ECO 121 Chapter Notes - Chapter 13: Mutual Fund, Corporate Bond, Autarky

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The group of institutions that helps match the saving of one person with the investment of another: financial markets. Institutions through which savers can directly provide funds to borrowers b. i. b. ii. A bond is a certificate of indebtedness b. ii. 2. A stock is a claim to partial ownership in a firm: financial intermediaries c. i. Institutions through which savers can indirectly provide funds to borrowers c. i. 1. c. i. 2. c. i. 3. Institutions that sell shares to the public and use the proceeds to buy portfolios of stocks and bonds. Cdo"s are a type of investment that greatly contributed to the financial crisis in 2007-2009. Different kinds of saving: private saving a. i. The portion of households" income that is not used for consumption or paying taxes a. ii. Y t c: public saving b. i. T g: national saving (y t c) + (t g) c. i. = the portion of national income that is not used for consumption or government purchases.

Related Questions

1-Principal __________________ fall into three categories: depository institutions (banks), contractual savings institutions, and investment intermediaries.

Financial markets security exchanges financial intermediariesâ investment funds

Savings institutions

bitcoin/annuity payments securities/investment advice

2-Deposits that are payable on demand but do not allow their owner to write checks are called _______________.

Restricted deposits savings deposits time sensitive deposits non-checkable deposits demand deposits

3-Deposit with fixed terms to maturity are called ___________.

Relative deposits term deposits fixed deposits restricted deposits time deposits

4-Commercial banks ___________ primarily by issuing checking deposits, savings accounts, and time deposits.

Increase profits decrease cost attract investors raise funds increase assets

5-A type of depository institution that over time has become more like commercial banks and are now more competitive with each other are called ______________ associations and mutual savings banks.

savings and loan contractual savings institutions, investment intermediaries

crowd funding sites deposit and loan

6-Credit unions are typically very small cooperative lending institutions organized around a particular _____________________: members of the same union, employees of a particular firm, and members of the same profession, such as teachers.

Type of investment corporation financial strategy risk avoidance strategy

group that have something in common

7-Insurance companies and pension funds are examples of ________________ institutions.

contractual savings depository institutions (banks), investment intermediaries entrepreneurial at risk

8-Contractual savings institutions (CSIâs) acquire funds at _______________ on a contractual basis.

Estate sales periodic intervals bankruptcy auctions liquidations initial offerings

9-CSIâs do not worry as much as banks about losing funds quickly because they can predict with reasonable accuracy how much they will have to pay out in ___________ in coming years.

Interest payments dividends bank notes benefits IOUâs

10-_______________ is not as important a consideration for CSIâs as it is for banks.

Types of customers adverse selection Liquidity of assets portfolio diversification liabilities

11-CSI investments are typically ____________ such as corporate bonds, stocks, and mortgages.

Short-term securities long-term securities 3-month term securities overnight securities short-term assets

12-Companies that insure people against financial hazards following a death and sell annuities are called ________________________.

Predatory companies over-the-counter companies risky companies life insurance companies depository companies

13-_________________ that people pay to keep their policies in force constitute the funds life insurance companies use to buy corporate bonds and mortgages.

Interest dividends installments late fees Premiums

14-Companies that ___________ their policyholders against loss from theft, fire, and accidents are called fire and casualty insurance companies.

Insure Hold harmless guarantee advise oversee

15-Fire and casualty insurance companies acquire funds through the _________________ for their policies.

Sale of stock liquidation of collection of premiums interest payments dividends

16-Because of the greater possibility of loss of funds if major disasters occur, fire and casualty companies buy more ________________ than life insurance companies do.

Comprehensive insurance liquid assets risky assets corporate insurance bankruptcy insurance

17-Private pension funds and state and local retirement funds provide _______________ in the form of annuities to employees who are covered by a pension plan.

Dividends revenue stock options retirement income loans

18-Pension funds acquire funds from _____________ from employers and employees.

