Econ Chapter 10-11 Test – Flashcards
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Anything used to determine value
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Medium of exchange
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The direct exchange of one good for another
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Barter
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Something that serves as a way to compare values
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Unit of account
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Something that keeps its worth
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Store of value
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The coins and paper bills used as money in a society
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Currency
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The fact that money must withstand the wear and tear that comes from being used over and over again is a measure of its...
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Durability
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Money that can be easily divided into smaller units of value has the characteristic of
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Divisibility
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Objects that have value in themselves as well as their value as a means of exchange are called...
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Commodity money
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The difference between representative money and fiat money is that
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representative money can be converted into silver or gold; fiat money cannot.
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Two units of the same type of money must be the same in terms of what they will buy, which is the principle of
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Uniformity
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An institution for receiving, keeping, and lending money
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Bank
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The central banking system of the US
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federal reserve system
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A government institution that covers bank accounts against bank failure
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FDIC
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A paper money that was issued by the US treasury during civil war
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Greenback
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What is the gold standard?
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a system in which a country's money is backed with gold
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When was the first bank of the US formed by the federalists?
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in the late eighteenth century
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During the free banking era, between 1837-1863, banking in the US was dominated by?
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State-chartered banks
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After the civil war, the national banking acts gave the federal government the power to do what?
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Charter banks, require banks to hold adequate gold and silver, have single national currency
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As part of the nations recovery from the Great Depression of the 1930s, the banking system was reformed in what way?
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The banking system was taken off the gold standard
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The savings and loan crisis in the late 20th century was caused at least partially by which of the following?
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High interest rates, bad loans, and fraud
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The device that allows its holder to buy goods based on a promise to pay
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Credit card
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Specific type of loan that is used to buy real estate
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Mortgage
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System that keeps only a small part of a deposit on hand and lends out the rest?
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Fractional reserve banking
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Failure to pay back a loan
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Default
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Device that allows its holder to buy goods and have the payment deducted from a checking account
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Debit card
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What is the difference between simple and compound interests?
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Simple interest is paid on the principal only; compound interest is paid on both principal and interest
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The money supply of a country is made up of?
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all the money available in an economy
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Why are funds in checking accounts called demand deposits?
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They are available whenever the depositor writes a check for them
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What is a credit union?
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A cooperative lending institution for a particular group
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How does a bank make most of its profit on its business?
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By paying out less in interest on deposits than it earns in interest on loans
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Redirecting resources from being consumed today to create future benefits
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Investment
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Arrangement that allows the transfer of money between savers and borrowers
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Financial system
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Institution that helps channel funds from savers to borrowers
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Financial intermediary
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Spreading out investments to reduce risk
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Diversification
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Collection of financial assets
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Portfolio
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What is the money an investor receives above and beyond the money initially invested called?
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Return
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What is a prospectus
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An investment report for potential investors
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Why is a certificate of deposit considered such a safe investment?
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It is guaranteed by the federal government
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What is a mutual fund?
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A device for pooling the savings of many investors and investing it in a variety of ways
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How does a pension fund act as an investor?
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The company invests the money collected from employers and/or employees
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Amount that an investor pays to buy a bond
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Par value
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Time at which payment is due to a bondholder
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Maturity
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Low-denomination bond issued by the US government
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Savings bond
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Bond issued by a state or local government authority
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Municipal bond
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Interest rate that a bond issuer will pay to a bond holder
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Coupon rate
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what is a corporate bond?
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a bond issued by a corporation as a way to borrow money111
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What is the securities and exchange commission?
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A government agency that regulates financial markets and investment companies
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Why would investors but a junk bond?
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Junk bonds pay a potentially higher level of interest than other bonds
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What is the difference between a primary market and a secondary market?
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A primary market is financial assets that can be redeemed only by the original investor; a secondary markets assets can be resold
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How does the risk involved in a money market mutual fund compare with the risk of a certificate of deposit?
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The risk of the money market mutual fund is slightly greater than that of the CD
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Period during which the stock market falls steadily
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Bear market
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Business that specializes in trading stocks
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Brokerage firm
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Difference between a higher selling price and a lower buying price realized by the seller of the stock
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Capital gains
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Electronic marketplace for stock that is not listed or traded on an organized exchange
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OTC market
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Contract that gives an investor the right to buy or sell stock
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Option
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What does the New York stock exchange do?
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Arranges stock and bond trading of the largest and most established companies in the US
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What kind of stockbroker is a day trader?
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One who buys and sells stocks on a minute-by-minute basis to try to make a profit
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What are the Dow and the S&P 500?
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Indexes that show the performance of limited but representatives stocks
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What was one outcome of the stock market's great crash in 1929 that lasted for more than 50 years?
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Ordinary people were afraid to invest in the stock market
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What does the word speculation mean to an exonomist?
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Making high risk investments with borrowed money
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What's an example of money as a unit of account?
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Shopping around at a variety of stores to choose which place to buy something.
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An example of representative money.
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an IOU note
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one purpose of the FDIC
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to make sure that we don't lose money even if a bank fails
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What do the federalists believe about banking?
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They believe in a central bank.
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What's a mortgage used for?
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Real estate
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An example of a liquid (easily converted into cash) asset?
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a traveler's check
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Why is money (coins) easier than cold bars?
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More easily divisible, portability, durability
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What's a condition for the fiat money system (government controlled and run) work?
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Government must control money supply.
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What is not an example of M1 (most/more liquid)?
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mutual fund
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You need a new car, who's going to give you the worst interest on that loan?
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finance company
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When people in Mexico lose faith in the peso, what of the characteristics of money does theirs now lack?
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acceptability
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What does "FDA ensured" mean in the window of a bank?
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If a bank fails, your deposits are protected up to $250,000
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You borrow money for a car, it was a $1,000; what do you have to pay?
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A: Interest of $200 for borrowing the principle of $1,000
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The main advantage of diversification is?
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reduces your risk of losing your invested money
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Why is representative money more useful that commodity money?
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Not as divisible, uniform, or potentially not as limited supply.
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An example of a financial intermediary?
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bank (lend & store)
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What's true about bonds?
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Usually a low risk investment
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Interest paid to a bondholder?
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coupon rate
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You don't have to pay taxes on interest from?
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treasury bills (bond with the government)
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Stock that reinvests its earnings into the business
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Growth stock
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Stock split happens when...
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When price of stock get too high
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Example of equity (another term)
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Stock
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Liquidity is not a component of a bond?
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Bond
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what are the six characteristics of money?
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durability, uniformity, portability, limited supply, divisibility, and acceptability
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what are the three uses of money?
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medium of exchange, unit of account, and store of value
