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Investments > Econ ch 1-6 HW > Flashcards

Econ ch 1-6 HW Flashcards

1
Q

Financial markets promote greater economic efficiency by channeling funds from ________ to ________.

A

savers to borrowers

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2
Q

Prior to almost all recessions since 1950, there has been a drop in

A

the growth rate of money stock

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3
Q

There is a ________ association between inflation and the growth rate of money ________.

A

positive; supply

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4
Q

The management of money and interest rates is called ________ policy and is conducted by a nation’s ________ bank

A

monetary; central

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5
Q

A budget ________ occurs when government expenditures exceed tax revenues for a particular time period.

A

deficit

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6
Q

What is the typical relationship among interest rates on three-month Treasury bills, long-term Treasury bonds, and Baa corporate bonds?

A

They tend to move together over time with the corporate bond having the highest rate of interest

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7
Q

How does the size of the U.S. budget deficit in 2010 compare to the time period since​1950?

A

expanded since 2007, in 2010 the deficit to GDP was 10%, average since 1950 was about 2%

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8
Q

Well-functioning financial markets allow the economy to

A

operate more efficiently

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9
Q

The principal lender-savers are

A

households

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10
Q

Securities are ________ for the person who buys them, but are ________ for the individual or firm that issues them.

A

assets; liabilities

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11
Q

If the maturity of a debt instrument is less than one year, the debt is called

A

short term

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12
Q

A financial market in which previously issued securities can be resold is called a ________ market.

A

secondary

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13
Q

A financial market in which only short-term debt instruments are traded is called the

A

money market

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14
Q

Federal funds

A

loans made by banks to each other on an overnight basis

banks with excess reserves can lend to banks with demand for extra money and charge FFR

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15
Q

If bad credit risks are the ones who most actively seek loans and, therefore, receive them from financial intermediaries, then financial intermediaries face the problem of

A

adverse selection

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16
Q

Financial institutions that accept deposits and make loans are called

A

depository institutions

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17
Q

Example of a depository institution

A

mutual savings bank

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18
Q

A person’s house is part of her

A

wealth

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19
Q

Currency includes

A

paper money and coins

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20
Q

Income

A

flow of earnings per unit of time

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21
Q

When compared to exchange systems that rely on money, disadvantages of the barter system include

A

the requirement of a double coincidence of wants

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22
Q

requirements for medium of exchange

A

widely accepted, not deteriorate quickly, easy to carry, divisible, easily standardized

23
Q

___________ could be used for some other purpose other than as a medium of exchange, for example, gold coins could be melted down and turned into gold jewelry

A

commodity money

24
Q

Included in M1

A

Currency
Traveler’s checks
Demand Deposits
Other check deposits

25
Q

Included in M2

A

Small den. deposits
Savings and Money Markets
Money Mkt Mutual Fund shares

26
Q

If an individual moves money from a small-denomination time deposit to a demand deposit account

A

M1 increases and M2 stays the same.

27
Q

Most frequent forms of fixed payment loans

A

installment loans and mortgages

28
Q

rate of return

A

sum of current yield and rate of capital gain

29
Q

How does an equal increase in all bond interest rates change the prices of long term vs short term bonds

A

decreases long term bond returns more than short term

30
Q

Prices and returns for ________ bonds are more volatile than those for ________ bonds, everything else held constant.

A

long term; short term

31
Q

When the ________ interest rate is low, there are greater incentives to ________ and fewer incentives to ________.

A

real; borrow; lend

32
Q

An increase in an asset’s expected return relative to that of an alternative asset, holding everything else constant, ________ the quantity demanded of the asset.

A

increases

33
Q

Holding everything else constant, if interest rates are expected to increase, the demand for bonds ________ and the demand curve shifts ________.

A

decreases; left

34
Q

If housing prices are expected to increase, then, other things equal, the demand for houses will ________ and that of Treasury bills will ________.

A

increase; decrease

35
Q

If fluctuations in interest rates become smaller, then, other things equal, the demand for stocks ________ and the demand for long-term bonds ________.

A

increases; increases
or
decreases; decreases

36
Q

When the interest rate on a bond is above the equilibrium interest rate, in the bond market there is excess ________ and the interest rate will ________

A

demand; fall

37
Q

When the price of a bond decreases, all else equal, the bond demand curve

A

does not shift

38
Q

Higher government deficits ________ the supply of bonds and shift the supply curve to the ________, everything else held constant.

A

increase; right

39
Q

Deflation causes the demand for bonds to ________, the supply of bonds to ________, and bond prices to ________, everything else held constant

A

increase; decrease; increase

40
Q

In Keynes’s liquidity preference framework, if there is excess demand for money, there is

A

an excess supply for bonds

41
Q

How does an increase to the interest rates change the demand for money

A

decreases the quantity of money demanded

42
Q

When the Fed ________ the money stock, the money supply curve shifts to the ________ and the interest rate ________, everything else held constant.

A

increases; right; falls

43
Q

Factors that shift demand for money

A

Income effect, price level effect, expected inflation effect

44
Q

When the growth rate of the money supply is increased, interest rates will fall immediately if the liquidity effect is ________ than the other money supply effects and there is ________ adjustment of expected inflation.

A

larger, slow

45
Q

A bond with default risk will always have a ________ risk premium and an increase in its default risk will ________ the risk premium

A

positive, increase

46
Q

A decrease in the liquidity of corporate bonds, other things being equal, shifts the demand curve for corporate bonds to the ________ and the demand curve for Treasury bonds shifts to the ________.

A

left; right

47
Q

According to the expectations theory of the term structure, the interest rate on a long-term bond will equal the ________ of the short-term interest rates that people expect to occur over the life of the long-term bond.

A

average

48
Q

According to the liquidity premium theory of the term structure, a downward sloping yield curve indicates that short-term interest rates are expected to

A

decline sharply in futur

49
Q

An increase in the riskiness of corporate bonds will ________ the price of corporate bonds and ________ the price of Treasury bonds, everything else held constant.

A

reduce; increase

50
Q

Bonds with no default risk are called

A

default-free bonds

51
Q

how will the abolishment of income tax change the demand for municipal bonds?

A

decrease demand, higher interest rates

52
Q

The U-shaped yield curve in the figure above indicates that short-term interest rates are expected to

A

fall moderately in the near-term and rise later on

53
Q

The typical shape for a yield curve

A

gently upward sloping

54
Q

A key assumption in the segmented markets theory is that bonds of different maturities

A

are not substitutes at all

Investments (14 decks)

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