ECON FINAL
Why would people be advised to invest in assets that give lower average rates of return?
Although stocks have a higher rate of return in the long run, they are much more volatile, or riskier, in the short run. Therefore, there is a higher probability that the value of the stocks will be less than the original value of the investment for people who might need to withdraw the investment in the short run
examples of flat money
Bitcoins, Mexican pesos
As interest rate decreases, what happens to the quantity of loanable funds demanded?
Quantity demanded will increase.
What effect will an increase in interest rates have on the quantity of loanable funds supplied?
Quantity supplied will increase.
If the projected rate of return for a project is less than the interest rate for a loan that is necessary to complete the project, how will the borrowing business act?
The business will not take out the loan.
John owns a pizzeria and needs to borrow money for a new oven. In the loanable funds market, John is
a demander of loanable funds
Which of the following best defines a financial intermediary?
a financial institution that transforms investor funds into financial assets
She quickly walks to the checkout line where she pays the cashier for her new dress. At the cashier, money is serving as
a medium of exchange
A double coincidence of wants is
a situation where two individuals each want some or service that the other can provide.
She is especially excited because she has been saving money each week in her piggy bank at home so that she can afford a trip to Florida next summer. The money in the piggy bank is serving as
a store of value
Dan saves a portion of his income in an interest-earning account. In the loanable funds market, Dan is
a supplier of loanable funds
Norah walks into her favorite department store, Bullseye, to pick out a new dress. She checks out the price tag and is excited to see that the dress is on sale and is now relatively cheaper than another dress she was considering. Here, money is serving as
a unit of account
things that decrease the interest rate
an increase in savings, a decrease in investor optimism
things that increase the interest rate
an investment tax credit an increase in large investments
Identify which asset is the most liquid. checking account stock certificate 6 month certificate of deposit real estate
checking account
examples of commodity money
copper, horses, salt
Borrowers like John are likely to borrow more when the real interest rate_________________Therefore, the demand curve for loanable funds ____________________ .
decreases; slopes downwards
The source of the _______ for loanable funds is investment.
demand
the higher the risk the _______________ the reward
higher
Savers like Dan are likely to save more when the real interest rate__________________ Therefore, the supply curve for loanable funds _____________________
increases; slopes upwards
The _______ represents the price of a loan.
interest rate
Which of the terms acts as the "price" in the market for loanable funds?
interest rate
Barter is best defined as
literally trading one good for another without using money.
cattle is not an effective form of money. what essential characteristic of money does cattle lack that most makes it ineffective?
medium of exchange
fresh fish is not an effective form of money. what essential characteristic of money does fresh fish lack that most makes it ineffective
store of value
The source of the _______ for loanable funds is saving.
supply
Liquidity is best defined as
the ease of converting an asset into cash
Money is best defined as
whatever serves society in three functions: medium of exchange, store of value, and unit of account.
