Mishkin Money and Banking: CH 5

asset market approach

An approach to determine asset prices using stocks of assets rather than flows

demand curve

A curve depicting the relationship between quantity demanded and price when all other economic variables are held constant

excess supply

A situation in which quantity supplied is greater than quantity demanded

expected return

The return on an asset expected over the next period

Fisher effect

The outcome that when expected inflation occurs, interest rates will rise; named after economist Irving Fisher

liquidity

The relative ease and speed with which an asset can be converted into cash

liquidity preference framework

A model developed by John Maynard Keynes that predicts the equilibrium interest rate on the basis of the supply of and demand for money

market equilibrium

A situation occurring when the quantity that people are willing to buy (demand) equals the quantity that people are willing to sell (supply)

opportunity cost

The amount of interest (expected return) sacrificed by not holding an alternative asset

risk

The degree of uncertainty associated With the return on an asset

supply curve

A curve depicting the relationship between quantity supplied and price when all other economic variables are held constant

theory of portfolio choice

A theory of how much of an asset people want to hold in their portfolio, with the amounts determined by wealth, expected returns, risk, and liquidity

wealth

All resources owned by an individual, including all assets