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LOCAL BONDS: Also called municipal bonds, these are medium or long-term financial instruments issued by municipalities to borrow the funds used to build schools, highways, parks and other public projects. An attractive feature of these financial instruments is that are exempt from federal income tax. Commercial banks, corporations, and others with large sums of funds to lend usually purchase these bonds.
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Lesson 18: Banking | Unit 4: Regulating Banks
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Page: 18 of 24
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Banking is a heavily regulated industry. Reasons: - First: Banks have the temptation to go for large profits at the expense of protecting deposits.
- Second: The economy's health rests with having the 'correct' money supply.
The problems: - Banks get carried away seeking profits without having enough deposit-protecting reserves.
- Customers can't withdraw deposits and lose trust.
- Banks shut down, remaining bank deposits become worthless, and the money supply shrinks.
- The economy heads into a recession.
Important points: - A failed bank is bad for the economy.
- Government can control the checking account part of money only by controlling and regulating banks.
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KEYNESIAN MODEL A macroeconomic model based on the principles of Keynesian economics that is used to identify the equilibrium level of, and analyze disruptions to, aggregate production and income. This model identifies equilibrium aggregate production and income as the intersection of the aggregate expenditures line and the 45-degree line. The Keynesian model comes in three basic variations designated by the number of macroeconomic sectors included--two-sector, three-sector, and four sector. The Keynesian model is also commonly presented in the form of injections and leakages in addition to the standard aggregate expenditures format. This model is used to analyze several important topics and issues, including multipliers, business cycles, fiscal policy, and monetary policy.
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YELLOW CHIPPEROON
[What's This?]
Today, you are likely to spend a great deal of time at a going out of business sale looking to buy either a New York Yankees baseball cap or several magazines on home repairs. Be on the lookout for gnomes hiding in cypress trees.
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This isn't me! What am I?
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The 22.6% decline in stock prices on October 19, 1987 was larger than the infamous 12.8% decline on October 29, 1929.
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"Courage is the ladder on which all the other virtues mount." -- Claire Boothe Luce, diplomat, writer
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WTO
World Trade Organization
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