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Financial markets promote efficiency by

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channeling funds from savers to investors

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Financial markets promote greater efficiency by channeling funds from ---- to -----

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savers, borrowers

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Well-functioning financial markets promote

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growth

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A key factor in producing high economic growth is

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well-functioning financial markets

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Markets in which funds are transferred from those who have excess funds available to those who have a shortage of available funds are called

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financial markets

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------ markets transfer funds from people who have an excess of available funds to people who have a shortage

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financial

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Poorly performing financial markets can be the cause of

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poverty

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bond markets are important because they are

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the markets where interest rates are determined

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the price paid for the rental of borrowed funds is commonly referred to as the

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interest rate

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compared to interest rates on long term US bonds, interest rates on 3-month treasury bills fluctuate --- and --- on average

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more, lower

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the interest rate on Baa (medium quality) corporate bonds is ---, on average, than other interest rates, and the spread between it and other rates became --- in the 1970's

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higher, larger

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Everything else held constant, a decline in interest rates will cause spending on housing to

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rise

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High interest rates might --- purchasing a house or car but at the same time, high interest rates might --- saving

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discourage, encourage

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An increase in interest rates might --- saving because more can be earned in interest income

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encourage

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everything else held constant, an increase in interest rates on student loans

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increases the cost of a college education

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high interest rates might cause a corporation to --- building a new plant that would provide more jobs

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postpone

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the stock market is important because it is

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the most widely followed financial market in the US

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stock prices are

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extremely volatile

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A rising stock market index due to higher share prices

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increases peoples wealth and as a result may increase their willingness to spend

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When stock prices fall

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an individuals wealth may decrease and their willingness to spend may decrease

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Changes in stock prices

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affect firms decisions to sell stock to finance investment spending

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An increase in stock prices --- the size of peoples wealth and may --- their willingness to spend, everything else held constant

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increase, increase

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Low stock market prices might --- consumers willingness to spend and might --- businesses willingness to undertake investment

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decrease, decrease

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fear of major recession causes stock prices to fall, everything else held constant, which in turn causes consumer spending to

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decrease

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A share of common stock is a claim on a corporations

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earnings and assets

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on ---, Oct 19, 1987, the market experienced its worst one-day drop in its entire history with DJIA falling by more than 500 points

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Black Monday

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The decline in stock prices from 2000 through 2002

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reduced individuals willingness to spend

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The Dow reached a peak of over 11,000 before the collapse of the --- bubble in 2000

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high-tech

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What is a stock? How do stocks affect the economy?

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A stock represents a share of ownership of a corporation, or a claim on a firm's earnings/assets. Stocks are part of wealth, and changes in their value affect people's willingness to spend. Changes in stock prices affect a firm's ability to raise funds, and thus their investment.

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Why is it important to understand the bond market?

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The bond market supports economic activity by enabling the government and corporations to borrow to undertake their projects and it is the market where interest rates are determined.

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Channeling funds from individuals with surplus funds to those desiring funds when the saver does not purchase the borrower's security is known as

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financial intermediation

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a financial crisis is

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a major disruption in the financial markets

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banks are important to the study of money and the economy because they

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have been a source of rapid financial innovation

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financial intermediaries

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provide a channel for linking those who want to save with those who want to invest

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Banks, saving and loan associates, mutual savings banks, and credit unions,

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have been adept at innovating in response to changes in the regulatory environment

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Financial institutions search for --- has resulted in many financial innovations

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higher profits

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Banks and other financial institutions engage in financial intermediation, which

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can benefit economic performance

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financial institutions that accept deposits and make loans are called

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banks

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the financial intermediaries that the average person interacts with most frequently are

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banks

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which of the following is not a financial institution

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business college

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The delivery of financial services electronically is called ________.

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e-finance

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What crucial role do financial intermediaries perform in an economy?

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Financial intermediaries borrow funds from people who have saved and make loans to other individuals and businesses and thus improve the efficiency of the economy.

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money is defined as

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anything that is generally accepted in payment for goods and services or in the repayment of debt.

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The upward and downward movement of aggregate output produced in the economy is referred to as the ________.

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business cycle

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Sustained downward movements in the business cycle are referred to as

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recessions

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During a recession, output declines resulting in

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higher unemployment in the economy

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Prior to all recessions since 1900, there has been a drop in

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the growth rate of the money stock

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Evidence from business cycle fluctuations in the United States indicates that

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recessions have been preceded by a decline in the growth rate of money.

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________ theory relates changes in the quantity of money to changes in aggregate economic activity and the price level.

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Monetary

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sharp increase in the growth of the money supply is likely followed by

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increase in inflation rate

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Inflation is a

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continually rising price level

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Which of the following is a true statement?

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The average price of goods and services in an economy is called the aggregate price level.

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If ten years ago the prices of the items bought last month by the average consumer would have been much higher, then one can likely conclude that

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the aggregate price level has declined during this ten-year period.

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There is a ________ association between inflation and the growth rate of money ________.

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positive, supply

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Evidence from the United States and other foreign countries indicates that

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there is a strong positive association between inflation and growth rate of money over long periods of time.

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Countries that experience very high rates of inflation may also have

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rapidly growing money supplies

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Between 1950 and 1980 in the U.S., interest rates trended upward. During this same time period,

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rate of money growth increased

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The management of money and interest rates is called ________ policy and is conducted by a nation's ________ bank.

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monetary, central

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The organization responsible for the conduct of monetary policy in the United States is the

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fiscal

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Budgets deficits can be a concern because they might

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lead to higher inflation

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Budget deficits are important because deficits

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can result in higher rates of monetary growth

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What happens to economic growth and unemployment during a business cycle recession? What is the relationship between the money growth rate and a business cycle recession?

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During a recession, output declines and unemployment increases. Prior to every recession in the U.S. the money growth rate has declined, however, not every decline is followed by a recession.

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American companies can borrow funds

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in both US and foreign financial markets

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Everything else constant, a stronger dollar will mean that

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vacationing in England becomes less expensive

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Which of the following is most likely to result from a stronger dollar?

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U.S. goods exported abroad will cost more in foreign countries, and so foreigners will buy fewer of them.

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Everything else held constant, a weaker dollar will likely hurt

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furniture importers in california

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Everything else held constant, a stronger dollar benefits ________ and hurts ________.

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American consumers, American businesses

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Everything else held constant, a decrease in the value of the dollar relative to all foreign currencies means that the price of foreign goods purchased by Americans

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increases

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The most comprehensive measure of aggregate output is

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GDP

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Which of the following items are not counted in U.S. GDP?

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GM purchasing tires for new cars

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When the total value of final goods and services is calculated using current prices, the resulting measure is referred to as

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nominal GDP

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Nominal GDP is output measured in ________ prices while real GDP is output measured in ________ prices.

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current, fixed

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GDP measured with constant prices is referred to as

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real GDP

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The measure of the aggregate price level that is most frequently reported in the media is the

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Consumer price index

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Every financial market has the following characteristic

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It channels funds from lenders-savers to borrowers-spenders.

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Financial markets have the basic function of

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getting people with funds to lend together with people who want to borrow funds.

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Financial markets improve economic welfare because

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they allow consumers to time their purchase better.

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