Macro Exam 4
mutual
A _____ fund is a company that maintains a professionally managed portfolio
Withdrawal of cash
A _____ will reduce the bank's checkable-deposit liabilities and its holdings of cash by the amount of the withdrawal. This, too, changes the composition, but not the total supply, of money in the economy.
investors buy assets in order to obtain
A lump sum of future payments A stream of payments
stocks bonds
A mutual fund portfolio is a collection of either _____ or _____
fractional reserves
A second reality is that banks operating on the basis of ________- are vulnerable to "panics" or "runs.
True
A withdrawal of cash will reduce the bank's checkable-deposit liabilities and its holdings of cash by the amount of the withdrawal. This, too, changes the composition, but not the total supply, of money in the economy.
Federal Open Market Committee
AIds board of governors in conducting monetary policy
Pay some price, determined in the market, to aquire them
All investments require that investors
m2
All of M1 + less immediate (liquid) forms of money to include savings, money market mutual funds, and small denomination time deposits.
Medium of exchange
Allows society to escape the complications of barter
Short-term U.S government bonds
Are considered to be risk free
3-10
Before the mortgage debt crisis, excess reserves were low in the banking system and the federal funds rate tended to be in the _____ percent range.
12 Federal Reserve Banks
Blend private and public control serving as the central bank or bankers bank
Unit of account
Consumer wants to compare the price of one product to another
transactions demand for money
Demand for money as a medium of exchange
expansionary
During a recession with a negative gdp gap and substantial unemployment, the fed should institute an ______ monetary policy
Demanded & supplied
Equilibrium interest rate at which the amount of money ______ and the amount of money ____ are equal
Avoid more restrictive trade policies
Exporting nations often agree to voluntary export restrictions in an attempt to
default
Failure of a corporation or government to make a bond's promised payment is known as a?
Completely prohibit imports once they have been filled
Import quota
false
Import quotas are less effective at slowing international tariffs
supply and demand
In a closed economy, equillibrium is determined by
centralization and public control
In early 20th century congress decided ______ were essential for an efficient banking system
trade
In the absence of ____, the domestic prices in a closed economy may or may equal equilibrium price
$100
Joe deposits $100 into his checking account. If the reserve ratio is 50%, how much in new checkable deposits would be created?
Securities
Largest asset item in the Federal Reserve banks balance sheet is
Balance sheet
Lays out assets and liabilities of a company
An import quota
Limits the amount of a good that can be imported, thus impeding trade more than a tariff
Unit of account
Measuring relative worth of goods, services, and resources
Governments
Money backed by _______ ability to keep the value of money relatively stable
economic investment
New factories, houses, retail stores, construction equipment, and wireless networks are all good examples of
The Fed has four main tools of monetary control it can use to alter the reserves of commercial banks
Open-market operations The reserve ratio The discount rate Interest on reserves
stocks
Ownership in a corporation are known as
Intrinsic value
Paper currency and checkable accounts have no intrinsic value
Economic Investment
Paying for new additions to the capital stock or new replacements for capital stock that has worn out?
time preference
People tend to be impatient, they typically prefer to consume things in the present rather than in the future
time
Rates of return compensate not only for risk but also for something that economists call ____ preference
three
Recall that fiscal policy is hindered by ______ delays, or lags
a recognition ,administrative and operational lag
Recall that fiscal policy is hindered by three delays, or lags
Liquidity
Refers to ability to be a means of payment
excess reserves
Required reserves - required reserves
Protective tariff
Shield domestic producers from foreign competition
The U.S government
Short-term loans to ______ the U.S government have a duration ranging from four to twenty six weeks
Expansionary monetary policy
Suppose that the economy faces a recession and rising unemployment. How will the Fed respond? It will initiate ________(or "easy money policy") to increase the supply of credit in the economy and, hopefully, aggregate demand and real output, too.
$2000
Suppose the reserve ratio is 20%. If Sam deposits $500 into his checking account, the banking system creates ______ of checkable deposits through making loans
Open market operations
The Fed's ______ consist of bond market transactions in which the Fed either buys or sells government bonds (U.S. securities) outright, or uses them as collateral on loans of money.
Interest Rates
The Fed's primary influence on the economy in normal economic times is through its ability to change the money supply (M1 and M2) and therefore affect ______
Federal funds rate
The Federal Reserve focuses monetary policy on the ______, which is the short-term interest rate that the Fed can most directly influence
Government
The Monetary Multiplier is somilar to the spending income multiplier, available to the ________?
