ECON 213 FINAL QUESTIONS AND
VERIFIED ANSWERS
Which of the following is not a function of money? - ANSWER-Standard of value
____ refers to how quickly, easily an asset can be converted into cash - ANSWER-Liquidity
Are savings deposits included in M1? - ANSWER-No
Which is larger? M1 or M2? - ANSWER-M2
If the government increases incentives to save, what happens to the supply of the loanable funds? -
ANSWER-Supply increases
The government lowers regulations on investment. What happens to the demand for loanable funds? -
ANSWER-Demand increases
Which of the following is not a role of Financial institutions? - ANSWER-Reducing investment liquidity
A $1000 bond pays out $60 per year. Interest rates fall to 5%, what is the price of the bond? - ANSWER-
$1200
Are credit cards included in M1 or M2? - ANSWER-Neither
Which is more liquid? M1 or M2? - ANSWER-M1
If the government increases incentives to save, what happens to the supply of loanable funds? -
ANSWER-Supply decreases
The government raises regulations on investment. What happens to the demand for loanable funds? -
ANSWER-Demand decreases
A $1000 bond pays out $60 a year. Interest rates rise to 8%, what is the price of the bond? - ANSWER-
$750
If a $1000 bond pays out $60 in interest a year is now worth $1200, what is the yield? - ANSWER-5%
The money multiplier is equal to... - ANSWER-The reserve requirement
The money multiplier may not be able to reach its full potential due to ... - ANSWER-Leakages
If John deposits $640 and the reserve requirement is 20%, what amount can banks loan out? - ANSWER-
512
If John deposits $640 and the reserve requirement is 20% then what is the multiplier? - ANSWER-5
Which of the following is not a function of regional FED Banks? - ANSWER-Many monetary policy
decisions
What is not a task of the federal reserve? - ANSWER-Printing paper currency
Does flat money have intrinsic value? - ANSWER-No
What does have intrinsic value? - ANSWER-Gold
3 functions of money - ANSWER-Medium of exchange, Unit of account, Store of value
Medium of exchange definition - ANSWER-Goods/services are exchanged for money
Unit of account definition - ANSWER-Money is used to compare values of a wide variety of goods and
services
Store of value definition - ANSWER-Money is saved and used for future puchases
The alternative to money is... - ANSWER-A barter
What does bartering require? - ANSWER-Double coincidence of wants
Double coincidence of wants definition - ANSWER-You want something that I have in exchange for
something that you have
Liquidity definition - ANSWER-How fast, easily it can be converted into cash
Is a debit card included in M1 or M2? - ANSWER-M1
Is money liquid? - ANSWER-Highly
Examples of things less liquid - ANSWER-Stocks, bonds, precious metals
, What is considered the least liquid? - ANSWER-Houses & other physical assets, because it requires much
more effort to be converted to money
M1= - ANSWER-Currency (bills, coins), Demand deposits, other checkable deposits
Total of M1 =? - ANSWER-$3.2 trillion
What constitutes about half of M1? - ANSWER-Currency
_____ are more than 90% of currency - ANSWER-Bank notes
What makes up the other half of M1? - ANSWER-Checking accounts
Does M2 include M1? - ANSWER-Yes
M2= - ANSWER-M1+ savings deposits, money market deposits, small-value time deposits, money market
mutual funds
Why do people save? - ANSWER-The reward for saving is the interest rate
The supply of loans is ________ related to the interest rate - ANSWER-Positively
Why do people borrow? - ANSWER-To buy goods and services or to invest in capital
The demand of loanable funds is _______ related to the interest rate - ANSWER-Negatively
What can change the demand for loanable funds? - ANSWER-Investment tax incentives
Technological advances
Regulations
Product demand
Business expectations
What can change the supply for loanable funds? - ANSWER-Economic outlook
Incentives to save
Income or asset prices
Government deficits
3 roles of financial institutions - ANSWER-Reducing information costs
Reducing transaction costs
Diversifying assets to reduce risk
Reducing information costs definition - ANSWER-Screen and evaluate the credit of potential borrowers
Reducing transaction costs definition - ANSWER-Provide standardized financial products
Diversifying assets to reduce risk definition - ANSWER-Pool funds from many savers and lend to many
borrowers
Examples of financial intermediaries - ANSWER-Banks, mutual funds, insurance companies
Most loanable funds are in the form of ______ - ANSWER-Bonds
Bond definition - ANSWER-Form of debt used to fund a business
Bond contracts include - ANSWER-Coupon rate (interest rate of the bond), maturity date, face value of
the bond (value at maturity)
What do bond prices fluctuate in according to? - ANSWER-Forces of the market place
Do bonds and interest rates move in the same direction? - ANSWER-No; opposite
What determines a bond's yield? - ANSWER-Interest rates
Yield formula - ANSWER-Yield = Interest payment/Price of bond
Price of bond formula - ANSWER-Interest payment/ Yield
What represents ownership in a corporation and entitles owners to a share of profits? - ANSWER-Stocks
The ____ the asset, the _____ payoff - ANSWER-Riskier; greater
How is social security funded? - ANSWER-Payroll tax
What is the minimum age to collect payroll tax? - ANSWER-62
What age do payments rise if payroll tax is not touched until then? - ANSWER-67
Pensions definition - ANSWER-Monthly payments made by employers until one's death. Amount rises
with the number of years worked
