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In macroeconomics, a _________ describes the common way in which market values are measured in an economy.
Unit of account
Which of the following is a valid criticism of the use of money as a store of value in modern economies?
annual inflationary loss of buying power
Which of the following terms is considered to be a narrow definition of the money supply that includes, among other things, currency?
M1
If Evelyn uses her debit card to buy an iPod, then the money to pay the retailer will come from:
her M1 funds
Banks can protect themselves against an unexpectedly high rate of loan defaults and against the risk of __________ by adopting a strategy that will _____________.
an asset-liability time mismatch; diversify its loans
In modern economies, _______________ receive money from savers and provide funds to borrowers.
financial intermediaries
The process of making loans in financial capital markets is intimately tied to the:
creation of money
If the central bank increases the amount of reserves banks are required to hold from 10% to 20%, then:
both the money multiplier and supply of money in the economy will decrease.
The term _______________ describes the proportion of deposits that the bank must hold in the form of reserves that are not loaned out or invested in bonds.
reserve ratio
Stealth bank has deposits of $700 million. It holds reserves of $20 million and has purchased government bonds worth $350 million. The bank’s loans, if sold at current market value, would be worth $600 million. What does Stealth bank’s net worth equal?
$270 million
What are the functions of Central Bank, the Federal Reserve, in the U.S.
All of the above (to conduct monetary policy, to promote stability of the financial system, to provide banking services to commercial banks, and to provide banking services to the federal government.)
Which of the following institutions oversees the safety and stability of the U.S. banking system?
The Federal Reserve
Which of the following terms is used to describe the proportion of deposits that banks are legally required to deposit with the central bank?
reserve requirements
What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks?
discount rate
Which of the following is a traditional tool used by the Fed during recessions?
open market operations
A central bank that wants to increase the quantity of money, i.e. increase money supply, in the economy will:
buy bonds in open market operations
The Fed purchases of long-term assets to stabilize financial markets, reduce long-term interest rates, and improve the investment environment are called:
Quantitative easing
Central bank policy requires Northern Bank to hold 10% of its deposits as reserves. Northern Bank policy prevents it from holding excess reserves, i.e. all the excess reserve is invested. If the central bank purchases $30 million in bonds from Northern Bank, what will be the result?
Northern’s loan assets increase by $30 million
The central bank requires Southern to hold 10% of deposits as reserves. Southern Bank’s policy prohibits it from holding excess reserves, i.e. all the excess reserve is invested, If the central bank sells $25 million in bonds to Southern Bank which of the following will result?
the money supply in the economy decreases
When the central bank lowers the reserve requirement on deposits:
the money supply increases and interest rates decrease.
How are the specific interest rates for the lending and borrowing markets determined?
by the forces of supply and demand
If a Central Bank decides it needs to increase both the aggregate demand and the money supply, then it will:
follow expansionary monetary policy
_____________ will often cause monetary policy to be considered counterproductive because it makes it hard for the central bank to know when the policy will take effect
long and variable time lags
What is the name given to the macroeconomic equation MV = PQ?
basic quantity equation of money
If GDP is 3600 and the money supply is 300, what is the velocity? [Hint: you need to use MV = PQ relationship to answer it]
12
In macroeconomics, ___________________________ describes a situation in which two people each want to exchange some good or service that the other can provide.
a double coincidence of wants
Which of the following is omitted in a barter transaction?
money
If Bill performs plumbing upgrades for Alice in exchange for her incorporating his business, then their _________________________ will be satisfied.
double coincidence of wants
____________ is a completely inadequate mechanism ____________________ in a modern advanced economy.
Barter; for trying to coordinate trades
In uncertain economic times, ____________________ serves as a way of preserving economic value that can be spent or consumed in the future.
owning gold
In modern economies, credit cards are a _________________ because of their wide acceptance as a method of payment for both goods and services.
medium of exchange
________________ serves society in three functions: medium of exchange, unit of account, and store of value.
money
Lance paid $175,000 for his house in 2003 and sold it for $325,000 in 2006. What function did the house serve during the time Lance owned it?
store of value
In 2010, Tara used $50,000.00 from funds she had invested in certificates of deposit as a down payment to buy a house. What function did this portion of her investments serve when she made the down payment?
medium of exchange
Which of the following would function as a store of value, and also provide a medium of exchange, and unit of account?
an estate
If mollusk shells were accepted as a method of payment in modern-day markets, what economic role would they play in the financial system?
medium of exchange
Which of the following would be classified in the M1 category of the money supply?
demand deposits
With respect to measuring the money supply, which of the following terms describes a checking account?
demand deposits
_________________________ are included in the aggregate amount of MI money currently in circulation.
traveler’s checks
Which category of the money supply would you be contributing to if you invest in money market funds?
M2
Which of the following terms is considered to be a narrow definition of the money supply that includes, among other things, currency?
M1
Antonio tries to limit his risk of overexposure to debt by using a ________________ to store a certain amount of value that he then uses to make purchases.
smart card
Antonio tries to limit his risk of overexposure to debt by using a ________________ to store a certain amount of value that he then uses to make purchases.
the credit card company’s M1 funds
If Sarah uses her smart card to purchase movies over the internet, then the money to pay the retailer will come from:
Sarah’s M1 funds
Why do banks use a T-account?
the T-account separates assets on the left from liabilities on the right
___________are funds that the bank keeps on hand that are not loaned out or invested in bonds.
reserves
In macroeconomics, _____________________________ describes a situation where a bank's liabilities can be withdrawn in the short-term while its assets are being repaid in the long-term.
an asset-liability time mismatch
The money multiplier is equal to the _______________ in the economy divided by the original _________________.
total money; quantity of money
The quantity of money in an economy and the _____________________ are inextricably intertwined.
quantity of credit for loans
Banks typically come under financial stress because of:
a widespread decline in the value of their assets
If loans become far less available, then sectors of the economy that ______________ like business investment, home construction, and car manufacturing can be dealt a crushing blow.
depend on borrowed money
_________________________ are a form of deposits held in banks that are available by making a cash withdrawal or writing a check.
demand deposits
__________________ pool the deposits of many investors together and invest them in a safe way like short-term government bonds.
money market funds
_______________________ that require the depositor to commit to leaving their funds in the bank for a certain period of time, in exchange for a higher rate of interest are also called ________________.
Certificates of deposit; time deposits
The market where loans are made to borrowers is called the:
primary loan market
The market in which loans are bought and sold is called the:
secondary loan market
In an economy with _______________, money loses some buying power each year, but it remains money.
inflation
_____________ are a form of financial instrument through which corporations and governments borrow money from financial investors and promise to repay with interest.
bonds
Note
Flashcard