Econ 210 final exam
Illiquid Bank
A bank whose short-term liabilities are greater than its short-term assets but overall has assets that are greater than its liabilities
Insolvent bank/firm
A bank/firm whose liabilities are greater in value than its assets
Zero-coupon bond (or discount bond)
A bond that pays only at maturity
Human Capital
A business that pays for its workers to attend a technical college is increasing its:
research and development
A country increases its technological knowledge by engaging in:
left and up
A decrease in the supply of savings is shown by shifting the SUPPLY curve to the:
Patent
A government grant of temporary monopoly rights, typically 20 years from the date of filing
Lender of Last Resort
A lender that loans money to banks & other financial institution when no one else will, often a central bank or a country's Treasury or Finance department
Illiquid
A liquidity crisis occurs when banks are:
A money market mutual fund
A metal fund invested in relatively safe short-term debt & government securities
Private marginal benefit
A profit-maximizing firms invests in research & development so long as the _________________ is greater than the marginal cost
the growth rate of human capital
A reliable way to achieve faster growth in real GDP per capita is to increase:
Solvency Crisis
A situation that exists when money banks are insolvent
Liquidity Crisis
A situation that occurs when banks do not have enough liquid assets to meet their liability demands
Bond
A sophisticated IOU that documents who owes how much and when payment must be made
Fractional reserve banking
A system in which banks hold only a portion of deposits in reserve, lending the rest
Money
A widely accepted means of payment
labor, capital, and ideas
According to the Solow Model, output is a function of the quantity of:
Default Risk
All bonds involve a risk that when the payments come due, the borrower will not be able to pay, this is called a:
Demand, left
All else equal, if consumers decide to borrow less the _________ curve in the market for loanable funds will shift to the __________
raise prices above competitive levels
An argument agains patents is that they:
create incentives for research and development
An argument in favor of patents is that they:
Liquid asset
An asset that can be used for payments, or quickly & without loss of value, can be converted into a asset used for payments
An increase in economic growth
An increase in physical capital will lead to:
right and down
An increase in the supply of savings is shown by shift the SUPPLY curve to the:
Returns
Arbitrage ensures that equally risky assets earn equal ________
increases, increases
As a result of an increase in the growth of the money supply, real GDP growth __________ only in the short run, and the inflation rate ____________ in both the short run & the long run
charging more for their loans than they pay for the savings
Banks earn profit by:
Borrow
Based on the lifecycle theory, people in college tend to:
Dissave
Based on the lifecycle theory, people in retirement tend to:
Save
Based on the lifecycle theory, people in their prime working years tend to:
Change in Reserves x money multipliers
Change in money supply equation
Market Transaction
Cleaning your own home is not included in GDP because it does not involve a:
The monetary Base (MB)
Currency & total reserves held at the Fed
M1
Currency plus checkable deposits
capital accumulation, technological development
Difference between catching up growth from cutting edge growth: Catching-up growth comes primarily from ___________ while cutting-edge growth comes from __________________
the marginal product of capital
Diminishing returns to capital implies that _________ dimities as more capital is added
E= value of the asset - the debt
Equity equation
An increase in the politicization of lending
Financial intermediation may fail if something causes:
both the factor income & national spending approaches
GDP can be calculated by which approach
GDP per capita
GDP divided by a countrys population
Protecting intellectual property
Governments can play a role in supporting the production of new ideas by:
Supply of funds
Greater risk can reduce the ___________________ to the market as a whole
Federal Deposit Insurance Corporation
Guarantees bank deposits up to $250,000 for each depositor named on an account
Savings
Higher interest raters usually call forth more _____________
1260
If GDP for a certain economy is $1200 billion at the end of the year 1 & it grows by 5%, what will be the GDP at the end of year of 2?
5.5%
If GDP in year 1 is $10,000 & GDP in year 2 is $10,500 then they growth rate between the 2 years is?
