Econ Chapter 10-11 Test

Anything to determine value?
Medium exchange

The direct exchange of one good for another
Barter

Something that serves as a way to compare values
Unit of account

Something that keeps its worth
Store of value

The coins and paper bills used as money in a society
Currency

The fact that money must withstand the wear and tear that comes from being used over and over again is a measure of its…
Durability

Money that can be easily divided into smaller units of value has the characteristic of
Divisibility

Objects that have value in themselves as well as their value as a means of exchange are called…
Commodity money

The difference between representative money and fiat money is that
??

Two units of the same type of money must be the same in terms of what they will buy, which is the principle of
Uniformity

An institution for receiving, keeping, and lending money
Bank

The central banking system of the US
federal reserve system

A government institution that covers bank accounts against bank failure
FDIC

A paper money that was issued by the US treasury during civil war
Greenback

A system in which a country’s money is backed with gold
Gold standard

When was the first bank if the US formed by the federalists?
??

During the free banking era, between 1837-1863, banking in the US was dominated by?
State-chartered banks

After the civil war, the national banking acts gave the federal government the power to do all of the following?
Charter banks, require banks to hold adequate gold and silver, have single national currency

As part of the nations recovery from the Great Depression of the 1930s, the banking system was reformed in what way?
The banking system was taken off the gold standard

The savings and loan crisis in the late 20th century was caused at least partially by which of the following?
High interest rates, bad loans, and fraud

The device that allows its holder to buy goods based on a promise to pay
Credit card

Specific type of loan that is used to buy real estate
Mortgage

System that keeps only a small part of a deposit on hand and lends out the rest?
Fractional reserve banking

Failure to pay back a loan
Default

Device that allows its holder to buy goods and have the payment deducted from a checking account
Debit card

What is the difference between simple and compound interests?
Simple interest is paid on the principal only; compound interest is paid on both principal and interest

The money supply of a country is made up of?
all the money available in an economy

Why are funds in checking accounts called demand deposits?
They are available whenever the depositor writes a check for them

What is a credit union?
??

How does a bank make most of its profit on its business?
By paying out less in interest on deposits than it earns in interest on loans

Redirecting resources from being consumed today to create future benefits
Investment

Arrangement that allows the transfer of money between savers and borrowers
Financial system

Institution that helps channel funds from savers to borrowers
Financial intermediary

Spreading out investments to reduce risk
Diversification

Collection of financial assets
Portfolio

What is the money an investor receives above and beyond the money initially invested called?
Return

What is a prospectus
An investment report for potential investors

Why is a certificate of deposit considered such a safe investment?
It is guaranteed by the federal government

What is a mutual fund?
A device for pooling the savings of many investors and investing it in a variety of ways

How does a pension fund act as an investor?
The company invests the money collected from employers and/or employees

Amount that an investor pays to buy a bond
Par value

Time at which payment is due to a bondholder
Maturity

Low-denomination bond issued by the US government
Savings bond

Bond issued by a state or local government authority
Municipal bond

Interest rate that a bond issuer will pay to a bond holder
Coupon rate

A bond issued by a corporation as a way to borrow money
Corporate bond

What is the securities and exchange commission?
A government agency that regulates financial markets and investment companies

Why would investors but a junk bond?
Junk bonds pay a potentially higher level of interest than other bonds

What is the difference between a primary market and a secondary market?
A primary market is financial assets that can be redeemed only by the original investor; a secondary markets assets can be resold

How does the risk involved in a money market mutual fund compare with the risk of a certificate of deposit?
The risk of the money market mutual fund is slightly greater than that of the CD

Period during which the stock market falls steadily
Bear market

Business that specializes in trading stocks
Brokerage firm

Difference between a higher selling price and a lower buying price realized by the seller of the stock
Capital gains

Electronic marketplace for stock that is not listed or traded on an organized exchange
OTC market

Contract that gives an investor the right to buy or sell stock
Option

What does the New York stock exchange do?
Arranges stock and bond trading of the largest and most established companies in the US

What kind of stockbroker is a day trader?
One who buys and sells stocks on a minute-by-minute basis to try to make a profit

What are the Dow and the S&P 500?
Indexes that show the performance of limited but representatives stocks

What was one outcome of the stocks markets great crash in 1929 that lasted for more than 50 years?
Ordinary people were afraid to invest in the stock market

What does the word speculation mean to an exonomist?
Making high risk investments with borrowed money

What’s an example of money as a unit of account?
Shopping around at a variety of stores to choose which place to buy something.

An example of representative money.
an IOU note

one purpose of the FDIC
to make sure that we don’t lose money even if a bank fails

What do the federalists believe about banking?
They believe in a central bank.

What’s a mortgage used for?
Real estate

An example of a liquid (easily converted into cash) asset?
a traveler’s check

Why is money (coins) easier than cold bars?
More easily divisible, portability, durability

What’s a condition for the fiat money system (government controlled and run) work?
Government must control money supply.

What is not an example of M1 (most/more liquid)?
mutual fund

You need a new car, who’s going to give you the worst interest on that loan?
finance company

When people in Mexico lose faith in the peso, what of the characteristics of money does theirs now lack?
acceptability

What does “FDA ensured” mean in the window of a bank?
If a bank fails, your deposits are protected up to $250,000

You borrow money for a car, it was a $1,000; what do you have to pay?
A: Interest of $200 for borrowing the principle of $1,000

The main advantage of diversification is?
reduces your risk of losing your invested money

Why is representative money more useful that commodity money?
Not as divisible, uniform, or potentially not as limited supply.

An example of a financial intermediary?
bank (lend & store)

What’s true about bonds?
Usually a low risk investment

Interest paid to a bondholder?
coupon rate

You don’t have to pay taxes on interest from?
treasury bills (bond with the government)

Stock that reinvests its earnings into the business
Growth stock

Stock split happens when…
When price of stock get too high

Example of equity (another term)
Stock

Liquidity is not a component of a bond?
Bond

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