Monetary Policy: Money prices and Reserve Bank

Question 1

Bond

Answer 1

Legal promise to repay a debt including interest

Question 2

Maturation Date

Answer 2

Date at which the principal of a bond will be repaid

Question 3

Coupon Payments

Answer 3

Regular interest payments to bondholder

= Amount of bond x Coupon Rate

Question 4

Coupon Rate

Answer 4

Interest Rates promised when bond issued

Question 5

Stock (Equity)

Answer 5

Claim to partial ownership of a firm

Question 6

Dividend

Answer 6

Regular payment recieved by stockholders for each share they own

Question 7

Risk Premium

Answer 7

Rate of return that investors require to hold risky assets minus the rate of return on safe assets

Question 8

Diversification

Answer 8

Practice of spreading one’s wealth over a variety of different investments to reduce risks

Question 9

Money

Answer 9

Any asset that can be used in purchasing

Question 10

Barter

Answer 10

Direct trade of GnS for other Gns

Question 11

Medium of Exchange

Answer 11

Asset used in buying GnS

Question 12

Unit of Account

Answer 12

A basic measure of economic value

Question 13

Store of Value

Answer 13

An asset that serves as a means of holding wealth

Question 14

Bank Reserves

Answer 14

Reserves of cash kept by banks to meet their customers demands to withdraw deposits

Question 15

100% Reserve Banking

Answer 15

All banks deposits are kept in the form of cash reserves

Question 16

Reserve-Deposit Ratio

Answer 16

Ratio of reserves to total deposits held by a bank

Question 17

Frictional-Reserve Banking System

Answer 17

A system in which the reserve-deposit ratio is less than 100%

Question 18

Velocity

Answer 18

A measure of the amount of expenditure that can be financed from a given amount of money over a period of time

Question 19

Quantity Equation

Answer 19

An identity that states the nominal value of expenditure in the economy must equal stock of money multiplied by velocity of circulation

Question 20

Financial Deregulation

Answer 20

Removal of price and quantity controls from financial market so allocation of financial products is based on market forces, Supply and Demand

Question 21

Exchange Settlement Accounts

Answer 21

Accounts kept by commercial banks with RB which manage the flow of funds between commercial banks generated by activities of customers

Question 22

Open-Market Purchase

Answer 22

Purchase of Government bonds from public by Reserve bank for purpose of increasing balance in banks ESA

Question 23

Open-Market Sale

Answer 23

RB sells government bonds to public for purpose of decreasing the balance in ESA

Question 24

Open-Market Operations

Answer 24

Open-market purchases and sales

Question 25

Overnight cash rate

Answer 25

Rate of interest applied to loans in overnight cash market

Question 26

Overnight cash market

Answer 26

A segment of financial market where Commercial banks borrow and lend money for very short periods of time in order to manage their ESA

Question 27

Money multiplier

Answer 27

The effect of a 1 unit increase in exogenous spending on short run equilibrium output