CJ Money and Banking Chap 1
Terms in this set (99)
Financial markets promote economic efficiency by
channeling funds from savers to investors
Financial markets promote greater economic efficiency by channeling funds from ________ to ________.
Well-functioning financial markets promote
A key factor in producing high economic growth is
well-functioning financial markets
Markets in which funds are transferred from those who have excess funds available to those who have a shortage of available funds are called
________ markets transfer funds from people who have an excess of available funds to people who have a shortage
Poorly performing financial markets can be the cause of
The bond markets are important because they are
the markets where interest rates are determined
The price paid for the rental of borrowed funds (usually expressed as a percentage of the rental of $100 per year) is commonly referred to as the
Compared to interest rates on long-term U.S. government bonds, interest rates on three-month Treasury bills fluctuate ________ and are ________ on average.
The interest rate on Baa (medium quality) corporate bonds is ________, on average, than other interest rates, and the spread between it and other rates became ________ in the 1970s
Everything else held constant, a decline in interest rates will cause spending on housing to
High interest rates might ________ purchasing a house or car but at the same time high interest rates might ________ saving.
An increase in interest rates might ________ saving because more can be earned in interest income
Everything else held constant, an increase in interest rates on student loans
increases the cost of a college education
High interest rates might cause a corporation to ________ building a new plant that would provide more jobs
The stock market is important because it is
the most widely followed financial market in the United States
Stock prices are
A rising stock market index due to higher share prices
increases people's wealth and as a result may increase their willingness to spend
When stock prices fall
an individual's wealth may decrease and their willingness to spend may decrease
Changes in stock prices
affect firms' decisions to sell stock to finance investment spending.
An increase in stock prices ________ the size of people's wealth and may ________ their willingness to spend, everything else held constant.
Low stock market prices might ________ consumers willingness to spend and might ________ businesses willingness to undertake investment projects
Fear of a major recession causes stock prices to fall, everything else held constant, which in turn causes consumer spending to
A share of common stock is a claim on a corporation's
earnings and assets.
On ________, October 19, 1987, the market experienced its worst one-day drop in its entire history with the DJIA falling by 22%.
The decline in stock prices from 2000 through 2002
reduced individuals' willingness to spend
The Dow reached a peak of over 11,000 before the collapse of the ________ bubble in 2000.
When I purchase a corporate ________, I am lending the corporation funds for a specific time. When I purchase a corporation's ________, I become an owner in the corporation
Channeling funds from individuals with surplus funds to those desiring funds when the saver does not purchase the borrower's security is known as
A financial crisis is
a major disruption in the financial markets
Banks are important to the study of money and the economy because they
have been a source of rapid financial innovation
provide a channel for linking those who want to save with those who want to invest.
Banks, savings and loan associations, mutual savings banks, and credit unions
have been adept at innovating in response to changes in the regulatory environment
Financial institutions search for ________ has resulted in many financial innovations
Banks and other financial institutions engage in financial intermediation, which
can benefit economic performance
Financial institutions that accept deposits and make loans are called
The financial intermediaries that the average person interacts with most frequently are
Which of the following is not a financial institution?
a business college
The delivery of financial services electronically is called
Money is defined as
anything that is generally accepted in payment for goods and services or in the repayment of debt.
The upward and downward movement of aggregate output produced in the economy is referred to as the
Sustained downward movements in the business cycle are referred to as
During a recession, output declines resulting in
higher unemployment in the economy
Prior to almost all recessions since 1900, there has been a drop in
the growth rate of the money stock.
Evidence from business cycle fluctuations in the United States indicates that
recessions are usually preceded by a decline in the growth rate of money.
________ theory relates the quantity of money and monetary policy to changes in aggregate economic activity and inflation.
A sharp increase in the growth of the money supply is likely followed by
an increase in the inflation rate
It is true that inflation is a
continually rising price level
Which of the following is a true statement?
A) Money or the money supply is defined as Federal Reserve notes.
B) The average price of goods and services in an economy is called the aggregate price level.
C) The inflation rate is measured as the rate of change in the federal government budget deficit.
D) The aggregate price level is measured as the rate of change in the inflation rate.
If ten years ago the prices of the items bought last month by the average consumer would have been much higher, then one can likely conclude that
the aggregate price level has declined during this ten-year period.
From 1950-2011 the price level in the United States increased more than.
Complete Milton Friedman's famous statement, "Inflation is always and everywhere a ________ phenomenon."
There is a ________ association between inflation and the growth rate of money ________.
