than the buyer.  Chapter 1: Why Study Money, Banking and Financial Markets? Why Study Financial Markets? Financial markets: markets in which funds are transferred from people who have an excess of  available funds to people who have a shortage. The Bond Market and Interest Rates­  Security/financial instrument: a claim on the issuer’s future income or assets. Assets: any  financial claim or piece of property that is subject to ownership. Bond: a debt security that  promises to make periodic payments for a specific period of time. Enables corporations and govs to borrow money to finance their activities. Also is where interest rates are determined. Interest  rate: the cost of borrowing or the price paid for the rental of funds. The Stock Market: Common  stock/stock: a share of ownership in a corporation. Security that is a claim on the earnings and  assets of the corporation. Price of shares affects amount of funds that can be raised by selling  newly issued stock to finance investment spending.  Why Study Financial Institutions and Banking? Structure of the Financial System­ Many different types of private sector financial institutions,  including banks, insurance companies, mutual funds, finance companies, and investment banks.  Financial intermediaries: institutions that borrow funds from people who have saved and in turn  make loans to people who need funds. Banks and Other Financial Institutions­ Banks: financial  institutions that accept deposits and make loans. Includes commercial banks, savings and loan  associations, mutual savings banks, and credit unions. Financial Innovation­ Financial  innovation: the development of new financial products and services. E­finance: financial services delivered electronically. Financial Crises­ Financial crises: major disruptions in financial markets that are characterized by sharp declines in asset prices and the failures of many financial and  nonfinancial firms.  Why Study Money and Monetary Policy? Money/money supply: anything that is generally accepted as payment for goods or services or in  the repayment of debts. Money and Business Cycles­ Aggregate output: total production of  goods and services. Unemployment rate: the percentage of the available labor force unemployed. Business cycles: the upward and downward movement of aggregate output produced in the  economy. Recession: periods of declining aggregate output. Monetary theory: the theory that  relates the quantity of money and monetary policy to changes in aggregate economic activity and inflation. Money and Inflation­ Aggregate price level: the average price of goods and services in  the economy. Inflation: a continual increase in the price level. Affects individuals, businesses,  and the government. Inflation rate: the rate of change of the price level. Money and Interest  Rates­ Conduct of Monetary Policy­ Monetary policy: the management of money and interest  rates. Central bank: org responsible for the conduct of a nation's monetary policy. US central  bank is Federal Reserve System (the Fed). Can affect quantity of money and interest rates in the  economy. Fiscal Policy and Monetary Policy­ Fiscal policy: decisions about government  spending and taxation. Budget deficit: an excess of government expenditures with respect to tax  revenues for a particular time period. Budget surplus: when a tax revenues exceed government  expenditures. Gross domestic product GDP: a measure of aggregate output.  Why Study International Finance? The Foreign Exchange Market­ Foreign exchange market: where the conversion of money takes  place. Foreign exchange rate: the price of one country's currency in terms of another's.


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