Exercise 1 9/8 Flashcards
A primary role of the financial system of a country is to:
provide an efficient distribution of capital for promoting economic growth
The organization responsible for paying the bills incurred by the US Gov is the:
US Treasury
If a commercial bank finds itself in need of borrowing funds and cannot acquire those funds from the private sector, then it could likely borrow from:
the discount window
Asymmetric information in financial markets is a potential problem usually resulting from:
borrowers having more information than the lenders, and not disclosing this information
What describes financial instruments?
can transfer resources and risk between people
Compared to interest rates on long-term US gov debt, interest rates on short-term US gov debt tends to fluctuate _____ and is usually _____ over time
more: lower
Large, persistent budget deficits may cause:
a reduction in the level of investment in plant and equipment
Most individuals lend:
indirectly, using a financial intermediary because it lowers the cost and risk of lending
Financial markets promote greater economic efficiency by channeling funds from _____ to _____
savers: investors
Goals of financial regulation
Providing information to economic agents, minimizing the transactions costs associated with funds transfer, promoting the soundness of the financial system
The Federal Reserve System:
functions as a bank for banks
The bond markets are important because they are:
the markets where interest rates are determined
An example of the problem of _____ is when a college student loses $4,000 playing poker and uses their student loan money to cover the losses.
Moral Hazard
Since WWII, banks in the US have generally:
been a source of financial innovatons
Ordering of sources of funds firms rely on for investment from most important to least important
Loans from financial institutions, bond issues, stock issues
The GDP is considered what?
A flow variable
The declaration of dollars as legal tender in the US means it must be
accepted to settle debt payments and taxes in the US
The primary means by which the Fed creates money is by
electronically adjusting account balances in its computer system
The financial system does what?
Shares risk, creates liquidity, provides information
In the US, monetary policy is determined by:
the Fed acting independently
