Money
Money by Government decree (command), has no other value or use as a commodity
Fiat Money
Financial Institutions act as a "middle-man" or financial intermediary to connect who to who?
Savers to borrowers
True or False: In the long-term you can't afford to take risks
False: If you are investing in the long-term, you can afford to take greater risks than in the short term
True or False: Fiscal Policy revolves around regulating the amount of money in circulation
FALSE: Monetary policy aims at regulating the amount of money in circulation
Who must the Chairperson of the Fed be appointed by?
The President, and then approved by the Senate
Maria goes to a vending machine to buy a soda. She has several $1 coins in her pocket and knows she can use any of them because they all have the exact same value. What characteristic of money does this represent?
Uniformity
What does Liquidity refer to?
How easily something can be converted into cash $$$
Which of these is the least liquid asset? Stocks, Real Estate, Mutual Funds
Real Estate
This central authority in the U.S. regulates banks, controls monetary policy, and works to maintain economic stability.
The Fed
Emma slips a $20 bill into her wallet and carries it easily wherever she goes. What characteristic of money does this demonstrate?
Portability
When in a supermarket, you can compare the value of different goods between one another by using price tags from piece to piece. What function of money is this?
Standard of Value
How does deposited money help financial institutions such as banks?
Gives them money to use as loans for borrowers.
What type of company would you go to if you were looking to purchase securities such as bonds or stocks?
A Brokerage
What is a method that the Fed can use to expand or contract the amount of money circulating in the economy?
Discount Rate, Open-Market Operations, Reserve Requirement
Nathan notices that after five years, his $40 can only buy him 3 bags of Doti's pretzel twists, or 7 bags of goldfish. This is fewer goods than he was able to buy five years earlier. What changed harmed his purchasing power?
Inflation
What is required in order to barter?
What is the difference between Banks & Credit Unions?
Banks are available to anyone, are FOR PROFIT, and have higher interest rates/fees
Credit Unions mandate membership, are MEMBER OWNED, and have lower interest rates/fees
Johnathan decides to invest. In order to protect against any major substantial losses, he decides to reduce risk by investing in a multitude of different investment options, spreading money across various types of securities. What is Johnathan practicing?
Diversification
How would a tight money policy impact inflation and economic growth?
It would cause both to decrease
Prices of goods and services have been consistently falling for over a year, leading to reduced consumer spending and business investment. Unemployment has risen to 10%, and businesses are reluctant to expand due to weak demand. The economy is trapped in a deflationary spiral, where falling prices further reduce incomes and economic activity.
The government reacts with large-scale infrastructure program to create roads and bridges. This creates immediate jobs in construction and engineering, directly reducing unemployment. What theory of economics did the Gov't use?
Keynesian economics
How does inflation influence purchasing power?
Hurts Purchasing Power - over time, prices rise, so over time, the same amount of money buys less
How do financial institutions such as banks make a profit?
As banks channel $$$ from savers → borrowers, they charge more $$$ on interest than $$$ paid to savers’ deposits
Tyler wants to invest, but finds that he has trouble watching the stock market day by day. Tyler wants to invest in many separate types of securities, but wants someone else to manage a portfolio of securities. What type of the following security should he consider? Stocks, Real Estate, Mutual Funds, Cryptocurrency, or Commodities?
Mutual Funds
What powers does the Federal Open Market Committee practice?
They have the power to raise/lower interest rates
The economy is in a recession with falling prices, low consumer spending, and rising unemployment. Businesses are hesitant to invest, and demand is weak. Using monetary policy, should the Fed do?
OMO: Fed would buy securities to put more money in supply
Discount Rate: Fed would lower the discount rate encouraging more lending/spending
Reserve Requirement: Fed would lower the Reserve Requirement Allowing banks to lend more money out & encourage growth.