Banking game 2 borrowers 1 bank closed economy

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Banking game 2 borrowers 1 bank closed economy

  1. 1. You don’t have to write this down Assume, your friend wants to borrow $50 from you. What would be at least 4 questions you would ask them before you gave them the loan?
  2. 2. Today we will learn about… The loanable funds market!! Ch: 29
  3. 3. EQUILIBRIUM IN THE LOANABLE FUNDS MARKET Interest Rate Supply Who? Nom. i Who? Demand Q* Quantity of Loanable Funds
  4. 4. Demanders in loanable funds mkt • Consumer borrowers • Institutional borrowers: • Governmental borrowers:
  5. 5. Credit worthiness • Lenders look at a borrower’s credit rating • • • • Consumer credit report 3 private companies, Experian, Equifax, Transunion https://www.annualcreditreport.com Institutions & governments also have credit reports • Moody’s, S & P, etc
  6. 6. Suppliers in loanable funds mkt • Consumer savers • Institutional savers: • Governmental borrowers • Foreign governments • Federal Reserve and other central banks
  7. 7. On a consumer credit report • • • • • Character Capacity Collateral Capital Conditions • YOUR PERMANENT RECORD!
  8. 8. Repayment calculator • http://www.thecalculatorsite.com/finance/cal culators/mortgagecalculator.php
  9. 9. A homeowner What they own: Asset What they owe: Liability “T chart”
  10. 10. A little accounting 2012
  11. 11. Accounting vocabulary • Balance sheet • A financial statement that summarizes a company's net worth. • The balance sheet must follow the following formula: • Assets = Liabilities + Shareholders' Equity
  12. 12. Accounting vocabulary • Assets • value of capital goods and cash owned by the company • BANKING WORLD: ??? • Liabilities • Play video clip
  13. 13. Accounting vocabulary • Liabilities • value of money that is owed and company is responsible to repay • Debts and loans • Shareholder’s equity • Difference between company assets and liabilities • IOW: What the company is worth • Play video clip
  14. 14. In Macroeconomics • This matters because banks and the Fed have assets (loans and reserves) and liabilities (deposits) • T charts • Money multiplier • Amount of money generated by banking transaction
  15. 15. For Example • A person deposits $10,000 into a bank account • Reserve Requirement: 10% • Bank T Chart Assets Reserve: Loans: • • • • • Money multiplier? Reserve = 1/10 MM = 1/.10 MM = 10 So $10,000 X 10 has been created Liabilities $10,000
  16. 16. QE +10 Fed Accounting Assignment • read Mankiw Ch 29 • Page 641, Problems: 1-5,8, 12
  17. 17. Loanable funds “Game” • • • • 2 borrowers, 1 lender each state 1st round: closed economy 2nd round: closed economy 3rd round: ??? Loans made in “basis points” basis point = .1%

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