ECON Final

What happens before and after an increase in the expectations of the inflation rate: Bond Prices

Decrease

What happens to Money Demand if inflation rate rise

Decrease

What happens to Money Demand if real interest rates rise

Decrease

What happens before and after a consumers have a decrease in the desire to consume: Lending

Decreases

What happens to the bond market when China becomes more wealthy in regards to interest rates

Decreases

What happens to the bond market when China becomes more wealthy in regards to lending

Decreases

The players in the monetary supply process include

Depositors Banks Central bank

What are the three major parts of the Federal Reserve System

Depositors Banks The Fed

If the Japanese price level rises relative to the price level in the United States, what will happen to the value of the Japanese yen in terms of dollars

Depreciate

Financial instruments with returns tied to previously issued securities are called

Derivatives

A ______ is bought at a price below its face value, & the _______ value is repaid at the maturity date

Discount bond Face

Financial intermediary's lower transaction costs by providing what two things?

Economies of Scale Liquidity Services

The Glass-Steagal Act, which was repealed in 1999, prohibited commercial banks from

Engaging in underwriting Dealing with corporate securities

Bonds that are sold in a foreign country and are denominated in a currency other than that of the country in which it is sold are known as

Eurobonds

When the euro appreciates (holding everything else constant) then

European chocolate sold in the US becomes more expensive

The federal funds interest rate is determined by the

FOMC

The bank panic of 1907 led to the passage of

Federal Reserve Act

Currency in circulation that cannot be redeemed for gold is called

Fiat money

Development of new financial products & services

Financial Innovation

Connects savers with borrowers

Financial Intermediary

Where funds are exchanged

Financial Market

Claim on issuers future income or assets

Financial security

Govt spending and taxes to affect economy

Fiscal Policy

The most comprehensive measure of aggregate output is

GDP

What happens to Money Demand if Price Level Rises

Increase

What happens to Money Demand if RGDP rises

Increase

What happens to Money Demand if Transaction Cost Rises

Increase

When the Federal Reserve buys bonds from the public how does that affect the Money Supply?

Increase

What happens before and after a consumers have a decrease in the desire to consume: Interest Rates

Increases

What happens to the bond market when China becomes more wealthy in regards to borrowing

Increases

The interest rate falls when either the demand for bonds ________ or the supply of bonds _______

Increases Decreases

What is the solution to the key disadvantage of fiat money

Independent Central Bank

Price of Impatience

Interest rate

Uncertainty about future interest rate volatility and returns is known as

Interest rate risk

What role does weak financial regulation and supervision play in causing financial crises

It allows financial institutions better opportunity to engage in excessive risk taking behavior

In the bond market, the bond demanders are the ________ and the bond suppliers are the ________

Lenders Borrowers

________ is the relative ease and speed with which an asset can be converted into a medium of exchange

Liquidity

A decrease in liquidity will ____ the _____ of bond

Lower Demand

A decrease in wealth of people will ______ the _____ of bonds

Lower Demand

A decrease in expectations for economic growth will ____ the ___ of bonds

Lower Supply

A decrease in government budget deficits will ______ the ____ of bonds

Lower Supply

Financial intermediaries provide customers with liquidity services. Liquidity services

Make it easier for customers to conduct transactions

Kevin purchasing concert tickets with a $100 bill is an example of the ________ function of money

Medium of exchange

Who said inflation is always and everywhere a monetary phenomenon?

Milton Friedman

Deal in short-term debt instruments

Money Markets

An example of the problem of ________ is when a corporation uses the funds raised from selling bonds to fund corporate expansion to pay for Caribbean cruises for all of its employees and their families

Moral hazard

The yield to maturity for a discount bond is ________ related to the current bond price

Negatively

What happens to Money Demand if Money Supply Rises

No change

When the Federal Government sells bonds to the public how does that affect the Money Demand?

No change

When the Federal Government sells bonds to the public how does that affect the Money Supply?

No change

When the Federal Reserve buys bonds from the public how does that affect the Money Demand?

No change

There is ________ for any bond whose time to maturity matches the holding period

No interest rate risk

Growth in money from waiting

Nominal Interest Rate

People, in general, do not lend money to one another to buy a house or a car because

Of information problems They do not know about the effort other people will provide to repay their debts They do not know about the capacity of other people tp repay their debts

Why is the originate-to-distribute business model subject to the principal-agent problem?

