ECON 2035 FINAL
A ___ is a financial liability for the borrower.
loan
The ___ ___ is the total quantity of money in the economy.
money supply
43) The adaptive expectations view has been criticized on the grounds that people will use ___ information than just past data on a single variable to form their expectations of that variable.
more
Money obtained by selling shares to investors and invests the money in a portfolio of financial assets is called a ___ ___.
mutual fund
50) Rational expectations forecast errors will on average be _____ and therefore _____ be predicted ahead of time.
negative can
5) Dividends are paid from ___ ___.
net earnings
45) If expectations are formed adaptively, then people use ___ the information from past data on a single variable to form their expectations of that variable.
only
55) According to rational expectations, expectations will not differ from ___ ___ using all available information.
optimal forecasts
49) According to rational expectations theory, forecast errors of expectations are ___.
unpredictable
10) The ___ of any investment is found by computing the present value of all future cash flows.
value
1) Stockholders' rights include the right to ___.
vote
4) A stockholder's ownership of a company's stock gives her the right to ___ and be the residual claimant of all ___ ___.
vote cash flows
An example of *Financial Institutions* are ___ and other financial intermediaries
Banks
___ are the largest buyers and sellers of foreign exchange.
Banks
Five key categories of *financial assets:* 1. Money 2. Stocks 3. ___ 4. Foreign exchange 5. Securitized loans
Bonds
A claim to part ownership of a firm is known as ___.
Equity
19) In the generalized dividend model, if the expected sales price is in the distant future it does not affect the ___ ___.
stock price
The sum of currency in circulation, checking account deposits, and holdings of traveler's checks is the ___.
m1
All the assets that are included in M1, as well as time deposits with <$100,000, savings accounts, money market deposit accounts, and noninstitutional money market mutual fund shares is the ___.
m2
Something that is generally accepted as payment for goods and services is known as a ___ of ___.
medium exchange
The Fed is responsible for ___ ___, which refers to the actions to manage the money supply and interest rates to pursue macroeconomic policy objectives.
monetary policy
13) In the one-period valuation model, an increase in the required return ___ the current price of a stock.
reduces
32) A change in perceived risk of a stock changes the ___ ___ of return.
required rate
A ___ is a financial asset that can be bought and sold in a financial market.
security
41) If expectations of the future inflation rate are formed solely on the basis of a weighted average of past inflation rates, then economics would say that expectation formation is ___.
adaptive
40) The view that expectations change relatively slowly over time in response to new information is known in economics as ___ ___.
adaptive expectations
46) The assumption that people use only the information from past data on a single variable to form their expectations of that variable is called the ___ ___ hypothesis.
adaptive expectations
Financial ___ and ___ are major components of the financial system.
assets institutions
42) According to adaptive expectations, expectations of inflation are viewed as being an ___ of past inflation rates and expectations formation indicates that changes in expectations occur ___ over time as past data change.
average slowly
47) In rational expectations theory, the term "optimal forecast" is essentially synonymous with the ___ ___.
best guess
A ___ is a financial security issued by a corporation or a government that represents a promise to repay a fixed amount of money.
bond
When the market price of an asset declines is known as a capital ___.
loss
9) The value of an investment can be found by computing the present value of all future ___ ___.
cash flows
53) If market participants notice that a variable behaves differently now than in the past, then, according to rational expectations theory, we can expect market participants to ___ the way they form expectations about future values of the variable.
change
52) People have a strong incentive to form rational expectations because it is ___ not to do so.
costly
A debt instrument that requires multiple payments of interest on a regular basis, and a payment of the face value at maturity is known as a ___ ___.
coupon bond
Methods of financing debt, including simple loans, discount bonds, coupon bonds, and fixed payment loans are known as ___ ___.
debt instruments
31) New information about an asset can result in a decrease in the asset's price due to an expected ___ in the level of future dividends.
decrease
36) Terrorist attacks on the United States caused a(n) ___ in stock prices due to lower expected growth and greater risk.
decrease
38) Dishonest corporate accounting procedures caused stock prices to ___ due to lower expected dividend growth and higher required return.
decrease
A way of measuring value in an economy in terms of money is known as a ___ of ___.
unit account
30) In asset markets, an asset's price is set by the buyer willing to pay the ___ price.
highest
33) A stock's price will fall if there is an ___ in perceived risk and required rate of return.
increase
12) In the one-period valuation model, the current stock price increases if the expected sales price ___.
increases
22) Using the Gordon growth model, a stock's price will increase if the dividend growth rate ___.
increases
23) Using the Gordon growth model, a stock's price will increase if the dividend growth rate ___.
increases
25) In the Gordon growth model, a decrease in the required rate of return ___ the current stock price.
increases
34) A monetary expansion _____ stock prices due to a decrease in the ___ ___ of _____ and an increase in the ___ ___ ____.
increases required rate return dividend growth rate
The ___ ___ is the cost of borrowing funds (or the payment for lending funds), usually expressed as a percentage of the amount borrowed.
interest rate
When individuals produce the goods or services for which they have relatively the best ability it is known as ___.
Specialization
A good used as money that also has value independent of its use as money is known as ___ money.
Commodity
Funds flow directly from savers to borrowers is ___ finance.