Fees pledges contributions garnishments payroll deductions

19-The largest ______________ of pension funds are corporate bonds and stocks.

Liability holdings asset holdings interest payments dividend payments fees

20-_________________________ include; finance companies, mutual funds and money market mutual funds.

depository institutions (banks), contractual savings institutions, stock markets

bond markets Investment intermediaries

21-Finance companies raise funds by ___________ commercial paper and by ____________ stocks and bonds.

Issuing/selling selling/buying selling/ issuing buying/issuing discounting/shorting

22-Finance companies lend these funds to __________, who make purchases of such items as furniture, automobiles, and home improvements, and to small businesses.

-depository institutions (banks), consumers contractual savings institutions,

investment intermediaries corporations

23-It is common for a finance company to be organized by a parent corporation to help _______________, such as; ford motor credit company.

Diversify its portfolio acquire assets liquidate liabilities sell its product off set profits

24-Selling shares to many individuals and using the proceeds to purchase diversified portfolios of stocks and bonds describes how _______________ acquire funds.

depository institutions (banks), mutual funds contractual savings institutions

stock markets bond markets

25-Shareholders can sell shares at any time but shares are subject to value fluctuations therefore mutual fund investments can be _______.

risky Subject to high returns certain investments interest rate neutral misunderstood

26-Money market funds sell _______ like mutual funds and offer checking accounts like ___________.

Deposits/insurance companies bonds/banks shares/insurance companies

Shares/ banks stock options/crowd sourcing sites

27-Money market funds invest in ________ and very ____________ and interest on these assets is paid out to the shareholders.

High risk/non-liquid junk bonds/risky assets low risk/ liquid assets low risk/junk bonds sub-prime securities/liquid assets

28-Money market funds have experienced extraordinary growth primarily because people like the idea of having a checking account that ____________________.

Has no fees pays them interest offers overdraft protection pays dividends

always has money in it

29-Investment banks help a ______________ issue securities.

Person foreign country stock market corporation bond market

30-Investment banks advises the corporation on which type of ______________ to issue; stocks or bonds.

Insurance loans interest rates dividends products securities

31-Investment banks help sell the corporations securities by purchasing them from the corporation and _______ them in the market.

Discounting re-selling insuring advertising financing

32-Investment banks also act as ___________ and earn enormous fees by helping corporations acquire other companies through mergers or acquisitions.

Depositories money launders deal makers insurance companies entrepreneurs

Question 32

Tim, a citizen of the United States living in Virginia, buys a computer that was made in South Korea by a Japanese firm. This transaction would affect the GDP of the United States in which way?

		Net exports would decrease and GDP would decrease.
		Net exports would decrease and GDP would be unaffected.
		Net exports would increase and GDP would increase.
		Net exports would increase and consumption would increase.

1 points

Question 33

An increase in U.S. government spending tends to

		increase U.S. interest rates and increase the U.S. capital account surplus.
		increase U.S. interest rates and decrease the U.S. capital account surplus.
		decrease U.S. interest rates and increase the U.S. capital account surplus.
		decrease U.S. interest rates and decrease the U.S. capital account surplus.

1 points

Question 34

A _______ is a system in which the government intervenes extensively in the foreign exchange market to keep the exchange rate within certain bounds.

dirty float

floating exchange rate

fixed exchange rate

dollarization

1 points

Question 35

Suppose the exchange rate between the euro and the dollar is E0.5 to $1. If a Big Mac costs $3 in the United States and E1.5 in Germany, then the real exchange rate is

1:1.

2:1.

1:2.

It cannot be determined from this information.

1 points

Question 36

Which of the following prevent the purchasing power parity theorem from holding perfectly?

transportation costs

goods that cannot be shipped

tariffs and quotas

Each of these answers is correct.

1 points

Question 37

Fiscal policy is more effective in affecting economic activity if

		many resources are unemployed.
		there is a real shock instead of an aggregate demand shock.
		the economy returns to the long-run condition almost immediately.
		there is a long implementation lag.