Security Market Line
The ___ indicates how investors must be compensated for time preference as well for the amount of nondiversifiable risk than an investment carries
World trade organization (WTO)
The ___ oversee's trade agreements by member nations and rules on trade disputes
limited liablity
The ____ ____ rule limits the risks involved in investing in corporations and encourages investors to invest in stocks by capping their potential at the amount they paid for their shares
Beta
The ____ statistic is a common measure of the nondiversifiable risk of an asset
Security Market Line
The _____ indicates how investors must be compensated for time preference as well for the amount of non-diversifiable risk than an investment carries
inverse
The amount of money demanded as an asset and the rate of interest have a _______ Relationship
inversely
The amount of money demanded as an asset varies _____ with the rate of interest
Premium
The component of an asset's expected rate of return that compensates for risk is called the risk ________
Money supply & Interest rates
The fed influences?
risky
The future payment of investments are
The more risky it is
The higher the average expected rate of return of an asset
investments
The higher-risk level/ higher- reward relationship affects all types of _____
federal funds rate
The interest rate paid on these overnight loans is called
Equilibrium Price
The intersection of demand and supply for money
one
The markets portfolio level of non diversifiable risk has a standardized beta statistic equal to ____
Diversification
The strategy of investing in a large number of different investments in order to reduce the overall risk to an entire portfolio is called
Fractional reserve banking systems
The united states like most countries today has a _________ in which only a portion ( or fraction) of checkable deposits are backed up by reserves of currency in bank deposits or in central banks
Expansionary
This results in a real output of $880 billion, $20 billion less than the economy's full-employment output level of $900 billion. The economy will be experiencing recession, a negative GDP gap, and substantial unemployment. The Fed therefore should institute an ______monetary policy.
features shared by all investments
To acquire them, investors have to pay some price determined in the market The future payments are typically risky The opportunity they give their owners to receive future payments
there is an asset demanded for money
To the extent that people want to hold money as an asset,
accept deposits and make loans
Two basic functions of commercial banks
risk and return
Two most important factors considered by economists to affect investment decisions are
M1
US money supply
Economic financial
Unlike an ______ investment, a ______ investment can involve either financial assets( such as stocks, bonds and future contracts) or real assets ( such as land, factories, and stores)
Increase, increase
What is most important about this transaction is that when Federal Reserve Banks purchase securities from commercial banks, they _____the reserves in the banking system, which then ____ the lending ability of the commercial banks.
Required reserves will increase
When a bank grants loan to customer, who then keeps the funds in her checking account
compound interest
Which of the following describes how quickly an investment increases in value when interest is paid, not only on the original amount invested, but also on all interest payments that have been previously made?
federal reserve
Who has the power to change the risk-free interest rate generated by short term US Bonds
The federal reserve
Who is the largest single holder of U.S government securities?
President
Who selects chairperson and vice-chairperson of the board
to make purchases with it and to hold it as an asset
Why does the public want to hold some of its wealth as money? There are two main reasons:
$1900
With an initial deposit of $100, what is the amount of new checkable deposits that the banking system could create if the reserve ratio is 5%
Diversifiable
___ risk is the risk that is specific to a given investment and that can be eliminated by diversification
land
____ - intensive goods require large amounts of natural resources
Financial
____ Investment refers to either buying an asset in the expectation of making a gain
Present
____ value means that expected future returns or costs can be expressed in "today's" value of worth
Compound
_____ Interest describes how quickly an investment increases in value when interest is paid
Beta
_____ Measures how the non-diversifiable of a given asset or portfolio of assets with that of a market portfolio
Bonds
_____ are debt contracts that are issued most frequently by governments and corporations
A Corporation's current share price
_____ is determined by the size of capital gains and dividends that investors expect the corporation to generate in the future
Present
_____ value means that expected future returns or costs can be in today's value of worth
index
______ Funds are portfolios selected to match a number of stocks or bonds
Risk
______ refers to the fact that investors never know with total certainty what future payments from an investment will turn out to be
Arbitrage
_______ happens when investors try to take advantage and profit from situations Where two identical or nearly identical have different rates or return
Purchasing power is relatively stable
an economy can only employ money as a unit of account when its
function of money
anything accepted as a medium of exchange, a unit of monetary account, and a store of value based as money
checkable deposit at commercial bank
asset to the depositor and a liability to the bank
Liquidity
can be converted quickly into cash with no loss of value
Panics and Bank runs
consequence of fractional reserve banking
M1
currency(coins and paper money in the hands of the public and all checkable deposits in commercial banks and "thrifts" or savings institutions on which checks of any size can be cashed
Medium of exchange
enable society to gain the benefits of geographic and labor specilization
declines by 50%
if the price level doubles, the dollar
reserves of commercial banks
largest liability in Federal reserves
Escape complications of barter
major advantage of money serving as a medium of exchange
Economic investment
making new additions to a firms stock of capital
Federal Reserve
monetary authorities in charge of money supply
non-money assets
real estate, stocks, bonds, precious metals, collectible items
Exchange rate between two countries and the products they produce
terms of trade
Reserve requirents
the fed sets ______, which are fractions of the checking account balances that banks must maintain as currency reserves
Non-for-profit
the federal reserve is _____ despite private ownership
function of interest rate
transactions demand for money is the least likely function of interest rate
Store of value
transferring purchase power from present to future
Inflation
when government issues too much paper currency
U.S
who has smallest share of exports since 2011