Once the mortgage broker ears their fee, they don't care if the borrower makes their payment The mortgage broker has little incentive to ensure the borrower is credit worthy since loans will be sold as mortgage backed securities The more volume the broker originates, the more they make

The Fed's most commonly used means of changing the money supply is

Open market operations

In order to reduce risk and increase the safety of financial institutions, commercial banks and other depository institutions are prohibited from

Owning common stock

Currency includes

Paper money and coins

The presence of so many commercial banks in the United States is most likely the result of

Previous restrictions on branch banking

Buying a shares of UBER when they went public is an example of the

Primary market

According to the quantity theory, changes in the _________ lead to proportional changes in the price level

Quantity of money

Cost in goods from borrowing

Real Interest Rate

List one factor that determines exchange rates in the short run

Real returns on financial assets

List 3 factors that determine exchange rates in the long run

Relative price level Trade barriers Productivity preferences

A rise in the expected future exchange rate shifts demand for domestic assets to the _____ and causes the domestic currency to ___

Right Appreciate

A rise in the domestic interest rate shifts the demand for domestic assets to the ________ and causes the domestic currency to

Rise Appreciate

Which of the following is an example of financial intermediation

Saver makes a deposit in credit union and credit union makes a loan to a member for a new car

A well functioning financial system

Solves asymmetric information problems

When I purchase ________, I own a portion of a firm and have the right to vote on issues important to the firm and to elect its directors

Stock

The Fed is the most independent of all US government agencies. What is the main difference between it and other government agencies that explains the Fed's greater independence

The Fed's source of revenue is free from the appropriations process

If the Mexico peso depreciates against the dollar, then

The dollar has appreciated against the peso

The ratio of the money supply to the monetary base is called

The money multiplier

Predict what will happen to the money suppply if there is a sharp rise in the currency ratio

The money supply falls

The Fed buys $100 million of bonds from the public and also lowers the reserve requirement r. What will happen to the money supply?

The money supply will increase

Which did not help prevent the financial crisis of 2007-2009 from becoming a depression

The purchase of stock Ownership takeovers of troubled banks by the Federal Reserve

What is the most important factor that gives the Federal Reserve the ability to be so independent

Their own source funding

Why would a local bank lend money to people with poor credit records and low income to buy a house

They are just going to sell the loan

Open market operations as a monetary policy tool have the advantage that

They occur at the initiate of the Fed They are flexible and precise They are easily reversed

Why is the 12th federal reserve district so geographically large, while the 2nd is so small

They represent the population and economic interest when the Fed was created

Which of the following can be described as involving indirect finance?

You buy shares in a mutual fund

If you expect the inflation rate to be 15 percent next year and a one−year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is

-8%

What is the advantage of securitizing mortgages to savers

Diversify risks

Buyer of Capital

Investor

As a result of strict banking​ regulations, the United States​ has:

Many more smaller banks compared to other industrialized countries

What is the key disadvantage of fiat money

Tempting for government to pay bills by printing it

List 3 functions money must fulfill

Unit of account Store of value Medium of exchange

What is the key advantage of commodity money (not a characteristic)

Universally accepted

You pay for a 150 euro dinner in Paris with your credit card. When you get home you see a charge of $75 on your credit card bill. What was the spot exchange rate for this purchase? The next week you return to the same restaurant and have the same meal but this charge on your credit card appears as $70. This suggests the Dollar

0.5 Appreciated

Which of the following is not a contractual savings institution?

A savings and loan association

As financial intermediaries, banks

Accept deposits Make loans

Increasing the amount of information available to investors helps to reduce the problems of ________ and ________ in the financial markets

Adverse selection Moral hazard

What is the global pool of money

All of the world's savings

Why is financial regulation probably necessary

Asymmetric information Systemic risk

What happened to the global pool of money's supply between the mid 1990's and mid 2000's

Big poor countries got richer

Which of the following bonds would have the highest default risk? Junk bonds

Buying a US treasury bond from your friend is an example of Secondary market

What is the key advantage of fiat money

Can control supply

What is the key disadvantage of commodity money (not a characteristic)

Cannot control supply

Controls the Money Supply

Central Bank

Accepts Deposits

Commercial Bank

The monetary base is comprised of

Currency in circulation Reserves