1 points

Question 38

In a typical year, changes in government spending compared to overall spending are relatively

small.

large.

unpredictable.

well-timed.

1 points

Question 39

Which statement is TRUE about the difference between monetary and fiscal policy?

		Fiscal policy can quickly adjust to changes in aggregate demand.
		Fiscal policy can have a more direct impact.
		Monetary policy is subject to many long lags.
		Monetary policy can affect the economy regardless of the actions banks take.

1 points

Question 40

Fiscal policies that help an economy in a recession without additional actions by policy makers are called

consumption smoothers.

Ricardian equalizers.

automatic stabilizers.

Each of these answers is correct.

1 points

Question 41

The U.S. individual income tax system can best be described as a

regressive tax system.

flat tax system.

zero tax system.

progressive tax system.

1 points

Question 42

What demographic change in the United States will cause government spending to increase in the next 50 years?

The population over 65 will grow.

The population will be younger.

Women will have fewer children.

Immigration will increase.

1 points

Question 43

What kind of rising costs will mostly cause U.S. government spending to skyrocket in the future?

defense

environmental protection

education

health care

1 points

Question 47

The Fed could have popped the bubble of the housing boom in the 2000s by

lending directly to homeowners.

regulating the stock markets more.

reducing the growth rate of the money supply.

doing nothing.

1 points

Question 48

Which of the following would be an example of running monetary policy by rules?

A 5 percent increase in money supply automatically leads to a 2 percent increase in real GDP.

An increase in money supply automatically leads to an increase in inflation.

The Fed will increase money growth to different levels, depending on the severity of the recession.

A 1 percent drop in real GDP will automatically elicit a 2 percent increase in money supply.

Question 50

Moral hazard occurs when

		the failure of one financial institution can bring down other institutions as well.
		financial institutions take on too much risk because they are insured.
		financial institutions become insolvent because they issued too many loans.
		there are more short-term liabilities than short-term assets.

Which of the following is NOT a transmission mechanism?

reductions in the money supply

intertemporal substitution

uncertainty

sticky wages and prices

Question 56

For a given increase in government spending growth, intertemporal substitution is more widespread when

		the impact of AD growth on both inflation and real GDP growth is stronger.
		the impact of AD growth on both inflation and real GDP growth is weaker.
		the impact of AD growth on inflation is stronger and the impact of the AD growth on real GDP growth is weaker.
		the impact of AD growth on inflation is weaker and the impact of AD growth on real GDP growth is stronger.

Stalin:

		instituted democratic reforms, leading to widespread prosperity.
		took government control of the farms in Ukraine, leading to the starvation of millions of people.
		increased the provision of public goods, which had a positive effect on lowering the unemployment rate.
		tried unsuccessfully to expand voting rights in 1924 Russia.

1 points

Question 60

1 points

Question 59

If voters care about two issues such as taxes and war, then politicians:

		will form a stable policy on these issues.
		can pose a policy that will never lose against another policy.
		must assume that there is no median voter.
		may never converge on a stable outcome.

1 points

Question 58

Policy A adversely affects 50 million people at a cost of $1 per person. But Policy A also benefits 1,000 people at $30,000 per person. Which of the following statements is true?

		Policy A will not become law because it hurts more people than it helps.
		Policy A concentrates all the costs among a small group of people and all the benefits among a large group of people.
		Policy A is likely to be supported by politicians even though it makes society worse off.
		Since Policy A negatively affects many people, and so rational ignorance will not be a problem.

1 points

Question 57

Data for the United States show that the incumbent party tends to win the election if:
I. personal disposable income is growing.
II. the inflation rate is low.
III. the political party has not been in power for too many continuous terms.

