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Econ 315 > Quiz 1 > Flashcards

Quiz 1 Flashcards

1
Q

Capitalism

A

financial system with private property and ownership

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2
Q

Money and credit effects:

A

Output, expenditure, and level of economic activity

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3
Q

Markets

A

2 people ready to trade, markets and money came before capitalism which transformed it

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4
Q

Money

A

anything generally accepted in payment for goods and services or in repayment of debts

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5
Q

Credit

A

promise to pay money, means of delaying final settlement

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6
Q

Currency

A

One type of money, US dollars and coins, cannot be used interchangeably with money

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7
Q

Income

A

flow of earnings per unit of time

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8
Q

Wealth

A

A stock, some amount of money at a given point in time; includes other assets as well

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9
Q

Accounting Model

A

Every agent/group in the economy is a kind of bank, in the sense that every agent attends to the inflow and outflow of cash balances

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10
Q

Assets:

A

Loans, cash reserves, securities

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11
Q

Liabilities

A

Deposit accounts, other borrowing, net worth

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12
Q

Full reserve

A

each deposit 100% backed by cash reserves, banks keep the full amount of deposits in cash, ready for immediate withdrawal on demand

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13
Q

Full reserve pros and cons

A

Pros: no systemic risk such as bank runs
Cons: lending/credit not possible

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14
Q

Fractional reserve

A

Cash reserves are less than deposits, and banks make loans which increases the velocity of money

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15
Q

Fractional reserve pros and cons

A

Pros: robust economy
cons: default, bank runs

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16
Q

Velocity of money

A

The frequency at which one unit, of currency, is used to purchase goods and services within a given time period; the number of times one dollar is spent to buy goods and services per unit of time

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17
Q

Neutral hierarchy of money

A

What looks like money at one level of the system looks like credit to level above it, gold standard, money and credit in terms of concrete financial instruments

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18
Q

Credit to money

A

securities, deposits, currency, gold

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19
Q

Gold

A

Ultimate money, ultimate international means of payment

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20
Q

Currencies

A

A form of credit, promises to pay gold, more credible promise to pay because of presence of reserves

21
Q

Deposits

A

Promises to pay currency on demand, twice removed promises to pay ultimate money

22
Q

Securities

A

Promises to pay currency over some time horizon in the future, even more attenuated promises

23
Q

Currencies, deposits, securities

A

credibility of these promises is an issue, reserves of instruments that lie higher up in the hierarchy can help enhance credibility

24
Q

If no gold..

A

demand determines credibility

25
Q

Time has value

A

paying interest to compensate lender for time during which you use the funds

26
Q

Risk requires compensation

A

uncertainty is quantified

27
Q

Moral hazard

A

occurs after transaction, occurs when agent’s action is private information- someone who is insured drives less carefully

28
Q

adverse selection

A

created by asymetric info before transaction occurs, occurs when agents type is private information- insurer does not know whether a driver is high or low risk

29
Q

Principal agent model

A

employee has full information about whether she is working hard (action) or her job skills (type)

30
Q

markets determine…

A

prices and allocate resources

31
Q

stability

A

because volatility creates risk, reducing volatility reduces risk-monetary policy

32
Q

4 prices of money

A

par, interest, exchange rate, price level

33
Q

par:

A

different types of money (currency, deposits) first price

34
Q

interest:

A

future money - money today in terms of money tomorrow

35
Q

exchange rate:

A

foreign money - domestic exchange, foreign economy

36
Q

price level:

A

commodities

37
Q

3 functions of money

A

Medium of exchange, unit of account, store of value

38
Q

liquidity

A

relative ease and speed with which an asset can be converted into medium of exchange-highly desirable

39
Q

Monetary aggregates

A

M1 and M2

40
Q

M1

A

currency at hands of public
travelers checks
demand deposits
other checkable deposits

41
Q

M2

A

M1
small denomination time deposits
saving deposits and money market deposit accounts
retail money market mutual fund shares

42
Q

What would happen to M1 if there was a financial crisis

A

a spike in M1

43
Q

What would happen to M2 in inflation

A

high growth rate in M2

44
Q

doubling all prices means…

A

value of money has dropped half

45
Q

halving all prices means…

A

value of money has doubled

46
Q

Quality theory of money ASSUMPTIONS (4-did not include what each variable means)

A

V is constant
full employment of resources (capital and labor)
equilibrium and perfect competition
M is exogenously determined

47
Q

Quality theory of money equation

A

MV=PT
M : quantity of money (stock)
V : velocity of money
P : general price level
T : transactions (GDP)

48
Q

Quantity theory of money STATEMENT (6)

A

MV=PT (equation of change)
P is entirely determined by stock of money
increase in M only effects P
increase in M raises P equiproportionaltly
T determined soley by real forces
true in long run

Econ 315 (2 decks)

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