Economics Unit 2 Study Questions – Flashcards
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An increase in savings
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provides more funds for investment
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An increase in investment
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expands the productive capacity of the economy.
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James has purchased a 10-yr bond that pays a $50 coupon. If interest rates go up
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the bond price will go down.
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Increasing and decreasing the money supply through monetary policy is generally done by
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the Federal Reserve
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When the Federal Reserve puts money into the banking system
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short-term interest rates fall
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Tanyika needs a loan to buy furniture for her house. She can get a loan from all of the following except
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The Federal Reserve
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If Rosa expects interest rates to fall for the next 10 years, she should invest her money in
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10-year bonds
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If Ted wants to buy a house and believes that interest rates will rise, he should
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apply for a fixed-rate mortgage
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Fiscal policies are actions taken by the government to influence the economy through taxing or spending. To assist the economy to come out of a recession, Congress can pursue a fiscal policy that
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lowers taxes
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In 1791, the US Congress created the Bank of America. The creation of the bank was part of a 3-part plan to strengthen the US economy. Who was responsible for presenting the plan to Congress?
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Alexander Hamilton
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In 1791, the conflict over the Bank of the United States led to the foundation of two rival political parties. These parties were
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Federalist and Democratic-Republican
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During the 1800s, the nation's supply of currency was tied to its national reserves of either gold or silver. In 1900, an act was passed by Congress that would set the standard by which US currency is valued. This standard was set by the
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Gold Standard Act
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In 1913, Congress passed the Federal Reserve Act. The purpose of this act was to
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make the federal government responsible for the regulation of interest rates and the supply of money.
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A large bailout of savings and loan institutions became necessary when in 1990 when it was discovered that nearly 2,000 of them were insolvent and facing closure. One of the causes of this crisis was the
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reckless financial speculation following the bank deregulation of the 1980s.
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Which of the following banking activities was prohibited to commercial banks by the Glass-Steagall Act of 1933?
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underwriting stocks
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Credit risk is the risk that the borrower will not
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repay all the money owed
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A financial intermediary
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facilitates the transfer of funds from savers to borrowers
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Companies raise funds to expand their business by
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all of the above (selling stock shares to public, selling bonds, getting bank loans)
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Liquidity risk is
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the chance that investors will not be able to turn investments back into cash quickly enough to meet their financial needs
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The government of the US borrows most of the money it needs by
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selling Treasury bills and bonds
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Inflation risk is the prospect of
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Inflation reducing the value of investors' financial assets
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Yield-to-maturity is
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The annual return on a bond held to maturity
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Credit unions
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are fairly small and specialize in home mortgages and car loans
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Finance companies
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make loans to consumers
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The FDIC
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insures customer deposits if a bank fails
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M1
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represents money that people have easy and immediate access to
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A prospectus
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provides potential investors with information on the performance of mutual fund portfolios.
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Money markets are markets where
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securities with less than a year to maturity are traded.
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Capital markets are markets where
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securities with more than a year to maturity are traded.
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Diversification is an investment strategy to
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reduce risk y spreading investments among several assets.
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If a country's money loses its function as a store of value,
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all of the above
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The exp. of the charter of the first bank of the US in 1811 resulted in
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currencies that lost value
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The Panic of 1907 was caused by
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the continuing problems
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Which worsened the effects of the Great Depression?
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massive bank failures
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The Glass Steagall Act
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prohibited underwriting stocks
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purchase AAA because
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very low risk debt securities
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Banks make a profit by
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all of the above
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the 19080s crisis
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deregulation high interest rate
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repeal
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paved the way
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John
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money market funds
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Jamaal
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portfolio
