Quiz 1 Flashcards
Security
A claim to some future flow of income
Bond
A contract that promises to make predetermined payments at certain times in the future.
Interest Rate
The COST OF BORROWING
Inflation
A continual increase in the price level
Inflation Rate
The rate of change of the price level, usually measured as a percentage change per year.
Deflation
A continual decrease in the price level
Disinflation
A reduction in the rate of inflation
Monetary Policy
The management of money and interest rates. Controlled by “central banks”, in the U.S. this is known as the Federal Reserve.
Fiscal Policy
The decisions GOVERNMENTS make regarding spending and taxation.
What are the two main functions of financial systems?
- To match savers and investors 2. To provide a risk-sharing option
What are the three functions of money?
- A Medium of Exchange - ability to purchase goods and services 2. A Unit of Account - used to measure value in an economy 3. Store of Value - a repository of purchasing power over time
What are the five standards that make a commodity a good medium of exchange?
- It must be standardized 2. It must be widely accepted 3. It must be divisible, so change can be made 4. It must be easy to carry 5. It must not deteriorate quickly
Aggregate Price Level
The average price of goods and services in an economy.
Commodity Money
A system in which the medium of exchange is itself a useful commodity
Fiat Money
A system in which the medium of exchange is intrinsically useless, but it’s value is guaranteed by some institution.
Define Present Value Mathematically
