Exam 3 terms

Question 1

Budget resolution

Answer 1

The annual budget resolution is an agreement between the House and Senate on a budget plan for the upcoming fiscal year and at least the following four fiscal years

Question 2

Crowding out

Answer 2

federal spending and borrowing causes interest rates to rise and business investment to fall

Question 3

Medium of exchange

Answer 3

whatever is widely accepted as a method of payment

Question 4

Store of wealth

Answer 4

Store of wealth refers to the ability of an asset to preserve its value over time.

Question 5

Discount rate

Answer 5

the interest rate charged by the central bank on the loans that it gives to other commercial banks

Question 6

Federal funds rate

Answer 6

the interest rate at which one bank lends funds to another bank overnight

Question 7

Open market operations

Answer 7

the central bank selling or buying Treasury bonds to influence the quantity of money and the level of interest rates

Question 8

Money market mutual fund

Answer 8

the deposits of many investors are pooled together and invested in a safe way like short-term government bonds

Question 9

Federal open market committee

Answer 9

The Federal Open Market Committee (FOMC) is the branch of the Federal Reserve System that determines the direction of monetary policy.

Question 10

Transaction demand

Answer 10

the transaction demand for money refers to the amount of money needed to purchase the goods and services that we consume

Question 11

Asset demand

Answer 11

The asset demand for money is the amount of money people demand as a store of wealth, its is determined by the interest rate

Question 12

Continuing resolutions

Answer 12

Continuing resolutions are temporary spending bills that allow federal government operations to continue when final appropriations have not been approved by Congress and the President.

Question 13

Entitlement programs

Answer 13

Entitlement programs are either financed from Federal trust funds or paid out of the general revenues. Those paid out of the general revenues are income redistribution programs intended to address problems such as illness and poverty.

Question 14

Commodity money

Answer 14

an item that is used as money, but which also has value from its use as something other than money

Question 15

Greshams law

Answer 15

Gresham’s law states that “bad money drives out good” and is a monetary principle that can be applied to the currency markets. During the historical use of precious metals to manufacture coins, Gresham’s law applied to the changing value of coins and their contents.

Question 16

Fiat money

Answer 16

has no intrinsic value, but is declared by a government to be the country’s legal tender

Question 17

Deposit insurance

Answer 17

an insurance system that makes sure depositors in a bank do not lose their money, even if the bank goes bankrupt

Question 18

Checkable deposits

Answer 18

Checkable deposits is a technical term for any demand deposit account against which checks or drafts of any kind may be written. (A demand deposit account means the owner can withdraw funds on demand, with no notice.)

Question 19

Time deposits

Answer 19

account that the depositor has committed to leaving in the bank for a certain period of time, in exchange for a higher rate of interest; also called certificate of deposit

Question 20

Asymmetric information

Answer 20

a term that refers to when one party in a transaction is in possession of more information than the other.

Question 21

Required reserves

Answer 21

funds that the bank cannot loan out, it is calculated by multiplying the total deposits by the reserve requirement (RR).

Question 22

Money multiplier

Answer 22

total money in the economy divided by the original quantity of money, or change in the total money in the economy divided by a change in the original quantity of money

Question 23

Velocity of money

Answer 23

Nominal GDP/money supply

Question 24

Gross debt

Answer 24

the total amount of debt a company has at a certain point in time.

Question 25

M1

Answer 25

a) currency and coins held by the non banking public
b) checkable deposits, travelers checks, and debit cards

Question 26

M2

Answer 26

a) M1
b) savings deposits
c) small denomination time deposits (less than 100k)
d) money market mutual funds

Question 27

M3

Answer 27

a)M2
b) institutional money funds and partial large time deposits

Question 28

Liquidity

Answer 28

Liquidity refers to how quickly you can use a financial asset to buy a good or service.(how easily it is spent)