Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

AP Macroeconomics > Unit 4 > Flashcards

Unit 4 Flashcards

1
Q

Define Financial Sector

A

Network of institutions that link borrowers and lenders. Includes banks, mutual funds, pension funds, and other financial intermediaries.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Define Assets

A

Anything tangible or intangible that has value.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Define Interest Rate

A

The amount a lender charges a borrower for borrowing money. It’s the price of a loan.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Define Interest-Bearing Asset

A

Assets that earn interest over time such as bonds.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Define Bonds (Securities/Treasuries)

A

Loans, or IOU’s, that represent debt that the government, business, or individual must repay the lender.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Define Stocks (Equities)

A

Represent ownership of a corporation and the stockholder is often entitled to a portion of the profit paid out as dividends.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Define Liquidity

A

The ease with which an asset can be converted to a medium of exchange. In general, the higher the liquidity the lower the rate of return.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Define Demand Deposits

A

Money deposited by customers in a commercial bank. This can be used to buy goods and services with a check.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Explain the relationship between the price of previously issued bonds and interest rates.

A

They are inversely related; people prefer high interest rates because they give a greater rate of return. If rates for new bonds go up, people would prefer them to previously issued bonds. This causes the price of previously issued bonds to decrease.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What’s the equation for the nominal interest rate?

A

Nominal Interest Rate= Real Interest Rate+ Expected Inflation NRE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What’s the equation for the real interest rate?

A

Real Interest Rate= Nominal Interest Rate- Expected Inflation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are the functions of money?

A

Medium of Exchange- Unit of Account- Store of Value MUS

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Define Medium of Exchange

A

Money can easily be used to buy goods and services with no complications of barter system.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Define Unit of Account

A

Money measures the value of all goods and services. Money acts as a measurement of value.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Define Store of Value

A

Money allows you to store purchasing power for the future.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is M1 consisted of?

A

M1= Currency in circulation, demand deposits, and traveler’s checks.

CDT

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is M2 consisted of?

A

M2= M1+ Savings Accounts and CDs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Define Assets

A

Things that a bank owns like bonds, car loans, mortgages, and reserves.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Define Liabilities

A

Things that a bank owes like demand deposits.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Define Required Reserves

A

The percent that the bank must hold by law.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Define Excess Reserves

A

The amount that the bank can loan out.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Define Fractional Reserve Banking

A

When banks hold a portion of deposits to cover potential withdrawals and the loan the rest of the money out.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What is the equation for the Money Multiplier?

A

1/RRR

24
Q

What is the monetary base and what is it consisted of?

A

M0; consisted of currency in circulation and bank reserves.

25
Q

What are the types of demand for money?

A

Transaction Demand-Asset Demand

26
Q

Define the Transaction Demand for Money

A

People hold money for everyday transactions.

27
Q

Define Asset Demand for Money

A

People hold money since it is less risky than other assets.

28
Q

What are the shifters on the Money Market graph for the demand of money?

A

Change in Price Level, Income, and Technology. PIT

29
Q

What are the shifters on the Money Market graph for the supply of money?

A

Reserve Requirements- Discount Rates- Open Market Operations (buying and selling bonds)- Federal Funds Rate RDOF

30
Q

If we decrease the reserve requirement, that would _____ the money supply.

A

Increase

31
Q

Define Open Market Operations

A

When the central bank buys or sells government bonds (securities). This is the most important and widely used monetary policy.

32
Q

Define the Federal Funds Rate

A

The interest that banks charge one another for one day loans or reserves.

33
Q

Define the Discount Rate

A

The rate the central bank charges commercial banks.

34
Q

Define Bank Balance Sheets

A

Shows the specific assets and liabilities for a bank.

35
Q

Define Owner’s Equity

A

Money owed to the owners or shareholders of the bank.

36
Q

What is the Equation for the Maximum Deposit Expansion

A

Excess Reserves x Money Multiplier MEM

37
Q

What are the shifters of AD?

A

C/Ig/G/Xn

38
Q

What are the shifters of SRAS?

A

Change in the Price of Resources-Changes in Taxes/Subsidies/Regulations- Change in Productivity-Expectations of Inflation S-PTPI

39
Q

How will SRAS shift if there is an expectation of an increase in Inflation?

A

Left

40
Q

What happens when everything else is at equilibrium but SRAS is shifted to the left?

A

Stagflation

41
Q

What is the relationship between expected inflation and unemployment rate?

A

Inverse

42
Q

If AD changes, you make a _____ curve in the Philip’s Model Curve

A

Left/Right

43
Q

When there is a change in SRAS, the SRPC either moves _____ or _____

A

Up or Down (for example if SRAS moves left, SRPC moves up)

44
Q

Deceasing structural and/or frictional unemployment will _____ LRPC.

A

Decrease

45
Q

Increasing structural and/or frictional unemployment will _____ LRPC.

A

Increase

46
Q

LRPC will shift to the _____ to show growth.

A

Left

47
Q

If SRAS moves to the left, SRPC will move _____.

A

Up (and the point will move to the right)

48
Q

The shifts in the loanable funds market are based off of the?

A

Whether there is a trade deficit or trade surplus. (The TR/GS graph)

49
Q

What is the equation for total reserves?

A

TR=ER+RR

50
Q

What happens to the bond market graph when you buy bonds?

A

DB and PB go up

51
Q

What happens to the bond market graph when you sell bonds

A

SB goes up and PB goes down

52
Q

How do you calculate the yield percentage?

A

Yield/Price x 100

53
Q

Define Quantity Theory of Money

A

the amount of money in circulation is equal to the value of the goods/services sold.

54
Q

What is the equation for the quantity theory of money?

A

MV=PY (Money Supply x Velocity of Money= Price Level x Output)

55
Q

Define Velocity of Money

A

How many times a dollar is used in a transaction in a given year.

56
Q

What is M3 consisted of?

A

M1+M2+ Large Time Deposits+Larger Liquid Assets

57
Q

What is M0 consisted of?

A

M0= Monetary Base- Currency (currency in circulation) and Bank Reserves

MCB

AP Macroeconomics (5 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions