ch. 3

Question 1

GDP

Answer 1

measure overall health of economy. value of all goods and services produced in a country.

Question 2

Business Cycle

Answer 2

1. Expansion
2. Peak.
3. Contraction
4. Trough`

Question 3

Recession

Answer 3

declining GDP for 6 months

Question 4

Depression

Answer 4

decline in GDP for 18 months

Question 5

Economic indicators

Answer 5

1. leading indicator: future
2. coincident indicator: present
3. lagging indicator: past

Question 6

Schools of Economic thought

Answer 6

1. classical - lower taxes and less govt regulation
2. keynesian - mixed, fiscal & monetary policy
3. monetarists - supply of money
   Each attempts to stimulate the economy positively

Question 7

Economic policy tools

Answer 7

monetary policy and fiscal policy

Question 8

Federal Reserve Board tools

Answer 8

reserve requirement ($ in circulation), discount rate (rates for federal loans), quantitative easing (buy & sell US govt securities thru open market operations)

Question 9

interest rates

Answer 9

the cost of money. Key interest rates:

1. discount rate
2. federal funds rate
3. broker call loan rate
4. prime rate

Question 10

discount rate

Answer 10

interest rate the fed charges for loans to member banks. (more symbolic than actually used)

Question 11

Federal Funds rate

Answer 11

rate that member banks charge each other for overnight loans

Question 12

Broker call loan rate

Answer 12

rates charged from banks to BDs for client’s margin purchases

Question 13

prime rate

Answer 13

rate that banks charge to their most creditworthy corporate customers on loans

Question 14

reserve requirement

Answer 14

% of their depositors’ assets in an account with the federal reserve. meant for increased liquidity

Question 15

money supply

Answer 15

M1 - cash & checking accts
M2 - M1 + money markets, CDs 100k+ overnight repurchase agreements, time deposits 100k-
M3 - M1+M2+ time deposits 100k+, repurchase agreements greater than 1 day

Question 16

disintermediation

Answer 16

people take $ out of low yields and invest in higher yields

Question 17

moral suasion

Answer 17

implying or expressing their views on the economy, can slightly influence the economy

Question 18

fiscal policy

Answer 18

determined by congress and the president.

Question 19

London Interbank Offerd Rate (LIBOR)

Answer 19

measure of short term rates around the world. rate charged by and between financial institutions