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3 functions of money store of wealth, unit of account, medium of exchange
M1 currency + DD
M2 M1 + deposits up to 100,000
M3 M2 + deposits greater than 100,000
comptroller of the currency regulates national banks
Goals of monetary policy financial and economic stability
members on the board of governors 7
members of the fomc 12
fed funds rate rate banks charge each other
functions of the board of governors set monetary policy, regulate banks, approve rate changes and RR changes
equation of exchange m(v) = p(y) (py = gdp) relates nominal income to quantity of money and velocity
assets TR, ER, RR, loans, securities, Fed funds sold
liabilities fed funds bought, capital, DD, Fed borrowings
open market operations buying and selling bonds
transactions deposits DD
non transactions deposits passbook savings, CDs, money markets
non deposit borrowing borrowing from Fed or other banks
money multiplier thing m = (1+c)/(RR + e+ c) C = c/D e = ER/D
Financial intermediaries 1.Engage in process of indirect finance 2.More important source of finance than securities markets 3.Make profits by reducing transactions costs 4.Reduce transactions costs by developing expertise and taking advantage of economies of scale
equity market common stocks
money market short term
capital market long term
primary mkt new security issue sold to initial buyers
secondary mkt securities previously issued are bought and sold
exchanges nyse, location
over the counter mkt dealers in different locations buy & sell
adverse selection those who are most likely to engage in a transaction are also the most likely to produce a bad outcome
moral hazard people doing risky things with money they borrow
free rider problem those who don't get info can take advantage of the info gathered by others (inability to profit fully from info gathering)
transparency requiring firms to release info so investors can assess their true performance
regulatory forbearance allowing firms to inflate asset values in order to appear sound and give out loans to insolvent firms as if they'd be repaid
repurchase agreements short term borrowing which uses mortgage back securities as collateral
haircuts requiring larger amounts of collateral, more than the loan, due to concerns over a bank's balance sheet
shadow banking system hedge funds and investment banks, etc.
Ireland real estate bubble, gdp fell, unemployment 12.5%
japan regulatory forbearance, lost decade
law of one price an identical good in 2 countries (with low transportation and trade barriers) should have the same price
theory of purchasing power exchange rates between two countries will adjust to reflect changes in price level
depreciation and appreciation affected by monetary policy, political faith, supply and demand
inc in domestic price level or import demand decr in exchange rate
inc in export demand or productivity incr in exchange rate
inc in domestic interest rate incr in exchange rate
Created by: jbryant



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