question
security
answer
a claim on the issuer's future income or (assets- any financial claim or piece of property that is subject to ownership)
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bond
answer
a debt security that promises to make periodic payments for a specified period of time
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2 reasons the bond market is important?
answer
1. it enables corporations and governments to borrow money to finance their activities
2. it is where interest rates are determined
2. it is where interest rates are determined
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true or false: economists lump interests rates all together as "the interest rate"
answer
true
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common stock
answer
share of ownership in a corporation; security that is a claim on the earnings and assets of the corporation
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Black Monday
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after rising steadily in the 80s, the market experienced the worst one day drop in its entire history on October 19, 1987 when the Dow Jones Industrial Average fell by 22%
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a higher price for a firm's share means that the firm can raise ___ amount of funds
answer
larger
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banks
answer
financial institutions that accept deposits and make loans
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financial innovation
answer
development of new financial products and services
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efinance
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deliver financial services electronically
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financial crisis
answer
major disruptions in financial markets that are characterized by sharp declines in asset prices and the failures of many financial and nonfinancial firms
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money (money supply)
answer
anything that is accepted as payment for goods or services or the repayment of debts
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business cycles
answer
the upward and downward movement of aggregate output produced in the economy. (ex. output is rising --> easier to find a good job)
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recessions
answer
periods of declining output
could be possible that changes in money growth might be a driving force in business cycle fluctuations
could be possible that changes in money growth might be a driving force in business cycle fluctuations
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monetary theory
answer
the theory that relates the quantity of money and monetary policy to changes in aggregate economic activity and inflation
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aggregate price level
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the average price of goods and services in an economy. from 1950 to 2014 the price level has increased more than sevenfold
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inflation
answer
a continual increase in the price level
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what causes inflation
answer
money supply and price level generally rise together, so when the money supply gets higher, it could be causing the higher price levels
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t or f: positive association between inflation and the growth rate of the money supply
answer
true. countries with highest inflation rates are the ones with highest money growth rates (Turkey, Ukraine)
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monetary policy
answer
the management of money and interest rates
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fiscal policy
answer
decisions about government spending and taxation
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budget deficit
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excess of government expenditures with respect to tax revenues for a particular time period, typically a year
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budget surplus
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arise when tax revenues exceed government expenditures
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gross domestic product
answer
a measure of aggregate output; the market value of all final goods and services produced in a country during the course of a year
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for funds to be transferred from one country to another, they have to be converted from the currency of the country of origin into the currency of the country they are going
answer
yes
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foreign exchange market
answer
is where this conversion takes place, so it is instrumental in moving funds between countries
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foreign exchange rate
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the price of one country's currency in terms of another's
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what do fluctuations in the exchange rate mean for American public and businesses?
answer
a change in the exchange rate has a direct effect on American consumers because it affects the cost of imports
a weaker dollar leads to more expensive foreign goods, makes vacationing abroad more expensive and raises the cost of indulging your desire for imported delicacies
a weaker dollar leads to more expensive foreign goods, makes vacationing abroad more expensive and raises the cost of indulging your desire for imported delicacies
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A stronger dollar means that U.S goods exported abroad will _____
answer
cost more in foreign countries, so foreigners will buy fewer of them
strong dollar makes foreign goods cheaper
strong dollar makes foreign goods cheaper
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aggregate income
answer
the total income of factors of production (land, labor and capital) from producing goods and services in the economy during the course of the year
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nominal GDP
answer
values are measured using current prices
can be misleading cuz if prices doubled but actual production remained the same, nominal GDP would double
can be misleading cuz if prices doubled but actual production remained the same, nominal GDP would double
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GDP deflator
answer
nominal GDP/real GDP
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PCE deflator
answer
nominal personal consumption expenditures/real PCE
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Consumer Price Index (CPI)
answer
pricing a basket of goods bought by a typical urban household
ex. if a basket of goods is 500 at the beginning of the year and $600 at the end, the CPI is risen 20%
ex. if a basket of goods is 500 at the beginning of the year and $600 at the end, the CPI is risen 20%
question
inflation rate
answer
growth rate of the aggregate price level
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