28 years
If GDP per capita is $1,000 & it grows at 5% annual interest, approximately how long will it take before it is $4,000?
100,000
If banks wants to maintain a RR of 1/10, & the Fed increases by $10,000, but how much must the money supply increase?
savings
If for a certain individual money spent on goods and & money spent on services < income, then this individual also has:
decrease, rise, decrease
If individuals become more impatient, what will happen in the market for loanable funds?--> The supply of loanable funds will ______, interest rates will ________, and the quantity of saving & borrowing will _________.
3.2%
If nominal GDP in 2006 for the U.S. was $13,177.3 billion & real GDP in 2006 (using 2005 as the base year) was $12,958.5 billion, how much was there between 2005 & 2006?
Real
If pressed to choose a single indicator of current economic performance, most economists would probably choose ______ GDP growth
Sell bonds in open market operations
If the Fed wants to increase interest rates, it should:
buy
If the Fed wants to increase the money supply, it will _______ Treasury Securities
Temporary (to encourage firms to invest quickly)
If the government offers an investment tax credit during a recession in order to stimulate investment demand, it will probably make the tax credit:
Decrease, decrease
If the government raises taxes on investment returns, then they demand for loanable funds will __________ & the equilibrium interest rate will __________
Both, increase
If the interest rate increases, then ______ the quantity saved & the quantity supplied of loanable funds will ____________
Depositors
In a commercial bank, the money comes from:
Investors
In an investment bank, the money comes from:
poor
In regard to distribution of income, GDP is a _______ measure
Savings
Income that is not spent on consumption goods
formal education and job-specific training
Increase in human capital can come from:
Smooth
Individuals want __________ consumption over time
A decrease in the supply of savings
Insecure property rights typically lead to:
Opposite Directions
Interest rates & bond rates move in ___________________
Capital Growth equation
Investment - Depreciation
create incentives to research and develop new products while avoiding too much monopoly power
It can be difficult for policymakers to:
M2
M1 plus saving deposits, money market mutual funds, & small time deposits
large-scale production
Many goods in India were produced inefficiently, because prohibitions against ______________ prevented Indian manufacturers from taking advantage of economies of scale
Gross National Product (GNP)
Measures what is produced by the labor and property supplied by U.S. permanent residents wherever in the world that labor or capital is located, rather than what is produced within in the U.S. border
Y=? (in national spending approach)
Nominal GDP
Slow and consistent
Over the past 200 years, economic growth in the U.S. has been:
Decrease
Paying a higher interest rate on reserves held at the Fed will tend to _____________ the money supply
Investment spending
Private spending on tools, plant, and equipment used to produce future output (i.e., the purchase of new capital goods) (business spending)
capital, marginal product of capital
Reason why growth in China has been so rapid recently: China began with very little ______, so its ______________ was very high
The Term of Auction Facility
Sets a certain quality of reserves, and then the Fed reduces the interest rate until banks borrow the money
Government spending
Spending by all levels of government on final goods and services not including transfers
stock exchanges
Stocks are traded on organized markets called:
Institutions
The "rules of the game: that structure economic incentives
Short-term real interest rates
The Fed has the most influence over:
12
The Fed is _____ Federal Reserve Banks, each headquartered in a different region of the country
The government and private banks
The Federal Reserve's customers are:
19th
The U.S. & Western European countries began to experience accelerated economic growth during the ___________ century
Fed
The _____ is a quasi private, quasi public institution
Economies of scale
The advantages of large-scale production that reduce average cost as quantity increases
Open market operations
The buying & selling of government bonds by the Fed
Crowded Out
The decrease in private consumption & investment that occurs when government borrows more
Owners Equity
The difference between the value of a house & the unpaid amount on the mortgage
Iron Logic of diminishing returns
The first unit of capital increases output by one unit, but as more & more capital is added, output increases by less & less
recapitalization
The goal of ________________ is to get banks on their feet again and thus get them lending again
decrease in investment demand
The government may offer an investment tax credit during a recession in order to counteract the:
3.3%
The growth rate of the population is 1.2% and the real GDP growth per capita is 2.1&. The real GDP growth rate is?