Evidence from the United States and other foreign countries indicates that
there is a strong positive association between inflation and growth rate of money over long periods of time
Countries that experience very high rates of inflation may also have
rapidly growing money supplies
Between 1950 and 1980 in the U.S., interest rates trended upward. During this same time period
the rate of money growth increased
The management of money and interest rates is called ________ policy and is conducted by a nation's ________ bank
The organization responsible for the conduct of monetary policy in the United States is the
Federal Reserve System
________ policy involves decisions about government spending and taxation.
When tax revenues are greater than government expenditures, the government has a budget
A budget ________ occurs when government expenditures exceed tax revenues for a particular time period
Budgets deficits can be a concern because they might
ultimately lead to higher inflation
Budget deficits are important because deficits
can result in higher rates of monetary growth
American companies can borrow funds
in both U.S. and foreign financial markets
The price of one country's currency in terms of another country's currency is called the
The market where one currency is converted into another currency is called the ________ market.
Everything else constant, a stronger dollar will mean that
vacationing in England becomes less expensive.
Which of the following is most likely to result from a stronger dollar?
A) U.S. goods exported aboard will cost less in foreign countries, and so foreigners will buy more of them.
B) U.S. goods exported aboard will cost more in foreign countries and so foreigners will buy more of them.
C) U.S. goods exported abroad will cost more in foreign countries, and so foreigners will buy fewer of them.
D) Americans will purchase fewer foreign goods.
Everything else held constant, a weaker dollar will likely hurt
furniture importers in California.
Everything else held constant, a stronger dollar benefits ________ and hurts ________.
American consumers; American businesses
From 1980 to early 1985 the dollar ________ in value, thereby benefiting American ________.
From 1980 to 1985 the dollar appreciated relative to the British pound. Holding everything else constant, one would expect that, when compared to 1980,
fewer Britons traveled to the United States in 1985
When in 1985 a British pound cost approximately $1.30, a Shetland sweater that cost 100 British pounds would have cost $130. With a weaker dollar, the same Shetland sweater would have cost
more than $130
Everything else held constant, a decrease in the value of the dollar relative to all foreign currencies means that the price of foreign goods purchased by Americans
American farmers who sell beef to Europe benefit most from
an increase in the dollar price of euros.
If the price of a euro (the European currency) increases from $1.00 to $1.10, then, everything else held constant,
a European vacation becomes more expensive
Everything else held constant, Americans who love French wine benefit most from
a decrease in the dollar price of euros
The most comprehensive measure of aggregate output is
gross domestic product
The gross domestic product is the
the market value of all final goods and services produced in an economy in a year
Which of the following items are not counted in U.S. GDP?
GM's purchase of tires for new cars
If an economy has aggregate output of $20 trillion, then aggregate income is
When the total value of final goods and services is calculated using current prices, the resulting measure is referred to as
Nominal GDP is output measured in ________ prices while real GDP is output measured in ________ prices
GDP measured with constant prices is referred to as
If your nominal income in 2002 was $50,000, and prices doubled between 2002 and 2011, to have the same real income, your nominal income in 2011 must be
If your nominal income in 1998 is $50,000, and prices increase by 50% between 1998 and 2011, then to have the same real income, your nominal income in 2011 must be
To convert a nominal GDP to a real GDP, you would use
the GDP deflator
If nominal GDP in 2001 is $9 trillion, and 2001 real GDP in 1996 prices is $6 trillion, the GDP deflator price index is
When prices are measured in terms of fixed (base-year) prices they are called ________ prices.
The measure of the aggregate price level that is most frequently reported in the media is the
consumer price index
The measure of the aggregate price level that is frequently the focus of Federal Reserve officials is the
To calculate the growth rate of a variable, you will
calculate the percentage change from one time period to the next.
If real GDP grows from $10 trillion in 2002 to $10.5 trillion in 2003, the growth rate for real GDP is
If real GDP in 2002 is $10 trillion, and in 2003 real GDP is $9.5 trillion, then real GDP growth from 2002 to 2003 is
If the aggregate price level at time t is denoted by Pt, the inflation rate from time t - 1 to t is defined as
πt = (Pt - Pt - 1)/ Pt - 1.
If the price level increases from 200 in year 1 to 220 in year 2, the rate of inflation from year 1 to year 2 is
If the CPI is 120 in 1996 and 180 in 2002, then between 1996 and 2002, prices have increased by
If the CPI in 2004 is 200, and in 2005 the CPI is 180, the rate of inflation from 2004 to 2005 is
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