ECON 213 UTK FINAL QUESTIONS AND
ANSWERS
What is money? - ANSWER-Anything accepted in *exchange for other goods and services OR payment of
debt*
For a commodity to be used as money (4 things): - ANSWER-- Value must be easy to determine
- Must be divisible
- Must be durable
- Must be widely accepted by many people
The value of commodity money depends on its... - ANSWER-Purity
Commodity money has what kind of value? - ANSWER-Intrinsic Value
Fiat money - ANSWER-money that has value because the government has ordered that it is an
acceptable means to pay debts
Paper currency is generally issued by a ______ - ANSWER-Central bank
Fiat money has what kind of value? - ANSWER-NO Intrinsic Value
The US Dollar Bill is a ______ - ANSWER-Federal Reserve Note
- issued by the Fed Reserve
The Federal Reserve Currency is a _______ in the US - ANSWER-Legal tender
- Fed gov. requires that it be accepted in payment of debts and requires cash or checks denominated in
dollars to be used in payment of taxes
What are the three functions of money? - ANSWER-1. Medium of exchange
2. Unit of account
3. Store of value
Medium of exchange - ANSWER-Goods and services are exchanged for money
Unit of account - ANSWER-Money is used to compare values of a wide variety of goods and services
Store of value - ANSWER-Money is saved and used for future purchases
What is the alternative to money? - ANSWER-Barter
Barter - ANSWER-Exchange goods without involving money, trade
What kind of economies are barters used in? - ANSWER-Primitive
Primitive economies - ANSWER-Underdeveloped economy
Liquidity - ANSWER-How fast, easily, and reliably something can be converted to cash
Historic definition of M1 - ANSWER-Currency (bills and coins) and demand deposits (checking accounts)
New definition of M1 - ANSWER-Currency (bills and coins), demand deposits (checking accounts), AND
savings accounts
Historic definition of M2 - ANSWER-Savings deposits, money market deposits, small-value time deposits
(CD's), and money market mutual funds
New definition of M2 - ANSWER-Money market deposits, small-value time deposits (CD's), and money
market mutual funds
Money market deposits - ANSWER-Pays more interest than savings, minimum balance required
Money market mutual funds - ANSWER-Similar to purchasing stocks
Investment - ANSWER-Spending on new capital goods and equipment
- increase in capital stock
- accomplished through borrowing
Examples of investment - ANSWER-- new machinery
- new equipment
- new computers
- private residence construction (apartments and homes)
, - unsold inventory
Saving - ANSWER-Providing the financial capital to those who want to borrow for investment purposes
- lending
Examples of saving - ANSWER-- savings account
- CD's
- stocks
- bonds
- retirement accounts
Financial system - ANSWER-In place to bring savers and investors together to coordinate savings and
investing
Financial markets - ANSWER-Borrowers and lenders directly interact
Financial intermediates - ANSWER-Borrowers and lenders interact through a go between
Where do savers and investors DIRECTLY interact? - ANSWER-Bond market and stock market
Bond market - ANSWER-the market in which bonds issued by firms and governments are traded
Bond - ANSWER-A certificate of indebtedness, a legal promise to repay a debt
Debt financing - ANSWER-When businesses raise money by borrowing through bonds
Players - ANSWER-Small businesses, large corporations, all levels of gov.
Stock market - ANSWER-A system for buying and selling shares of companies
Stock - ANSWER-A share of ownership in a corporation.
