Chapter 1

Question 1

Financial markets

Answer 1

markets in which funds are transferred from people who have an excess of available funds to people who have a shortage

Question 2

Security

Answer 2

(financial instrument) a claim on the issuer’s future income or assets

Question 3

Bond

Answer 3

debt security that promises to make periodic payments for a specified period of time

Question 4

Interest rate

Answer 4

the cost of borrowing or the price paid for the rental of funds (usually expressed as a percentage)

Question 5

Common stock

Answer 5

represents a share of ownership in a corporation, way of corporations to raise funds to finance their activities

Question 6

Financial intermediaries

Answer 6

institutions that borrow funds from people who saved and in turn make loans to people who need funds

Question 7

Banks

Answer 7

financial institutions that accept deposits and make loans

Question 8

Financial innovation

Answer 8

the development of new financial products and services

Question 9

E-finance

Answer 9

the ability to deliver financial services electronically

Question 10

Financial crises

Answer 10

major disruptions in financial markets that are characterized by sharp declines in asset prices and the failures of many financial and non financial firms

Question 11

Money (money supply)

Answer 11

anything that is generally accepted as payment for goods or services in the repayment of debts

Question 12

Aggregate output

Answer 12

total production of goods and services

Question 13

Unemployment rate

Answer 13

percentage of the available workforce unemployed

Question 14

Business cycles

Answer 14

upward and downward movement of aggregate output produced in the economy

Question 15

Recessions

Answer 15

periods of declining aggregate output

Question 16

Monetary theory

Answer 16

theory that relates the quantity of money and monetary policy in aggregate economic activity and inflation

Question 17

Aggregate price level

Answer 17

average prices of goods and services in an economy

Question 18

Inflation

Answer 18

continual increase in the price level

Question 19

Inflation rate

Answer 19

rate of change of the price level, usually measured as a percentage change per year

Question 20

Monetary policy

Answer 20

the management of money and interest rates

Question 21

Federal Reserve System

Answer 21

United States Central Bank that affects the quantity of money and interest rates in the economy

Question 22

Fiscal policy

Answer 22

involves decisions about government spending and taxation

Question 23

Budget deficit

Answer 23

an excess of government expenditures with respect to tax revenues

Question 24

Budget surplus

Answer 24

arises when tax revenues exceed government expenditures

Question 25

GDP

Answer 25

total dollar amount of all goods and services produced within a country’s border for one year

Question 26

Foreign exchange market

Answer 26

where currency is converted from one country to another

Question 27

Foreign exchange rate

Answer 27

the price of one country’s currency in terms of another’s