Chapter 4 - Financial Markets

Question 1

Money

Answer 1

used for transactions, pays no interest

a) currency
b) checkable deposits
- -> a stock

Question 2

Income

Answer 2

Income is what you earn per period (flow)

Question 3

Saving

Answer 3

Saving is the part of after-tax income that you do not spend, and it is also a flow

Question 4

Savings

Answer 4

Savings is the value of what you have accumulated over time (stock)

Question 5

Financial wealth

Answer 5

Financial wealth is the value of all your financial assets minus all your financial liabilities, and it is a stock variable

Question 6

Investment

Answer 6

Investment is what economists refer to as the purchase of new capital goods (a flow)

Question 7

Financial investment

Answer 7

Financial investment is the purchase of shares or other financial assets (a flow)

Question 8

Expansionary open market operation

Answer 8

the CB expands the supply of money by buying bonds

Question 9

Contractionary open market operation

Answer 9

the CB contracts the supply of money by selling bonds

Question 10

How do CBs change the supply of money?

Answer 10

by buying or selling bonds in the bond market (open market operations)

Question 11

zero lower bound

Answer 11

the interest rate cannot go (much) below zero