		I only
		I and II only
		I and III only
		I, II, and III

1 points

Question 53

1 points

Question 52

What is the purpose of the Fed's structure?

		to give the President of the United States as many tools as possible to regulate the economy
		to make sure all states are given equal access to monetary policy decisions
		to keep the private sector out of the monetary policy making arena
		to keep the power of the Fed dispersed

1 points

Question 51

An increase in money growth will cause inflation to increase in

		the short run only.
		the long run only.
		both the short run and the long run.
		neither the short run nor the long run.

TRUE / FALSE

1. True False In the aggregate expenditures model presented in the textbook,

investment is assumed to rise with increases in real GDP and fall with decreases in real GDP.

2. True False When C + I_g = GDP in a private closed economy, S = I_g and there are no unplanned changes in inventories.

3. True False The risk-free interest rate is the rate on long-term U.S. government bonds.

4. True False Bond prices and interest rates are directly or positively related.

5. True False The public debt is the accumulation of all deficits and surpluses that have occurred through time.

6. True False The M₂ money supply may be larger or smaller than the M₁ money supply depending on the size of small-denominated time deposit balances and Money Market Mutual Fund balances held by individuals.

7. True False Excess reserves are the amount by which required reserves exceed actual reserves.

8. True False The public debt is held as Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.

9. True False The equilibrium price level and equilibrium level of real GDP occur at the intersection of the aggregate demand curve and the aggregate supply curve.

10. True False Investment is highly stable; it increases over time at a very steady rate.

MULTIPLE CHOICE

11. A recessionary expenditure gap is:

A. the amount by which the full-employment GDP exceeds the level of aggregate expenditures.

B. the amount by which equilibrium GDP falls short of the full-employment GDP.

C. the amount by which investment exceeds saving at the full-employment GDP.

D. the amount by which aggregate expenditures exceed the full-employment level of GDP.

12. The multiplier effect indicates that:

A. a decline in the interest rate will cause a proportionately larger increase in investment.

B. a change in spending will change aggregate income by a larger amount.

C. a change in spending will increase aggregate income by the same amount.

D. an increase in total income will generate a larger change in aggregate expenditures.

13. Which one of the following is true about the U.S. Federal Reserve System?

There are 12 regional Federal Reserve Banks.

B. The head of the U.S. Treasury also chairs the Federal Reserve Board.

C. There are 14 members of the Federal Reserve Board.

D. The Open Market Committee is smaller in size than the Federal Reserve Board.

14. If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is:

A. 18 percent.

B. 24 percent.

C. 12 percent.

D. 6 percent.

15.

Refer to the above diagram for a private closed economy. The equilibrium level of GDP is:

A. $400.

B. $300.

C. $200.

D. $100.

16. Which of the following represents the most expansionary fiscal policy?

A. a $10 billion tax cut

B. a $10 billion increase in government spending

C. a $10 billion tax increase

D. a $10 billion decrease in government spending

17.

Refer to the above table. The economy shown is a:

A. private economy.

B. private open economy.

C. mixed closed economy.

D. mixed open economy.

18. Currency held in the vault of First National Bank is:

A. counted as part of M₁.

B. counted as part of M₂, but not M₁.

C. only counted as part of M₁ if it was deposited into a checking account.

D. not counted as part of the money supply.

19. If the dollar appreciates relative to foreign currencies, we would expect:

A. the multiplier to decrease.

B. the country's exports and imports to both fall.

C. the country's net exports to rise.

D. the country's net exports to fall.

20. The most important determinant of consumption and saving is the:

A. level of bank credit.

B. level of income.

C. interest rate.

D. price level.

21. The multiple by which the commercial banking system can increase the supply of money on the basis of each dollar of excess reserves is equal to:

A. the reciprocal of the required reserve ratio.

B. 1 minus the required reserve ratio.

C. the reciprocal of the income velocity of money.

D. 1/MPS.

22. Which one of the following would not shift the aggregate demand curve?

A. a change in the price level

B. depreciation of the international value of the dollar

C. a decline in the interest rate at each possible price level

D. an increase in personal income tax rate

23. The cyclically-adjusted budget tells us:

A. that in a full-employment economy the Federal budget should be in balance.

B. that tax revenues should vary inversely with GDP.

C. what the size of the Federal budget deficit or surplus would be if the economy was at full

employment.