Interest, smaller
The higher the ________ rate, the __________ the quantity of funds demanded for investment
Supply of loans
The increase in the money supply increases the:
Discount Rate
The interest rate banks pay when they borrow directly from the Fed at the discount window
institutions; incentives
The key to producing & organizing the factors of production are _____________ that create appropriate _____________
Savings accounts, money market mutual funds, & small time deposits
The largest means of payment are:
The New York Stock Exchange (NYSE)
The largest stock exchange in the world
Quantity of loans demanded
The lower interest rates increase the:
Interest, greater
The lower the __________ rate, the ___________ the quantity of funds demanded for investment
Loans
The main asset of fractional reserve banks
NX=? (in national spending approach)
The market value exports minus the market value of imports
G=? (in national spending approach)
The market value of government purchases
I=? (in national spending approach)
The market value of investment goods, also called capital goods
U.S. GNP only
The market value of the output produced in another country by a permanent U.S. citizen would be included in:
mathematics, physics, & molecular biology
The modern world is founded on:
The Federal Reserve
The money we use in the U.S. is provided by just one bank:
Currency, total reserves held by banks at the Fed, checkable deposits, & saving deposits, money market mutual funds & small-time deposits
The most important assets that serve as means of payment in the U.S. are:
Federal Funds Rate
The overnight lending rate from one major bank to another
Leverage Ratio
The ratio of debt to equity ( D/E)
Systematic Risk
The risk that the failure of one financial institution can bring down other institutions as well
Advances in technological knowledge
The source of cutting-edge growth is:
The nations payment system
The system of accounts that make it possible to write checks from one bank to another
Net Exports
The value of exports minus the value of imports
real
Time preference reflects the fact that today feels more _________ than tomorrow
The market value of only goods & services
To calculate GDP we use:
Carry out open market purchases and/or lower the discount rate
To increase the money supply in the economy, the Fed would:
the social benefits exceed the private benefits
To say that research & development generate spillovers is to say that:
easy to buy & sell and the U.S. government is unlikely to default on its payments
Treasury Securities are desirable for money investors because they are:
Property rights
Under communal property, effort is divorced from payment, so there is little incentive to work. This demonstrates the important of _________________ as an institution
Currency
Usually the most liquid asset
countries with higher rates of investment will be wealthier
What does the Solow Model predict?
increases both m1 & m2
What effect does an increase in reserves have on the money supply?
there are few entrepreneurs
What is a result of a high level of government corruption?
Profit
What is left over after everyone else have been paid
Interest
When __________ rates rise, bond prices fall
Moral Hazard
When an agent tries to exploit an information advantage in a dishonest or undesirable way
moral hazard
When banks take on too much risk with the hope that the Fed will eventually bail them out, a condition of ________________ exists
Securitized
When mortgage loans are bundled together & sold on the market as financial assets
Initial Public Offering
When new stocks are issued & it is the first time a stock is sold to the public
Decreases, increase
When the Fed sells government bond in the open market, the monetary base _____________ & interest rates ___________
Quantitative Tightening
When the Fed sells longer-term government bonds or other securities
rightward, supply
Which events would cause the equilibrium interest rate in the market for loanable funds to decrease: A __________ shift in the ________ of loanable funds
Fire Sale
Without the short-term loans, the investment bank no long has enough operating funds & it is forced to sell off assets quickly in what is often called a:
National Spending approach to GDP
Y=C+I+G+NX
Factor Income approach to GDP
Y=wages + rent + interest + profit
Nominal, real
Your _______ wage is the number on your paycheck, but your _______ wage is that number adjusted for changing prices
Transfers
________, such as Security Payments, are not included in government purchases
GDP Deflator
a price index that can be used to measure inflation
The national bureau of economic research (NBER)
a research organization based in cambridge, Massachusetts, is considered the most authoritative source on identifying U.S. recessions
Recessions
