Macro Chapter 11

Yolanda took $5,000 from her checking account and put the money in her savings account at the same bank. Based on that information, which of these is true? A. M1 went down by $5,000, but M2 was unchanged. B. Neither M1 nor M2 changed because the transfer was done at the same bank. C. Both M1 and M2 were reduced by $5,000. D. M1 and M2 both rose by $5,000.

A. M1 went down by $5,000, but M2 was unchanged.

Financial institutions: A. reduce information costs, reduce transaction costs, and pool funds from lenders. B. reduce information costs, set interest rates for bonds, and diversify assets. C. reduce information costs, reduce transaction costs, and diversify assets. D. pool funds from lenders, reduce transaction costs, and diversify assets.

C. reduce information costs, reduce transaction costs, and diversify assets.

The use of money as a medium of exchange helps reduce the inefficiencies inherent in: A. an inflationary period. B. a barter economy. C. a time of political uncertainty D. unstable commodity values.

B. a barter economy.

Which is NOT one of the three basic functions of money? A. a unit of account. B. a means to collect taxes C. a medium of exchange D. a measure of value

B. a means to collect taxes

Which one of the following will cause the demand of loanable funds curve to shiftrightward? A. household's wealth increases B. businesses are more confident in the future of the economy C. an increase in government regulations that make plant expansion difficult D. an increase in asset prices leading to a decrease in purchases of stocks and bonds

B. businesses are more confident in the future of the economy

The direct exchange of goods and services for other goods and services.

Barter

Suppose that a bond's total interest payments are $400 and its yield is 5%. How much is this bond's price? A. $200 B. $400 C. $8000 D. $80

C. $8000

Assume initially that market interest rates are 7% and the bondholder is receiving a $70 coupon payment per year on a bond with a face value of $1,000. If market interest rates rise to 8%, the bond price: A. falls to $800. B. falls to $700. C. falls to $875 D. rises to $1,125.

C. falls to $875

A function of money in which goods and services are sold for money, then the money is used to purchase other goods and services.

Medium of exchange

Anything that is accepted in exchange for goods and services or for the payment of debt.

Money

Which one of the following will cause the supply of loanable funds curve to shift rightward? A. lowering of firms' expectations about the economy B. an increase in government regulations that make plant expansion difficult C. an increase in the government deficit D. workers fear that unemployment will increase

D. workers fear that unemployment will increase

(1) reduce information costs, (2) reduce transaction costs, and (3) spread risk by diversifying assets.

Financial institutions fulfill three important roles that facilitate the flow of funds to the economy:

How quickly, easily, and reliably an asset can be converted into cash.

Liquidity

-Investment tax incentives -Technological advances -regulations -product demand -business expectations

Shifts in demand of loanable funds

The function that enables people to save the money they earn today and use it to buy the goods and services they want tomorrow.

Store of value

Money provides a yardstick for measuring and comparing the values of a wide variety of goods and services. It eliminates the problem of double coincidence of wants associated with barter.

Unit of account

The earnings, such as interest or capital gains, that a saver receives for making funds available to others. It is calculated as earnings divided by the amount invested.

return on investment

-Economic outlook -incentives to save -income or assets prices -government deficit

shifts in supply of loanable funds