VERIFIED ANSWERS
Which of the following is not a function of money? - ANSWER-Standard of value
____ refers to how quickly, easily an asset can be converted into cash - ANSWER-Liquidity
Are savings deposits included in M1? - ANSWER-No
Which is larger? M1 or M2? - ANSWER-M2
If the government increases incentives to save, what happens to the supply of the loanable funds? -
ANSWER-Supply increases
The government lowers regulations on investment. What happens to the demand for loanable funds? -
ANSWER-Demand increases
Which of the following is not a role of Financial institutions? - ANSWER-Reducing investment liquidity
A $1000 bond pays out $60 per year. Interest rates fall to 5%, what is the price of the bond? - ANSWER-
$1200
Are credit cards included in M1 or M2? - ANSWER-Neither
Which is more liquid? M1 or M2? - ANSWER-M1
If the government increases incentives to save, what happens to the supply of loanable funds? -
ANSWER-Supply decreases
The government raises regulations on investment. What happens to the demand for loanable funds? -
ANSWER-Demand decreases
A $1000 bond pays out $60 a year. Interest rates rise to 8%, what is the price of the bond? - ANSWER-
$750
If a $1000 bond pays out $60 in interest a year is now worth $1200, what is the yield? - ANSWER-5%
The money multiplier is equal to... - ANSWER-The reserve requirement
The money multiplier may not be able to reach its full potential due to ... - ANSWER-Leakages
If John deposits $640 and the reserve requirement is 20%, what amount can banks loan out? - ANSWER-
512
If John deposits $640 and the reserve requirement is 20% then what is the multiplier? - ANSWER-5
Which of the following is not a function of regional FED Banks? - ANSWER-Many monetary policy
decisions
What is not a task of the federal reserve? - ANSWER-Printing paper currency
Does flat money have intrinsic value? - ANSWER-No
What does have intrinsic value? - ANSWER-Gold
3 functions of money - ANSWER-Medium of exchange, Unit of account, Store of value
Medium of exchange definition - ANSWER-Goods/services are exchanged for money
Unit of account definition - ANSWER-Money is used to compare values of a wide variety of goods and
services
Store of value definition - ANSWER-Money is saved and used for future puchases
The alternative to money is... - ANSWER-A barter
What does bartering require? - ANSWER-Double coincidence of wants
Double coincidence of wants definition - ANSWER-You want something that I have in exchange for
something that you have
Liquidity definition - ANSWER-How fast, easily it can be converted into cash
Is a debit card included in M1 or M2? - ANSWER-M1
Is money liquid? - ANSWER-Highly
Examples of things less liquid - ANSWER-Stocks, bonds, precious metals
, What is considered the least liquid? - ANSWER-Houses & other physical assets, because it requires much
more effort to be converted to money
M1= - ANSWER-Currency (bills, coins), Demand deposits, other checkable deposits
Total of M1 =? - ANSWER-$3.2 trillion
What constitutes about half of M1? - ANSWER-Currency
_____ are more than 90% of currency - ANSWER-Bank notes
What makes up the other half of M1? - ANSWER-Checking accounts
Does M2 include M1? - ANSWER-Yes
M2= - ANSWER-M1+ savings deposits, money market deposits, small-value time deposits, money market
mutual funds
Why do people save? - ANSWER-The reward for saving is the interest rate
The supply of loans is ________ related to the interest rate - ANSWER-Positively
Why do people borrow? - ANSWER-To buy goods and services or to invest in capital
The demand of loanable funds is _______ related to the interest rate - ANSWER-Negatively
What can change the demand for loanable funds? - ANSWER-Investment tax incentives
Technological advances
Regulations
Product demand
Business expectations
What can change the supply for loanable funds? - ANSWER-Economic outlook
Incentives to save
Income or asset prices
Government deficits
3 roles of financial institutions - ANSWER-Reducing information costs
Reducing transaction costs
Diversifying assets to reduce risk
Reducing information costs definition - ANSWER-Screen and evaluate the credit of potential borrowers
Reducing transaction costs definition - ANSWER-Provide standardized financial products
Diversifying assets to reduce risk definition - ANSWER-Pool funds from many savers and lend to many
borrowers
Examples of financial intermediaries - ANSWER-Banks, mutual funds, insurance companies
Most loanable funds are in the form of ______ - ANSWER-Bonds
Bond definition - ANSWER-Form of debt used to fund a business
Bond contracts include - ANSWER-Coupon rate (interest rate of the bond), maturity date, face value of
the bond (value at maturity)
What do bond prices fluctuate in according to? - ANSWER-Forces of the market place
Do bonds and interest rates move in the same direction? - ANSWER-No; opposite
What determines a bond's yield? - ANSWER-Interest rates
Yield formula - ANSWER-Yield = Interest payment/Price of bond
Price of bond formula - ANSWER-Interest payment/ Yield
What represents ownership in a corporation and entitles owners to a share of profits? - ANSWER-Stocks
The ____ the asset, the _____ payoff - ANSWER-Riskier; greater
How is social security funded? - ANSWER-Payroll tax
What is the minimum age to collect payroll tax? - ANSWER-62
What age do payments rise if payroll tax is not touched until then? - ANSWER-67
Pensions definition - ANSWER-Monthly payments made by employers until one's death. Amount rises
with the number of years worked
