Global Issues Final

On the balance sheet of a bank:

loans are the most important assets

The __________ the interest rate, the more investment projects firms can profitably undertake, and the __________ the quantity of loanable funds they will demand.

lower ; greater

A bank panic occurs when

many banks experience runs at the same time

What is the relationship between real interest rates and investment

negative

Economic variables that are calculated in current year prices are referred to as __________ variables, while variables that have been corrected to account for the effects of inflation are __________ variables.

nominal ; real

Maturity transformation refers to the process in which a bank

takes short-term loans and investments in long maturity assets

A bank's total reserves include _______

The reserves held at the Fed and vault cash

An increase in the real interest rate will

Cause a movement along the credit demand curve

What is the relationship between investment and real interest rate

Lower interest rates stimulate investments

What is a function that the financial system provides for savers and borrowers

Matching savers and borrowers

Financial markets connect __________ with firms through financial intermediaries in order to provide funds to firms.

Savers and investors

If the technological change increases the profitability of new investment to firms, which of these will occur?

The demand for credit will increase

The real interest

The nominal interest rate minus the inflation rate

A share of common stock is

a pro rata share of ownership in a firm

interest rate

allocate financial capital to firms

An investment, broadly defined in an economic sense, is

any action that creates a cost today but is expected to provide benefits in the future

A summary of a firm's financial position on a particular days is

balance sheet

Who is a financial intermediary?

bank

When a firm invests money they are basing their decision to invest on

expected returns

The U.S. economy has experienced ____ major waves of bank failures since 1900

four

Increases in leverage __________ the risk that financial intermediaries undertake.

increase

Payments made for the use of money are knowns as

interest

To help reduce the probability of a bank run, the government can

provide deposit insurance

In determining whether or not to borrow funds, firms compare the rate of return they expect to make on an investment with the:

the interest rate they must pay to borrow the necessary funds.

How would a consumption tax affect the credit market?

the supply of credit would increase

Which of these determines the credit supply?

the willingness of households and governments to save

When many depositors decide simultaneously to withdraw their money from the bank

there is a bank run

A bank's balance sheet shows that total assets have to equal

total liabilities and stockholder's equity

Suppose a bank has current total assets of $20 million and liabilities of $25 million. This means that stockholder equity must be ______ and the bank is _____

zero ; solvent