ECON 311 1nd Edition Lecture 1 Outline of Last Lecture NoneOutline of Current Lecture I. Economics of Financial MarketsII. Monetary Theory and PolicyCurrent LectureI. Economics of Financial MarketsFinancial System - channels funds from entities with a surplus of funds to people with a deficit of fundsParts of the Financial System:1. Financial Markets2. Financial IntermediariesFinancial Markets (Direct Finance)- Stock Markets – ownership of company- Bond Markets – loan from company- Foreign Exchange Markets – countries currency is exchangedFinancial Intermediaries (Indirect Finance)- Banks- Etc.II. Monetary Theory and PolicyPre-Crisis World:If Federal Reserve (Fed) wants to stimulate the economy:1. Open market purchase (buying bonds)2. Federal Funds rate goes down3. Interest rates go downThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.4. Investment spending increases5. GDP goes upPost-Crisis World:Federal Reserve tries to take money out of the financial system using Reverse RepoFederal Reserve Security Dealers Security Dealers BankAssets Liabilities Assets Liabilities Assets Liabilities+ReverseRepo+ReverseRepo-ReverseRepo-Deposits-Reserves
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