Econ Unit 5

What is an example of using money as a store of value?

A babysitter puts her earnings in a dresser drawer which she saves to buy a bicycle

When a household makes a loan to a firm with the firm providing interest to the household, this is known as:

A bond

A financial asset is:

A claim that entitles the owner to future income from the seller

Which of the following qualify as an asset from a viewpoint of a household?

A house

A loan is:

A liability for the borrower and an asset for the lender

A financial intermediary that creates a diversified portfolio of stocks and then resells that portfolio to individual investors is known as:

A mutual fund

A liability is:

A requirement that you pay income in the future

A financial intermediary that provides liquid financial assets in the form of deposits to lenders and uses their funds to finance the illiquid investment spending needs of borrowers is called:

Bank

Who oversees the Federal Reserve System?

Board of Governors of the Federal Reserve System

List the types of financial assets

Bonds, stocks, bank deposits, loans

Which is considered money?

Checking account deposits

When the Fed makes a loan to a commercial bank, it charges

Discount rate

How does it affect the money supply through the money multiplier process: People decide to hold more cash

Down; More people holding onto cash will take that money out of the money multiplier

How does it affect the money supply through the money multiplier process: The Fed decides to increase the required reserve ratio

Down; The banks have less to loan out, so the money supply cannot expand through the money multiplier

How does it affect the money supply through the money multiplier process: banks are forced to hold more excess reserves

Down; The excess money will be held in the bank. This will decrease the expansion of the money supply through the money multiplier

Federal Reserve policy that lowers the interest rate is called _____ because it _____.

Expansionary monetary policy; increases aggregate output (GDP)

Other things equal, an increase in the interest rate leads to a:

Fall in consumer spending

When banks make loans to each other, they charge the

Federal funds rate

In the US, the dollar is...

Fiat money

The reserve ratio is the:

Fraction of deposits the banks hold in their vaults

When a corporation borrows money from lenders in exchange for a fixed share in the firm's assets and potential profits, the corporation is:

Issuing stocks

$.55 in the change cup of your car (M1, M2, both, or neither)

M1 & M2

A U.S. penny (M1, M2, both, or neither)

M1 & M2

A driver pays a $2 toll. (medium of exchange, store value, or unit of account)

Medium of exchange

When you purchase your lunch, money is serving which roles? In this scenario, assume you do not need to compare prices to make the purchase.

Medium of exchange

You pay for your lunch with $5 bill. (medium of exchange, store value, or unit of account)

Medium of exchange

$1,663 in your savings account (M1, M2, both, or neither)

Near money so M2

A Mexican peso (M1, M2, both, or neither)

Neither, cannot be used as a medium of exchange in the US

A gift certificate (M1, M2, both, or neither)

Neither, is only a medium of exchange in certain circumstances

The loan you took out last August to pay for your school fees (M1, M2, both, or neither)

Neither, must be paid back

100 shares of a stock worth $4,000 (M1, M2, both, or neither)

Neither, only has store value

A picasso painting (M1, M2, both, or neither)

No, cannot be a medium of exchange or a unit of account, Can only be store credit

Your visa card (M1, M2, both, or neither)

No, this is a loan

A nonprofit institution collects the savings of its members and invests those funds in a wide variety of assets in order to provide its member with income after retirement. This describes a:

Pension fund

A share in the ownership of a company held by a shareholder is considered a:

Stock

A grandparent puts $200 into a saving account for a grandchild's future. (medium of exchange, store value, or unit of account)

Store of value

You set aside $10 per week to save up for a new computer. (medium of exchange, store value, or unit of account)

Store of value

The term "liquid asset" means:

That the asset is readily convertible to cash

Monetary policy involves changes in:

The quantity of money

A car is described as being worth $5,000. (medium of exchange, store value, or unit of account)

Unit of account

Consider the statement: "Tuition at Tonnistopia State this semester is $12,000." Which demonstrates the function of the money?

Unit of account

When you decide you want $10 worth of a product, money is serving which role?

Unit of account

You decide you want to give $10 worth of candy to a friend for their bday. (medium of exchange, store value, or unit of account)

Unit of account

The value of all accumulated savings of a household is called:

Wealth

Order the following from most liquid to least liquid: a $10 bill, a traveler's check, a house, a car, a money market share

a $10 bill a traveler's check a money market share a car a house

Suppose you transfer $500 from your savings account to your checkings account. Which this transaction, M1 ____ and M2 ____

increased, stayed the same