D. the actual budget deficit or surplus realized in any given year.

24. The aggregate supply curve:

A. is explained by the interest rate, real-balances, and foreign purchases effects.

B. gets steeper as the economy moves from the top of the curve to the bottom of the curve.

C. shows the various amounts of real output that businesses will produce at each price level.

D. is downsloping because real purchasing power increases as the price level falls.

25.

Refer to the above diagram. If the equilibrium price level is P₁, then:

A. aggregate demand is AD₂.

B. the equilibrium output level is Q₃.

C. the equilibrium output level is Q₂.

D. producers will supply output level Q₁

26. Discretionary fiscal policy refers to:

A. any change in government spending or taxes that destabilizes the economy.

B. the authority that the President has to change personal income tax rates.

C. intentional changes in taxes and government expenditures made by Congress to stabilize the economy.

D. the changes in taxes and transfers that occur as GDP changes.

27.

Refer to the above diagram. Which tax system has the most built-in stability?

A. T₄

B. T₃

C. T₂

D. T₁

28.

Refer to the given graph. A shift of the consumption schedule from C₁ to C₂ might be caused by a(n):

A.	recession.

B.	wealth effect of an increase in stock market prices.

C.	increase in income tax rates.

D.	increase in saving.

29. When a bank loan is repaid the supply of money:

A. is constant, but its composition will have changed.

B. is decreased.

C. is increased.

D. may either increase or decrease.

30. The Federal budget deficit is found by:

A. subtracting government tax revenues plus government borrowing from government spending in a particular year.

B. subtracting government tax revenues from government spending in a particular year.

C. cumulating the differences between government spending and tax revenues over all years since the nation's founding.

D. subtracting government revenues from the noninvestment-type government spending in a particular year.

31.

Refer to the above information. Money supply M₁ for this economy is:

A. $ 60.

B. $ 70.

C. $ 130.

D. $ 140.

32. Which of the following statements is true as a result of Federal Reserve efforts to rescue the financial industry from the financial crisis of 2007 and 2008?

From February 2008, to May 2009, the Fed oversaw the consolidation of 20 major financial institutions into fewer than a dozen.

B. From March 2008, to February 2009, the Fed experienced a 50 percent decline in the value of assets held.

C. From February 2008, to March 2009, Fed assets more than doubled to nearly $2 trillion.

D. From February 2008, to March 2009, Fed lending caused the U.S. public debt to rise by over $1 trillion.

33. Which of the following is the basic economic policy function of the Federal Reserve Banks?

holding the deposits or reserves of commercial banks

B. acting as fiscal agents for the Federal government

C. controlling the supply of money

D. the collection or clearing of checks among commercial banks

34. In a fractional reserve banking system:

A. bank panics cannot occur.

B. the monetary system must be backed by gold.

C. banks can create money through the lending process.

D. the Federal Reserve has no control over the amount of money in circulation.

35.

Refer to the diagram that applies to a private closed economy. The APC is equal to 1 at income level:

36. Assume the Continental National Bank's balance statement is as follows:

Assuming a legal reserve ratio of 20 percent, how much in excess reserves would this bank have after a check for $10,000 was drawn and cleared against it?

A. $ 3,000

B. $ 24,000

C. $ 6,000

D. $ 16,000

37. Answer the question on the basis of the following table for a commercial bank or thrift:

Refer to the above table. When the legal reserve ratio is 25 percent, the excess reserves of this single bank are:

A. $0.

B. $1,000.

C. $5,000.

D. $30,000.

38. Which of the following is a tool of monetary policy?

A. open market operations

B. changes in banking laws

C. changes in tax rates

D. changes in government spending

39. An increase in nominal GDP increases the demand for money because:

A. interest rates will rise.

B. more money is needed to finance a larger volume of transactions.

C. bond prices will fall.

D. the opportunity cost of holding money will decline.

40. Answer the next question on the basis of the following table:

At equilibrium in the above market for money, the total amount of money demanded is:

