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ECON 3313 test 1

Money, banking, and financial markets

QuestionAnswer
Aggregate income the total income of factors of production (land, labor, capital) in the economy
Aggregate output the total production of final goods and services in the economy
Aggregate price level the average price of goods and services in an economy
Asset a financial claim or piece of property that is a store of value
Banks financial institutions that accept money deposits and make loans (such as commercial banks, savings and loan associations, and credit unions)
Bond a debt security that promises to make payments periodically for a specified period of time
Budget deficit the excess of government expenditure over tax revenues
Budget surplus the excess of tax revenues over government expenditure
Business cycles the upward and downward movement of aggregate output produced in the economy
Central bank The government agency that oversees the banking system and is responsible for the amount of money and credit supplied in the economy; in the US, the Federal Reserve System
Common stock A security that is a claim on the earnings and assets of a company
Federal Reserve System the central banking authority responsible for monetary policy in the United States
Financial intermediaries institutions (such as banks, insurance companies, mutual funds, pension funds, and finance companies) that borrow funds from people who have saved and then make loans to others
Aggregate income the total income of factors of production (land, labor, capital) in the economy
Aggregate output the total production of final goods and services in the economy
Aggregate price level the average price of goods and services in an economy
Asset a financial claim or piece of property that is a store of value
Banks financial institutions that accept money deposits and make loans (such as commercial banks, savings and loan associations, and credit unions)
Bond a debt security that promises to make payments periodically for a specified period of time
Budget deficit the excess of government expenditure over tax revenues
Budget surplus the excess of tax revenues over government expenditure
Business cycles the upward and downward movement of aggregate output produced in the economy
Central bank The government agency that oversees the banking system and is responsible for the amount of money and credit supplied in the economy; in the US, the Federal Reserve System
Common stock A security that is a claim on the earnings and assets of a company
Federal Reserve System the central banking authority responsible for monetary policy in the United States
Financial intermediaries institutions (such as banks, insurance companies, mutual funds, pension funds, and finance companies) that borrow funds from people who have saved and then make loans to others
Financial markets markets in which funds are transferred from people who have a surplus of available funds to people who have a shortage of available funds
Fiscal policy policy that involves decisions about government spending and taxation
Gross Domestic Product the value of all final goods and services produced in the economy during the course of a year
Inflation the condition of a continually rising price level
Inflation rate he rate of change of the price level, usually measured as a percentage change per year
Interest rate the cost of borrowing or the price paid for the rental of funds (usually expressed as a percentage per year)
Monetary policy the management of the money supply and interest rates
Monetary theory the theory that relates changes in the quantity of money to changes in economic activity
Money (money supply) anything that is generally accepted in payment for goods or services or in the repayment of debts
Recession a period when aggregate output is declining
Security a claim on the borrower's future income that is sold by the borrower to the lender. Also called a financial instrument
Unemployment rate the percentage of the labor force not working
Capital market a financial market in which longer-term debt (generally with original maturity of greater than one year) and equity instruments are traded
Diversification investing in a collection of assets whose returns do not always move together, with the result that overall risk is lower than for individual assets
Economies of scale the reduction in transaction costs per dollar of transaction as the size of transactions increases
Equities claims to share in the net income and assets of a corporation
Eurobonds bonds denominated in a currency other than that of the country in which they are sold
Exchanges secondary markets in which buyers and sellers of securities (or their agents or brokers) meet in one central location to conduct trades
Financial intermediation the process of indirect finance whereby financial intermediaries link lender-savers and borrower-spenders
Liquidity the relative ease and speed with which an asset can be converted into cash
Money market a financial market in which only short-term debt instruments (generally those with original maturity of less than one year) are traded
OTC market a secondary market in which dealers at different locations who have an inventory of securities stand ready to buy and sell securities "over the counter" to anyone who comes to them and is willing to accept their prices
Primary market a financial market in which new issues of a security are sold to initial buyers
Risk the degree of uncertainty associated with the return on an asset
Risk sharing the process of creating and selling assets with risk characteristics that people are comfortable with and then using the funds acquired by selling these assets to purchase other assets that may have far more risk
Secondary market a financial market in which securities that have preciously been issued (and are thus secondhand) can be resold
Currency paper money and coins
Fiat money paper currency decreed by a government as legal tender but not convertible into coins or precious metal
Income the flow of earnings
M1 a measure of money that includes currency, traveler's checks, and checkable deposits
M2 a measure of money that adds to M1: money market deposit accounts, money market mutual funds shares, small-denomination time deposits, savings deposits, overnight repurchase agreements, and overnight Eurodollars
Medium of exchange anything that is used to pay for goods and services
Monetary aggregates the measures of the money supply used by the Federal Reserve System
Payment system the method of conducting transactions in the economy
Unit of account anything used to measure value in an economy
Wealth all resources owned by an individual, including all assets
Coupon bond a credit market instrument that pays the owner a fixed interest payment every year until the maturity date, when a specified final amount is repaid
Coupon rate the dollar amount of the yearly coupon payment expressed as a percentage of the face value of a coupon bond
Current yield an approximation of the yield to maturity that equals the yearly coupon payment divided by the price of a coupon bond
Discount bond a credit market instrument that is bought at a price below its face value and whose face value is repaid at the maturity date; it does not make any interest payments
Face value (par value) a specified final amount paid to the owner of a coupon bond at the maturity date.
Nominal interest rate an interest rate that does not take inflation into account
Real interest rate the interest rate adjusted for expected changes in the price level so that it more accurately reflects the true cost of borrowing
Asset market approach an approach to determine asset prices using stocks of assets rather than flows
Liquidity preference framework a model developed by John Maynard Keynes that predicts the equilibrium interest rate on the basis of the supply of and demand for money
Opportunity cost the amount of interest sacrificed by not holding an alternative asset
Created by: soonerny