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Business Economic's > WEEK 17 > Flashcards

WEEK 17 Flashcards

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1
Q

economic growth

A

increase their GDP in order to underant their

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1
Q

circle flow of income

A

all countires and nations they try to improve their quality life by increasing economic growth

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2
Q

household provides

A

labour, fund lan factory in order to produce the good

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2
Q

aggregate demand will

A

push the economy to produce more, so it’s going to push the economy to produce higher GDP, which will improve the quality

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2
Q

for a business to produce difff good and services, they need factor of production the

A

The household provides that production

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3
Q

circular flow of income

A

household and business

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4
Q

the income recieved from their business in order to buy goods and services is called

A

aggregate demand because the business notices there is high demand for their product, hire new people to produce extra goods etc

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4
Q

in exchange the household will recieve the price of offering this factor of production like

A

wages for their work or interest rate for the money they lend to the factory, profit, if they are shareholders they can receive rent

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5
Q

the financial syustem allows us to

A

aplify the income beyond the nominal value received by the household

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6
Q

what can we can we classify as money

A

money is basically coins and notes in ourbank more than cash mainly deposits

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7
Q

medium of exchange

A

should be lighweight, idfficult to repplicate simplifies trade vs barter system

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8
Q

money or fund is

A

one of the economic resources and they are scarce in order to use them effectively banks helps us

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8
Q

standard of deferred payment

A

agrees furture payments i monetary terms

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8
Q

most transcations are electronic like

A

cards, cheques and apps not cash

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9
Q

mean of evaluation

A

enables price comaprisons and adds up value (GDP) gross domestic product

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9
Q

what should cound as money

A

narrow = coin that we havein pocket and broad definition

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10
Q

another function of money is store of wealth

A

allows saving for future

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11
Q

liqyidity

A

ability to convers assets to cash easily cash is most liquid

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11
Q

bank is a releavnt part of the financial constitution

A

banks usally in an economy have the biggest portion of the business model in depositing they g8ve also advice for investment and finance

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12
Q

PROFITABILITY

A

banks profit by lending a higher raates than they pay on deposits lend as much money as they can but still need to meet requirements of their liquidity so if someone comes to get money they can

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13
Q

liquidity ratio

A

proportion of liquid assets to total assets must be optimized to avoid crisis or low profit 2008 crisis banks increased their liquidity due to fears of bad debt

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13
Q

banks’ balance between them

A

profitable but liquid assets (loadns and mortgages) and liquid but less profitable assets (cash or short term loans)

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14
Q

the BASEL 3rd itroduced Liquidity Coverage Ration to

A

ensure banks hold enough high quality liquid assets to cover 30 days cash outflows increasing from 60 to 100% by 2022

