practice exam ch 1-5!!! Flashcards
without the use of money, workers in an economy…?
would probably specialize less
equation to know how many prices someone in a barter economy needs to know?
n(n-1)/2
high transaction costs associated with a barter system refers to..?
high cost associated with finding someone with whom to exchange
an advantage that money has over other assets is that it…?
has lower transaction costs to use as means of payment than other assets
true or false? money is wealth, but not all wealth is money.
true
when comparing money to a US treasury bond held by an individual, we can say…
both are stores of value
comparing checks and currency we can say..?
a check isn’t money but currency is
to say an asset is liquid implies that…?
we are considering assets that may be readily converted into means of payment
M1 does not include…
currency IN THE VAULTS of commercial banks
what is most liquid? - art, demand deposits, houses, stocks?
demand deposits
is M1 or M2 a more useful measure of the relationship between the money supply and inflation? why?
M1… because it includes the most liquid assets
when did m2 stop being a good measure of relationship between money supply and inflation?
- has had no correlation since then
cross-country analysis of money-growth shows what about the correlation between inflation and the money growth rate?
it is positive & relatively strong
the consumer price index…
tends to overstate the impact of price changes due to substitution bias
financial instruments channel funds from…
savers to borrowers in financial markets with the use of financial institutions
new york stock exchange is…
a capital, financial market
insurance contract is a…
financial instrument
during the financial crisis of 2007-2009 some important financial firms were leveraged by more than…
30 times their net worth
how do financial markets enable the transfer of risk?
allow individuals and firms less willing to bear risk to transfer risk to other individuals and firms more willing to bear risk
the high volume of shares of stock that are traded on a normal day on stock markets reflect… (2)
the low transaction costs and high liquidity
what does the buying and selling in primary markets involve?
an investment bank
well-run financial markets…
ensure resources are allocated efficiently
countries that lack well-defined property laws and legal structures…
will not develop as fast economically as countries with clear property rights and formal legal system
rule of 72?
divide 72 by the interest rate…. don’t put the interest rate percentage!!!! example: 8%…. 72/8
doubling the future value will cause the present value to….
double
present value and interest rate have what type of relationship…?
inverse relationship
an increase in time until a payment is made on an investment does what to the present value..?
decreases PV
the coupon rate is…?
the annual amount of interest payments made on a bond as a percentage of the amount borrowed
should a firm make the investment if the internal rate of return is greater than the opportunity cost?
yes
how is the price of a coupon bond determined?
take the present value of all of the bond’s payments
an investment with more risk should sell for…?
a lower price and offer higher return
