24270262
Description
Flashcards by Sophia Lynch, updated more than 1 year ago
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Created by Sophia Lynch
over 4 years ago
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| Question | Answer |
| What are 'nominal interest rates'? | The ordinary interest rates on money. |
| In this formula what does P, r and n stand for? | P = principle r = interest rate n = no of times compounded per year |
| What does a positive yield curve mean for investors? | They expect strong future economic growth and higher future inflation hence resulting in higher interest rates. |
| What does a negative yield curve mean for investors? | They expect sluggish economic growth and lower inflation and hence lower interest rates. |
| What does a flat yield curve mean for investors? | They are unsure about economic growth and inflation. |
| What is a 'yield curve'? | A curve showing several yields or interest rates across different contract maturity lengths for a similar debt contract. |
| What is the difference between 'commodity money' and 'fiat money'? | Commodity Money = The value of the good serves as the value of the money e.g. gold coin Fiat Money = The good is less than the value of money e.g. paper note |
| What do the M1, M2 and M3 stages of money represent? | M1 is most liquid = cash and checking deposits M2 is less liquid = above + saving deposits and other forms of deposits M3 is least liquid = large time deposits, institutional money market funds and larger liquid assets |
| The nominal interest rate is determined by... | The equilibrium of the money supply (MS) and the money demand (MD) |
| Why is MS vertical? | Because it is INDEPENDENT of the interest rate. |
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