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15
Q

the liquidity ration refers to

A

ratio of liquid assets to total liabilities

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16
the central bank
overseen the monetary stsemt and maianitn stabbility like bank of england in 1997 or Fed or ECB al independent central banks and act as the government banker and implement monetary policies
17
bank of england key functions
issues banknotes
18
Now, what is the government's revenue? manages exchequer and the national loand fund
The government's revenue is taxes they use to build schools, hospitals, roads and other public services. they control open market operations
18
To banks, it holds reserve balances and helps manage liquidity, and to overseas central banks, it holds sterling deposits to meet shock liquidity requests
It operates monetary policies via interest rate setting, by the MPC open market operations(buying/selling securities to manage liquidity) Quantitative easing QE to inject money into the financial system
19
what is open market operation
they increase the supply to decrease the interest rate and vice versa
20
bank rate is the base like and they need to pay
an interest rate above that and how much depends on the quality of the collateral the bank uses
21
providees liquidity to banks: index long term repos
once a month the banks have an opportunity to borrow a liquidity up to six months and since the central bank lends this money they announce a base rate that they are obligated to pay
22
so high collateral quality means
less the extra intrests rate they need to pay above the bank rate
22
borrowing is relevant to the
quality of the collateral that the bank used for this borrowing
23
discount window facility
Specifically, this is mostly used for short period of time where you know the the central bank is itself or by some government bond, you know, depends on the situation for 30 days.
24
contingent term repo facility for emergencies
all need collateral and all are the interest rate
25
overseas financial institutions after 2013; FPC, PRA,FCA
FPC - macro prudentail regulations PRA - prudential regulations of firms FCA -consumer protection and market regulation Manages exchange rate policy via foreign exchange reserves - so they interfere from time to time to control the currency exchange
26
broad money
time and sight deposits, retail and wholesale deposits, bank and building society deposits, in UK M4 in EU/USA its M3
26
money supply must be measured to be controlled or monitored
monetary base(narrow money) - notes and coins in the circulation
27
CREDIT CREATION
banks can expand money supply by decreasing deposits through lending, generating more money supply than this level of deposit
28
bank mulitplier
initila deposit leads to a ten time more increase in the money supply
29
multiplier formula
1/ liquidity (1/0.1=10) with 10% liquidity the multiplier is 10 x10=100 it illustrates cumulative causation - a small initial event causes a much larger final effect,t measures how many time greater the final deposits are compared to the initial
30
if an extra 100 m is depostied in the banking system and the bank multiplier is 5 by how much will credit expand
100x5=500 500-100= 400 extra
31
what affect the credit creation:
variable liquidity ratios; baks may raise or lowe ratios based on risk or opportunity demand side factors- banks may offer loans at lower interest but customers may not want to borrow, leading to a loss their profitability. Lowering interest rates may deter depositors no fixed liquidity ratios- banks hold various liquid assets, making the true liquidity ratio hard to define
32
Global Financial Crisis 2008
banks hoarded(stored) cash due to sub-prime fears
33
leakages from the banking systems
public may withdraw cash, reducing deposit based credit creation
34
money mulitplier vs bank deposits multiplier
monye multiplier = change in Money supplied / change in Mb (deposit) reflects real world cash leakage and broader credit creation all the time we assume the lending money is going to be same as the new deposit money.
35
5 key causes why money supply rise
central bank actions- quantitative easing increases the monetary base, may not always translate into more lending Inflow of funds from abroad- increase bank deposits boosts credits creation public sector deficit- if funded by banks it increases the money supply if its funded by public (themselves) no change in the money supply lower bank liquidity ratios - increasing surplus liquidity and loan creation, seen in trends like increases use of cards and interbank lending pre2008 less chas help by public - more deposits = more credit can be created by the banks
36
which will not cause a rise in money suupky
central bank imposes a liquidity ratio on banks(above the current ratio)
37
what wil cause a rise in money supply
an icnrease in govemernt spending finnces by borrowing from the bank increase in proportion of national debt financed b bils rather than bond government financed budget defaul by selling securities to central ba
38
classical theory -
money supply is exogeneous aka comes from outisde there's no relationship between that and interest rate (set by central bank) and independed of interest rate
39
money demand
means holding wealth a money instead of spending it or investing it
40
3 motives for money demand
transaction motive: to conduct daily purchases and payments precaution motive - for unexpected expenses or payment delays speculative asset (motive) - to avoid risk from volatile (change quickly) assets like money is safer but less rewarding
41
national income
higher incom e= more spending = higher money demand
42
payment frequency -
less frequent pay= higher money balances needed
43
financial innovation
credit/debit cards, ATM's and interest bearing account influence money demand
44
expectations about future returns or exchange rates
fear of assets price falls or exchane rate movements increases money demand
45
interest rate-
higher interest = lower money demand (highre opportunity cost of holding money)
46
increase in money supply (D for foreguh assets increased ) this will decrease interest rateand exchange rate and increase exports and decrease imports
investemt increase saving decrese and aggregate demand increase leading to higher prices and GDP
47
increased or decreased interest rate
people are less or more likely to borrow
48

Business Economic's (19 decks)

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