ECON Ch7

What does insurance do?

Allows a person to pay a small amount, along with many others, to protect against costly results of low-probability events.

Who are not "sellers" in the capital market?

Governments which spend to stimulate the economy.

Is it possible for a person to spend money which they have not yet earned?

Yes

Compare the promise of $1,000 today and the promise of $1,000 two years from now?

The promise today is worth more because the money could be invested to earn interest over the next two years.

Which of the following is not a financial instrument?

Transfer payments.

Suppose Joe's wage increased from $10 per hour to $12 per hour, and over the same period the GDP deflator increased from 100 to 130. What can you correctly say about what Joe get out of working?

Joe became worse off, because his nominal wage increased, and his real wage decreased.

Which of the following is not an act of investing:

The net worth of a company's financial assets.

Which instrument is the most liquid?

Saving account at a bank.

Which of the following financial instruments represent ownership of a company?

A share of stock.

Individuals, companies, and governments each can be both "buyers" and "sellers" in financial markets.

True

The Central Bank of the United States is

The Federal Reserve System.

What kind of money do you get from an ATM?

Fiat money.

When you buy a home on credit, which of the following do you not have to consider before understanding total cost of the home?

Loan delinquency rates.

What is not a primary function money?

Risk protection.

At what kind of institution can you get the best rate of interest on a savings account?

Commercial bank.

When the price of oil goes up, does this cause inflation?

No.

Why is it so difficult and slow to reduce the unemployment rate after a recession?

As the number of jobs rebound, both unemployed and previously discouraged workers enter the workforce.

Luxemburg has the highest Gross Domestic Product Per Capita in the world; the U.S. is 11th and Equatoria Guinea (a small African country) is 30th, just ahead of Denmark. Why does this measure not always serve to measure economic well-being of people in a country?

Per Capita GDP does not reflect distribution of income in a country.

Which of the following measures indicates economic growth in a society?

Increase in real gross domestic product.

The official "unemployment rate" (U3) in the United States is calculated as:

A monthly household sample survey of individuals at least 16 years of age asking who worked and who didn't work but were actively seeking employment in a particular week.