Financial Assets
These long-term debt instruments, issued by governments or corporations, pay interest periodically and return the principal at maturity.
What are bonds?
This is the interest rate before adjustment for inflation.
What is the nominal interest rate?
This is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts in a specific country or socio-economic context.
What is money?
This type of institution often participates in the money market by buying and selling Treasury bills to manage liquidity.
What are banks?
These entities primarily drive the demand for loanable funds as they borrow to invest in new projects, capital, and expansion.
What are businesses (or firms)?
This financial market allows investors to buy and sell short-term debt instruments, typically with maturities of less than one year.
What is the money market?
This is the interest rate after adjusting for inflation, reflecting the true cost of borrowing and the true yield to lenders.
What is the real interest rate?
One of the primary functions of money, this allows money to be a standard measure used to set the value of goods and services.
What is the unit of account?
This is the interest rate at which banks lend reserves to each other overnight and is a key benchmark for other interest rates.
What is the federal funds rate?
This economic behavior increases the supply of loanable funds when individuals and institutions set aside money for future use rather than spending it.
What is saving?
This term describes the portion of a company's equity that is traded on stock exchanges, giving shareholders ownership rights and potential dividends.
What are shares/stocks?
According to this equation, the nominal interest rate is approximately equal to the real interest rate plus this economic factor.
What is the inflation rate?
This measure of the money supply includes currency in circulation and demand deposits but not savings accounts or time deposits.
What is M1?
These funds invest in short-term, high-quality investments issued by government and corporate entities, providing liquidity to the money market.
What are money market mutual funds?
When this economic policy is implemented, it can decrease the supply of loanable funds by reducing government saving or increasing borrowing.
What is expansionary fiscal policy?
These are assets that central banks buy or sell to influence the supply of money and interest rates in the economy.
What are open market operations?
When this economic phenomenon increases, the real interest rate decreases if the nominal interest rate remains constant.
What is inflation?
This function of money allows it to maintain its value over time and be used to save purchasing power for the future.
What is a store of value?
This characteristic of money market instruments reflects their ability to be quickly and easily converted into cash with little loss of value.
What is liquidity?
This is achieved in the loanable funds market when the quantity of funds saved equals the quantity of funds borrowed at a certain interest rate.
What is market equilibrium?
This type of financial asset represents a claim on a foreign currency and can be used for international trade and investment.
What are foreign exchange reserves?
To calculate this, you subtract the inflation rate from the nominal return on an investment.
What is the real return?
This broader measure of the money supply includes M1 plus savings accounts, money market mutual funds, and other near-monies.
What is M2?
This is a short-term loan facility provided by banks to their customers, often used to cover temporary cash shortages.
What is a line of credit?
These entities are major borrowers in the loanable funds market, using funds to finance projects like infrastructure, education, and defense.
What are governments?