Direct
A debt instrument in which the borrower repays the amount of the loan in a single payment at maturity but receives less than the face value of the bond initially is known as a ___ ___.
Discount bond
___ are payments that a corporation makes to its shareholders after keeping some of its profits.
Dividends
___ money has no value apart from its use as money, e.g., paper currency.
Fiat
The process of buying and selling securities to profit from price changes over a brief period of time is known as ___ ___.
Financial arbitrage
An example of *Financial Institutions* are ___ ___.
Financial markets
___ ___ are places or channels for buying or selling stocks, bonds, and other securities.
Financial markets
Five key categories of *financial assets:* 1. Money 2. Stocks 3. Bonds 4. ___ ___ 5. Securitized loans
Foreign exchange
Funds flow from lenders to borrowers indirectly through financial intermediaries, such as banks, in ___ finance.
Indirect
___ ___ collect premiums from customers and then invest the premiums to obtain the funds necessary to pay claims and other costs.
Insurance companies
The risk that the price of a financial asset will fluctuate in response to changes in market interest rates is known as ___-___ ___.
Interest rate risk
___ ___ assist firms in underwriting stocks and bonds.
Investment banks
Measures of the quantity of money that are broader than currency are known as ___ ___.
Monetary aggregates
Five key categories of *financial assets:* 1. ___ 2. Stocks 3. Bonds 4. Foreign exchange 5. Securitized loans
Money
___ is anything that is generally accepted in payment for goods and services or to pay off debts.
Money
Interest rates that are not adjusted for changes in purchasing power are known as ___ interest rates.
Nominal
Contributions from workers and firms and make benefit payments during workers' retirements are called ___ ___.
Pension funds
Interest rates that are adjusted for changes in purchasing power are known as ___ interest rates.
Real
___ is the process of converting loans and other financial assets that are not tradable into tradable securities.
Securitization
Five key categories of *financial assets:* 1. Money 2. Stocks 3. Bonds 4. Foreign exchange 5. ___ ___
Securitized loans
A debt instrument in which the borrower receives from the lender an amount called the principal and agrees to repay the lender the principal plus interest on a specific date when the loan matures is known as a ___ ___.
Simple loan
Five key categories of *financial assets:* 1. Money 2. ___ 3. Bonds 4. Foreign exchange 5. Securitized loans
Stocks
___ are financial securities that represent partial ownership of a firm; also called equities.
Stocks
The accumulation of wealth by holding dollars or other assets that can be used to buy goods and services in the future is known as a ___ of ___.
Store value
The costs in time or other resources that parties incur in the process of agreeing and carrying out an exchange of goods and services are ___ costs.
Transactions
The interest rate that makes the present value of the payments from an asset equal to the asset's price today is known as the ___ to ___.
Yield maturity
When the market price of an asset increases is known as a capital ___.
gain
37) An increase in uncertainty due to threat of war will ___ stock prices due to a higher required return.
depress
6) Payments of net earnings to shareholders are called ___
dividends
7) Periodic payments of net earnings to shareholders are known as ___.
dividends
11) In the one-period valuation model, the value of an investment depends upon the present value of both ___ and the ___ ___ ___.
dividends expected sales price
61) You observe that interest rates fall after an announcement by the Federal Reserve that the money supply has expanded over the past week. You might speculate that market participants ___ ___ inflation to surge any time soon.
dont expect
62) You observe that interest rates rise after an announcement by the Federal Reserve that the money supply has expanded over the past week. You might speculate that market participants ___ a surge in inflation in the next few months.
expect
39) Economists have focused more attention on the formation of expectations in recent years. This increase in interest can probably best be explained by the recognition that ___ influence the behavior of participants in the economy and thus have a major impact on economic activity.
expectations
24) Using the Gordon growth model, a stock's price will increase if the required rate of return ___.
falls
The ___ ___ rate is the interest rate that banks charge each other on short-term loans.
federal funds
The ___ ___ and other financial regulators are major components of the financial system.
federal reserve
Five key categories of ___ ___: 1. Money 2. Stocks 3. Bonds 4. Foreign exchange 5. Securitized loans
financial assets
A ___ ___ is a financial firm that borrows funds from savers and lends them to borrowers.
financial intermediary
A ___ ___ is a financial claim owed by a person or a firm.
financial liability
A debt instrument that requires the borrower to make regular periodic payments of principal and interest to the lender is known as a ___-___ ___.
fixed payment loan
21) In the generalized dividend model, the current stock price is the sum of the present value of the ___ ___ ___.
future dividend stream
2) Stockholders' rights include ___ ___ on all of a company's assets.
primary claim
3) Stockholders are residual claimants, meaning that they will *never* share in a company's ___.
profits
54) The assumption that people make the best economic forecast they can, given the information available to them at the time, is called the ___ ___ theory.
rational expectations
48) If additional information is not used when forming an optimal forecast because it is not available at that time, then expectations are still considered to be formed ___.
rationally
35) A monetary contraction _____ stock prices due to a decrease in the ___ ___ _____ and an increase in the ___ ___ of _____.
reduces dividend growth rate required rate return
8) Dividends are periodic payments of net earnings to ___.
shareholders
20) In the generalized dividend model, a future sales price far in the future does not affect the current stock price because the present value is almost ___.
zero