econ 11-13
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what is a barter economy
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money-less economy that relies on trade
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what are the three functions of money?
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medium of exchange common denominator stone of value
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what is commodity money?
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alternative use as an economic good
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what is fiat money?
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money by government decree
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what was used to \"back\" paper currency?
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gold and silver deposits in banks
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why was specie considered the most desirable form of money?
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miner content and because it was in short supply
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what is a monetary unit?
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standard unit of currency
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what characteristics must money have in order to have value?
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portability durability divisibility limited availability
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what led to americans' distrust of paper currency?
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continental currency was worthless
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what three problems arose from having different sources of paper currency?
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- hundreds of different kinds of circulation -surplus of notes through can be redeemed -easily counterfeited
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why did congress finally decide to print paper currency?
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raise money for Civil War
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How did the government combine financing the financing the war with currency reform?
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purchase government bonds, part of requirements to get national charter
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What are the two advantages of a gold standard?
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feel more secure with their money if they can be converted into gold
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what effect would the changing price of gold in the world have on a government's fixed price?
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pressure to change
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what happens when a country has a managed money supply?
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controls quantity, composition, and quality of money supply
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how did the money supply affect prices in the 1990s
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contributed price stability
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Federal Reserve System
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central bank that can lend to other banks in time of need
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run on the bank
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a rush by depositors to withdraw their funds before the bank failed
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FDIC
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insures customer deposits in the even of a bank failure
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fiat money
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currency by government decree
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medium of exchange
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something accepted as payment for goods and services
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greenback
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money named for the color of ink used to print it
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bank holiday
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brief period during which every united states bank had to close
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commercial bank
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bank that caters to business
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wam pum
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a form of native american currency made of shells
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wild cat bank
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bank that overprints currency
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legal tender
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government money that must be accepted in payment for debts
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gold certificate
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paper currency backed by gold on deposit with United States Treasury
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national currency
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bank notes backed by United States bonds
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bullion
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ingot or bars of precious metals
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central bank
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bank that can lend money to other banks in time of need
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monetary unit
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standard unit of currency in a country's money system
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what are savings
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dollars that become available in the absence of consumption
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what positive effects can savings have on businesses?
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positive funds available to borrowers who use them to produce new good
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what is a financial system
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network of savers, investors, and financial institution
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what is a financial intermediary
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financial institution that brings together the funds carer provide
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what is the circular flow of funds
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savers provide their funds directly or indirectly to the borrowers
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which segments of the country are the largest borrowers
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government and businesses
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examples of nonbank institution that can act as financial intermediaries
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- company make loans directly to consumers - life insurance company provide financial protection and make loans - mutual funds invest money for investors - pension funds collect income and disburse payments - real estate investments trusts make loans to construction
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what is risk
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situation which the outcome is uncertain
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when is an investor more likely to want assets that appreciate rather than generate current income
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saving from longterm retirement
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why do analysts advise people to invest in what they know
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investing in what you know can help you make sounder investment choices
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what do most investment advisers tell people?
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save something each month
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how do peple contribute to a 401(k) plan
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payroll deduction are invested in mutual funds
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what are bonds
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long term obligation that pay an interest rate
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what are the three components of a bond
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coupon, maturity, the par value
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what two factors do investors consider before they decide what to offer for a bond
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changes in future interest rates and the risk that company will default
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what is a bond's current yield
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annual interest divides by the purchase price
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what is the capital market
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money is lent for more than one year
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what is money market
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money lent for periods less than one year
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what is a primary market
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original issues can repurchase
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what is the major significance of the secondary market
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liquidity provides investors
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equities
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stocks that represent ownership shares in corporations
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financial system
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a network of savers, investors, and financial institutions that work together to transfer savings to investors
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tax exempt
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feature where the federal government does not tax interest paid to investors
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municipal bond
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issued by state or local government to raise funds
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financial asset
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claims on the property and borrower's income
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mutual fund
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company that sells stock in itself and then invests the money in stocks or bonds issued by other corporations
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bear market
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when prices of equities move sharply down
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premium
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price paid by the insured for a policy
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current yield
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the annual interest of a bond divided by its purchase
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bull market
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when prices of equities move up
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futures market
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market places in which futures are bought and sold
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portfolio diversification
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the practice of holding a large number of stocks so that increases in some can offset declines
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stockbroker
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a person whose profession is to buy and sell equities for others
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equities
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another name for stocks that represent ownership shares in a corporation
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options
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contracts that provide the right to purchase to sell commodities and assets in the future at prices agreed on today
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what things may be excluded from gdp
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intermediate products secondhand sales nonmarket transactions transaction
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five measures of national income
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gross national product net national product national income personal income disposable personal income
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four sectors of the economy
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consumer sector: household investment sector: proprietorship, partnerships, and corps. government sector: local, state, and federal level of government foreign sector: all consumers and producers outside the U.S.
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what is the output-expenditure model
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macroeconomic model used to draw aggregate demand by consumers, investments, the government, and foreign sectors
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to remove the distortions of inflation
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price index
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why does the government periodically take a census?
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required by the constitution
