Test 4 Flashcards
What are payments for insurance called?
Premiums
What is any form of money that has been declared a valid means of payment called?
Legal Tender
What are the resources corporations gather by selling ownership in their businesses?
Stocks
What are bars of gold, silver, or platinum?
Bullion
What is coined, metallic money called?
Specie
What type of investment is a share of a corporation’s profit?
dividends
What type of investment guarantees the amount of original investment plus a specified rate of interest by a certain date?
bonds
What are assets that flow easily since they can be converted into other investments?
liquid investments
What is an arrangement for the intent of providing for retirement from work?
Pension Plan
What allows for the investment of money in a wide variety of areas?
mutual funds
What legal entity is distinct from the people who own it?
corporation
What protects stockholders from paying the firm’s creditors in the event of failure or bankruptcy?
limited liability
What is a contract between two parties of protection against certain types of loss in exchange for payment?
Insurance
What is the exchange of one good for another good without a standard of money passing from hand to hand?
barter
What do governments do to their money when they add lead, copper, and iron to gold and silver coins?
Debase
When too much money is circulated, what is the result?
inflation
Who manages the US money supply?
Federal Reserve
What are the three main components of the Federal Reserve System?
Federal Open Market Committee
Federal Reserve banks
Board of Governors
Where do most of the savings needed to fund R&D in market economies come from?
the private sector
What insect does Proverbs instruct people to work like?
Ant
What is the theory that the variation in the money supply is the main source of economic fluctuations?
Monetarism
What are the three principal purposes or functions of money?
medium of exchange
measure of value
store of value
What are the three key elements that determine how much investments will grow?
Time
Rate of Return
Amount Invested
What United States Department is responsible for coining and printing American money?
Treasury Department
What corporation created by Congress insures the money in each type of bank account?
Federal Deposit Insurance Corporation (FDIC)
What term refers to one who lends money or capital?
creditor
What term refers to one who borrows money?
debtor
What is the commitment of resources to a project or purpose that is expected to bring future profit to the investor?
investment
What did the apostle Paul say was the root of all evil?
the LOVE of money
What principle refers to people hoarding stable forms of money while spending less stable forms?
Gresham’s Law
What is legal tender that is backed by only a government’s promise?
fiat money
What does CD stand for?
Certificate of Deposit
What type of money consists only of transaction accounts, traveler’s checks, and all coins and paper money held only outside banks? (M1, M2, M3, or near-monies)
M1
What is the value asserted to the worth of a coin or bill?
face value
What type of investment allows an individual to receive a fixed amount of dividends before other investors?
Preferred stock
What type of investment allows an individual to vote at company meetings?
Common Stock
What is a written order that authorizes a bank to remove funds from an account?
check
What quality should money possess that shows its availability in small or large units?
divisibility
What quality should money possess that shows its stability in value?
constancy
What type of account allows limited transactions and pays an interest rate that changes with the demand of loans?
money market
What type of account guarantees a certain interest rate and has a specified maturity date?
CD
ESSAY:
Why is the federal Social Security system a bad investment?
- Instead of being placed in a potentially profitable investment, the money is placed into Social Security is spent by the government.
- The program is built on an unstable “pay-as-you-go” foundation.
- The system could ultimately collapse.
- Much or all of the money that people have paid into the program over the years could be lost.
- People could place the money they currently pay for Social Security into investments that would yield much higher returns.
It is not the government’s responsibility to provide financially for its citizens.
ESSAY:
Explain how the fractional reserve system of banking allows banks to hold less than 100 percent of deposits in reserve.
- Banks have found that they need to keep only a small fraction of total deposits on hand for day-to-day operations.
- It is unlikely that all their depositors will demand all of their money at once.
- By lending out portions of their deposited money, banks are creating money that is not backed by bank assets.
