Unit 4: Bonds vs Stocks

3/22/17

• Bonds are loans or IOU'S that the debt of the government or a corporation must repay to an investor. Te bond holder has no ownership
• How are the values of a bond determined? 
• If a corporation issues and then sell a bond is a liability or  an asset? Liability
• However it would be an asset for the buyer 

1. Dividends (interest)- portions of corporations profits, they are paid out by the stock holder
2. A capital gain is earned when a stockholder sells stock for more than he or she has paid for it 

- A stockholder that sells stocks at a lower price than the purchase suffers a capital loss
3/23/17

• Demand for money has an inverse relationship between nominal interest rates and the quantity of the money demanded

1. What happens to quantity demanded of money when interest rate increases? Quantity demanded falls because people want lower interest rates
2. What happens to the quantity demanded when interest rates decrease? Quantity demanded increase

• Determinants for demand for money to shift (rarely shift)

- Change in price level
- Change in income
- Change in taxation that affects investments
increasing in money supply=decrease interest rate=increase in investments=increase AD

• How do banks make money?

-Fractional reserve system- Process in which banks hold a small portion of their deposits
-Demand deposits are created through the fractional reserve system
-Banks keep cash on hand (required reserve) to meet depositors needs
-Total reserve -(total fund held by a bank)= required reserves+ excess reserves
- Banks can only lend out their excess reserves

https://www.youtube.com/watch?v=-oSz4ckdxqQ