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Higher capital risk makes the consumer less inclined to expose his resources to the possibility of future loss; this imposes a positive substitution effect on consumption (i.e. substitute acquiring capital in the current period with consuming in the future to avoid capital loss in the future due to capital risk). This is met with an opposite ...
Equity premium puzzle: The equity premium puzzle is thought to be one of the most important outstanding questions in neoclassical economics. [6] It is founded on the basis that over the last one hundred years or so the average real return to stocks in the US has been substantially higher than that of bonds.
The impossible trinity (also known as the impossible trilemma, the monetary trilemma or the Unholy Trinity) is a concept in international economics and international political economy which states that it is impossible to have all three of the following at the same time: a fixed foreign exchange rate; free capital movement (absence of capital ...
Full-reserve banking is the hypothetical case where the reserve ratio is set to 100%, and funds deposited are not lent out by the bank as long as the depositor retains the legal right to withdraw the funds on demand. Under this approach, banks would be forced to match maturities of loans and deposits, thus greatly reducing the risk of bank runs.
The Federal Reserve – The US Central Bank practiced sterilization in the troubled interwar period leading up to the Great Depression. In macroeconomics, sterilization is action taken by a country's central bank to counter the effects on the money supply caused by a balance of payments surplus or deficit. [1]
In economic theory, specifically Keynesian economics, speculative demand is one of the determinants of demand for money (and credit), the others being transactions demand and precautionary demand. Speculative demand is the holding of real balances for the purpose of avoiding capital loss from holding bonds or stocks.
The Friedman rule has been shown to be the welfare maximizing monetary policy in many economic models of money. It has been shown to be optimal in monetary economies with monopolistic competition (Ireland, 1996) and, under certain circumstances, in a variety of monetary economies where the government levies other distorting taxes.
Bank reserves are a commercial bank's cash holdings physically held by the bank, [1] and deposits held in the bank's account with the central bank.Under the fractional-reserve banking system used in most countries, central banks may set minimum reserve requirements that mandate commercial banks under their purview to hold cash or deposits at the central bank equivalent to at least a prescribed ...