Money and banking Exam 1

It is found that when the disposable income of elvania increased by $100 billion, household consumption spending increased by $70 billion. In Elvania, the marginal propensity to consume is

.7

If the before-tax rate of return on a corporate bond is 7%, an individual in the 25% marginal tax bracket would earn a ______ rate of return on the bond

5.25%

Stagflation is an economic condition where an economy is experiencing

A high and rising price level and little economic growth with high unemployment

Financial markets bring together

Borrowers and Lenders

aggregate demand is equal to

C+I+G+(X-M)

Following WWII, inflation became so bad that Germans stopped using the Reichmark for transactions, and instead used cigarettes for small transactions and cognac for large transactions. Which of the following describes this situation?

Cigarettes and cognac functioned as a money in Germany in this period following WWII

______ is the removal of funds from a financial intermediary

disintermediation

In the country of Trivia, it is widely believed that the marginal propensity to consume is 0.75. This means that a one time increase in spending of $50 billion will result in a(n)

increase in GDP equal to 200 billion

If the market for loanable funds is currently in equillibrium an _______ will cause

increase in business confidence

a decrease in aggregate demand would be caused by a

increase in imports

As the federal marginal tax rate rises, the advantage of municipal bonds over corporate bonds

increases

bond prices and interests rates are

inversely related

bonds are issued by

many kinds of borrowers

Regulation Q, passed following the great depression set a

maximum on the interest rate that banks can pay on deposits

Mandy goes to the grocery store to buy groceries, and at the checkout counter she pays cash. This money is being used as

medium of exchange

A 10-year, $10,000 bond with a coupon rate of 5% is a promise by the issuer of the bond to?

pay the bondholder $500 every year for 10 years and $10,000 payment in 10 years

time preference is the

rate at which someone prefers to consume today as opposed to consuming in the future

When people use all available information to develop expectations about the future and use their expectations

rational

(Question with the red and blue graph) The price level tends to move in the

same direction as the money supply

Jenny has had a portion of stock in an e-commerce company for some time. She is ready to resell her stock. On what market should she redo this?

secondary market

Shareen buys a 30-year, $10,000 US Treasury bond with a coupon rate of 5%. After two years she needs some cash so she decides to sell her bond. Shareen will sell her bond in the __________ market.

secondary market

Institutions that compete with commercial banks because they perform some but not all of they functions of commercial banks are said to be part of the _______________ banking industry

shadow

On payday you get paid in cash so each work weel you put $10 into a shoebox in your closet so you can buy a flat screen TV at the end of the year. In this situation money is serving as a

store of value

A major advantage that municipal bonds have over corporate bonds for investors is that

the income earned on municipal bonds is not subject to federal income tax.

According to the pure expectations theory, a flat yield curve means

the market thinks that the future interest rates will be exactly the same as the current interest rates.

The quantity of loanable funds supplied is directly related to interest rates because as interest rates increase

the opportunity cost of household consumption increases, causing households to bring more of their after-tax income to the pool of loanable funds.

In a barter economy with 100 goods, there would be _______ prices

In a barter economy with 100 goods, there would be 4950 prices

When a market price of bond is above the face value it is a

Premium

Dollarization occurs

when a company official adopts another currency as their legal tender.

Which of the following would not be considered money? A. Currency B. Demand Deposits C. Checkable Deposits D. Credit Cards

D. Credit Cards

The M1 definition of the money supply includes which of the following items?

Demand deposits and other checkable deposits

The market for bonds is a subset of the market for loanable funds

True

if the market interest rate is higher than the coupon rate on a newly issued bond than it is sold

below par