a significant, widespread decline in real income & employment
Nominal GDP
calculated using prices at the time of sale
Real GDP
calculated using the same price in all years
The logical of diminishing returns
eventually capital & output will stop growing
A production function
expresses a relationship between output and the factors of production, namely the exact way in which more inputs will produce more outputs
INTERMEDIATE goods and services
goods & services that are sold to firms and then bundled or processed with other goods for sale at a later stage
Catching-up growth
growth due to capital accumulation
Cutting-edge growth
growth due to new ideas
Rule of 70
if the annual growth rate of a variable is X%, then the doubling time is 70/x years
Steady State
in a model of economic growth, a situation in which the capital stock is neither increasing nor decreasing
Property rights, honest government, political stability, a dependable legal system, competitive & open markets
institutions of economic growth
Financial intermediaries
institutions such as banks, bond markets, and stock markets that reduce the costs of moving funds from savers to borrows & investors
The discount window
intende to help out banks in financial stress when they cannot borrow from the private sector
Technological knowledge
knowledge about how the world works that is used to produce goods & services -- it is potentially boundless
Liabilities
legal debts plus other amounts owed (ex: wage payments)
The Solow Model
model of the wealth of nations & economic growth
GDP deflator formula
nominal gdp / real gdp x 100
Non priced production
occurs when valuable goods & services are produced but no explicit monetary payment is made
Facts of production
physical capital, human capital, and technological knowledge
Consumption
private spending on financial goods & services (household spending)
Tax Credit
projects that were unprofitable without the credit are profitable with the credit, so at any given interest rate firms are willing to invest more when this is available
The lifecycle theory of savings
puts the demand to borrow & save together
National Wealth
refers to the value of a nations entire stock of assets
Stocks
shares of ownership in a corporation
FINAL goods or services
sold to final users and then consumed or held in personal inventories
Free Rider
someone who consumes the benefits of a public good without playing a share of the costs
Collateral
something of value that by agreement becomes the property of the lender if the borrower defaults
Growth rate of GDP
tells us how rapidly the country's production is rising or falling over time
Discount window borrowing
tends to be used for short-run "tide-me-overs" rather than for long-run monetary policy decisions
Money Multiplier (MM)
the amount the money supply expands with each dollar increase in reserves-- 1/RR
Investment=Depreciation
the capital stock & outputs are constant
Investment>Depreciation
the capital stock grows & output next period is bigger
Investment<Depreciation
the capital stock shrinks and output next period is smaller
Checkable deposits
the deposits we use most often in making daily transactions
Time preference
the desire to have goods and services sooner rather than later
Economic growth
the growth rate of real GDp per capita
Marginal product of Capital
the increase in output caused by the addition of one more unit of capital
C=? (in national spending approach)
the market value of consumption goods & services
Market for loanable funds
the market where suppliers of loanable funds (savers) trade with demanders of loanable funds (borrowers), thereby determining the equilibrium interest rate
Arbitrage
the practice of taking advantage of price differences for the same goods in different markets by buying low in one market & selling high in another market
Reserve Ratio (RR)
the ration of reserves to deposits-- determined by how liquid banks wish to be
Business fluctuations or Business Cycle
the short-run movements in real GDP around its long-term trend
decline in real GDP
the single best indicator of a recession
Physical capital
the stock of tools including machines, structures, and equipment (pencils, desks, tractors, cell phones, etc.)
Conditional Convergence
the tendency among countries with similar steady state levels of output
Gross Domestic Product (GDP)
the value of all final goods and services produced within a country in a year
Human capital
tools of the mind, the stuff in peoples heads that makes them productive-- it is not something we are born with, it is produced by an investment of time & other resources in eduction, training, & experience
M1 & M2
what has the most significant effect on aggregate demand
Non-Rivalrous goods
when one person's use of the good does not reduce the ability of another person to use the same good