A. $500.

B. $480.

C. $460.

D. $440.

41. For most financial assets investors must be compensated for:

A. non-diversifiable and diversifiable risk.

B. diversifiable risk and time preference.

C. non-diversifiable risk and time preference.

D. non-diversifiable and diversifiable risk, and time preference.

42. Reserves must be deposited in the Federal Reserve Banks by:

A. only commercial banks which are members of the Federal Reserve System.

B. all depository institutions, that is, all commercial banks and thrift institutions.

C. state chartered commercial banks only.

D. federally chartered commercial banks only.

43.

Refer to the diagrams. Assuming a constant price level, an increase in aggregate expenditures from AE₁to AE₂ would:

A.	move the economy from A to C along AD₁.

B.	move the economy from C to A along AD₁.

C.	increase aggregate demand from AD₁ to AD₂.

D.	decrease aggregate demand from AD₂ to AD₁.

44. The discount rate is the interest:

A. rate at which the central banks lend to the U.S. Treasury.

B. rate at which the Federal Reserve Banks lend to commercial banks.

C. yield on long-term government bonds.

D. rate at which commercial banks lend to the public.

45. What concept describes how quickly an investment increases in value when interest is paid not only on the original amount invested, but also on the accumulated interest payments?

A. present value

B. future value

C. compound interest

D. real rate of interest

46. The aggregate demand curve:

A. is upsloping because a higher price level is necessary to make production profitable as production costs rise.

B. is downsloping because production costs decline as real output increases.

C. shows the amount of expenditures required to induce the production of each possible level of real output.

D. shows the amount of real output that will be purchased at each possible price level.

47. The Security Market Line depicts the relationship between the:

A. average expected rate of return on stocks and the average expected rate of return on bonds.

B. average expected rate of return of a financial asset and the discount rate.

C. risk level of a financial asset and the prime interest rate.

D. average expected rate of return and risk level of a financial asset.

48. Arbitrage causes all financial assets:

A. of the same risk level to have the same price.

B. to have the same expected rate of return.

C. to have the same beta.

D. of the same risk level to have the same average expected rate of return.

49.

Refer to the diagrams. The numbers in parentheses after the AD₁, AD₂, and AD₃ labels indicate the levels of investment spending associated with each curve. All figures are in billions. If the money supply is MS₁ and the goal of the monetary authorities is full-employment output Q_f, they should:

A.	increase the money supply from $80 to $100.

B.	increase the money supply from $80 to $120.

C.	maintain the money supply at $80.

D.	decrease the money supply from $80 to $60.

50. Given the expected rate of return on all possible investment opportunities in the economy:

A. an increase in the real rate of interest will reduce the level of investment.

B. a decrease in the real rate of interest will reduce the level of investment.

C. a change in the real interest rate will have no impact on the level of investment.

D. an increase in the real interest rate will increase the level of investment.

END OF THE EXAM

ECO 121 Chapter Notes - Chapter 13: Mutual Fund, Corporate Bond, Autarky

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Related Questions

		dirty float
		floating exchange rate
		fixed exchange rate
		dollarization

		transportation costs
		goods that cannot be shipped
		tariffs and quotas
		Each of these answers is correct.

		consumption smoothers.
		Ricardian equalizers.
		automatic stabilizers.
		Each of these answers is correct.

		regressive tax system.
		flat tax system.
		zero tax system.
		progressive tax system.

		The population over 65 will grow.
		The population will be younger.
		Women will have fewer children.
		Immigration will increase.

		lending directly to homeowners.
		regulating the stock markets more.
		reducing the growth rate of the money supply.
		doing nothing.

		1:1.
		2:1.
		1:2.
		It cannot be determined from this information.

		small.
		large.
		unpredictable.
		well-timed.

		defense
		environmental protection
		education
		health care