Equity financing - ANSWER-When businesses raise money by issuing stocks or partial ownership
Players - ANSWER-Large, publicly traded companies
Roles of Financial Institutions - ANSWER-Reducing information costs
Reducing transaction costs
Diversifying assets to reduce risk
Reducing info costs - ANSWER-Screen and evaluate the credit of potential borrowers
Reducing transaction costs - ANSWER-Provide standardized financial products
Diversifying assets to reduce risks - ANSWER-pool funds from many savers and lend to many borrowers
Where do savers and investors INDIRECTLY interact? - ANSWER-- commercial banks
- savings and loans
- credit unions
Without a financial system there would be no... - ANSWER-- retirement savings
- no new homes
- no new businesses
- no new machinery
Savers and lenders prefer a _____ interest rate - ANSWER-Higher
Investors and borrowers prefer a ______ interest rate - ANSWER-Lower
Real interest rate formula - ANSWER-nominal interest rate - inflation rate
Shifts in demand for loanable funds (borrowers) - ANSWER-- Investment tax incentives , tax breaks
increase DLF
- technological advances increase DLF
- Regulations decrease DLF
- Product demand increase DLF
- Business expectations positive increase DLF
Anything that changes the rate of return on investment shifts the..... - ANSWER-Demand for loanable
funds
Shifts in supply for loanable funds (savers and lenders, increase interest rate) - ANSWER-- Economic
outlook positive increase SLF
- Incentives to save reduces taxable income
ANSWERS
What is money? - ANSWER-Anything accepted in *exchange for other goods and services OR payment of
debt*
For a commodity to be used as money (4 things): - ANSWER-- Value must be easy to determine
- Must be divisible
- Must be durable
- Must be widely accepted by many people
The value of commodity money depends on its... - ANSWER-Purity
Commodity money has what kind of value? - ANSWER-Intrinsic Value
Fiat money - ANSWER-money that has value because the government has ordered that it is an
acceptable means to pay debts
Paper currency is generally issued by a ______ - ANSWER-Central bank
Fiat money has what kind of value? - ANSWER-NO Intrinsic Value
The US Dollar Bill is a ______ - ANSWER-Federal Reserve Note
- issued by the Fed Reserve
The Federal Reserve Currency is a _______ in the US - ANSWER-Legal tender
- Fed gov. requires that it be accepted in payment of debts and requires cash or checks denominated in
dollars to be used in payment of taxes
What are the three functions of money? - ANSWER-1. Medium of exchange
2. Unit of account
3. Store of value
Medium of exchange - ANSWER-Goods and services are exchanged for money
Unit of account - ANSWER-Money is used to compare values of a wide variety of goods and services
Store of value - ANSWER-Money is saved and used for future purchases
What is the alternative to money? - ANSWER-Barter
Barter - ANSWER-Exchange goods without involving money, trade
What kind of economies are barters used in? - ANSWER-Primitive
Primitive economies - ANSWER-Underdeveloped economy
Liquidity - ANSWER-How fast, easily, and reliably something can be converted to cash
Historic definition of M1 - ANSWER-Currency (bills and coins) and demand deposits (checking accounts)
New definition of M1 - ANSWER-Currency (bills and coins), demand deposits (checking accounts), AND
savings accounts
Historic definition of M2 - ANSWER-Savings deposits, money market deposits, small-value time deposits
(CD's), and money market mutual funds
New definition of M2 - ANSWER-Money market deposits, small-value time deposits (CD's), and money
market mutual funds
Money market deposits - ANSWER-Pays more interest than savings, minimum balance required
Money market mutual funds - ANSWER-Similar to purchasing stocks
Investment - ANSWER-Spending on new capital goods and equipment
- increase in capital stock
- accomplished through borrowing
Examples of investment - ANSWER-- new machinery
- new equipment
- new computers
- private residence construction (apartments and homes)
, - unsold inventory
Saving - ANSWER-Providing the financial capital to those who want to borrow for investment purposes
- lending
Examples of saving - ANSWER-- savings account
- CD's
- stocks
- bonds
- retirement accounts
Financial system - ANSWER-In place to bring savers and investors together to coordinate savings and
investing
Financial markets - ANSWER-Borrowers and lenders directly interact
Financial intermediates - ANSWER-Borrowers and lenders interact through a go between
Where do savers and investors DIRECTLY interact? - ANSWER-Bond market and stock market
Bond market - ANSWER-the market in which bonds issued by firms and governments are traded
Bond - ANSWER-A certificate of indebtedness, a legal promise to repay a debt
Debt financing - ANSWER-When businesses raise money by borrowing through bonds
Players - ANSWER-Small businesses, large corporations, all levels of gov.
Stock market - ANSWER-A system for buying and selling shares of companies
Stock - ANSWER-A share of ownership in a corporation.
Equity financing - ANSWER-When businesses raise money by issuing stocks or partial ownership
Players - ANSWER-Large, publicly traded companies
Roles of Financial Institutions - ANSWER-Reducing information costs
Reducing transaction costs
Diversifying assets to reduce risk
Reducing info costs - ANSWER-Screen and evaluate the credit of potential borrowers
Reducing transaction costs - ANSWER-Provide standardized financial products
Diversifying assets to reduce risks - ANSWER-pool funds from many savers and lend to many borrowers
Where do savers and investors INDIRECTLY interact? - ANSWER-- commercial banks
- savings and loans
- credit unions
Without a financial system there would be no... - ANSWER-- retirement savings
- no new homes
- no new businesses
- no new machinery
Savers and lenders prefer a _____ interest rate - ANSWER-Higher
Investors and borrowers prefer a ______ interest rate - ANSWER-Lower
Real interest rate formula - ANSWER-nominal interest rate - inflation rate
Shifts in demand for loanable funds (borrowers) - ANSWER-- Investment tax incentives , tax breaks
increase DLF
- technological advances increase DLF
- Regulations decrease DLF
- Product demand increase DLF
- Business expectations positive increase DLF
Anything that changes the rate of return on investment shifts the..... - ANSWER-Demand for loanable
funds
Shifts in supply for loanable funds (savers and lenders, increase interest rate) - ANSWER-- Economic
outlook positive increase SLF
- Incentives to save reduces taxable income
