money and banking
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| total resources owned by the individual including all assets. | wealth
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| a financial claim or piece of property that is a store of value | asset
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| the return on an asset expected over the next period | expected return
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| the degree of uncertainty associated with the return on a asset | risk
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| the relative ease and speed with which as asset can be converted into cash | liquidity
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| a curve depicting the relationship between quantity demanded and prive when all the other economic variables are held constant. | demand curve
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| a curve depicting quantity supplied and price when all other economic variables are held constant | supply curve
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| a situation in which quantity demanded is greater than quantity supplied | excess demand
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| quantity supplied is greater than quantity demanded | excess supply
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| amount that people are willing to buy (demand), equals the amount that people are willing to sell (supply) at a given price. | equilibrium
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| whether to buy and hold an asset or whether to buy one asse rather than another an individual bust consider the following factors -wealth -expected return -risk -liquidity | determinants of asset demand
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| when expected inflation rises, interest rates will rise | fisher effect
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| determines the equilibrium interest rate in terms of the supply of and demand for money | liquidity preference framework
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| two factors cause the demand curve for money to shift: income and the price level | shifts in the demand for money
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| an increase in the money supply engineered by the federal reserve will shift the supply curve of money to the right | shifts in the supply of money
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| when income is rising during a business cycle expansion, demand for money will rise. when income is rising during a business cycle expansion interest rates will rise | income changes
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| when the price level rises the value of money in terms of what it can purchase is lower. when the price level increases, with the supply of money and other economic variables held constant, interest rates will rise. | price level changes
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| moves the interest rate opposite to the income effect, price level effect and the expectations effect. | liquidity effect
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| occurs when the issuer of the bond is unable or unwilling to make interest payments when promised or pay off the face value when the bond matures | default risk
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| bonds with the same time to maturity have different interest rates. relationship among these interest rates. risk, liquidity and income tax rules all play a role in determining the risk structure | risk structure of interest rates
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| relationship among interest rates on bonds with different terms to maturity | term structure of interest rates
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| the spread between the interest rates on bonds with default risk and default-free bond, both of the same maturity | risk premium
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| a plot of the yields on bonds with differing terms to maturity but the same risk, liquidity, and tax considerations | yield curve
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| the interest rate on a long term bond will equal an average of the short term interest rates that people expect to occur over the life of the long term bond | expectations theory
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| markets for different maturity bonds as completely separate and segmented | segmented markets theory
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| states that the interest rate on a long term bond will equal an average of short term interest rates expected to occur over the life of the long term bond plus a liquidity premium that responds to supply and demand conditions for the bond | liquidity premium theory
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Created by:
gabrielm03
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