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Economics Unit 2 Study Questions

An increase in savings
provides more funds for investment
An increase in investment
expands the productive capacity of the economy.
James has purchased a 10-yr bond that pays a $50 coupon. If interest rates go up
the bond price will go down.
Increasing and decreasing the money supply through monetary policy is generally done by
the Federal Reserve
When the Federal Reserve puts money into the banking system
short-term interest rates fall
Tanyika needs a loan to buy furniture for her house. She can get a loan from all of the following except
The Federal Reserve
If Rosa expects interest rates to fall for the next 10 years, she should invest her money in
10-year bonds
If Ted wants to buy a house and believes that interest rates will rise, he should
apply for a fixed-rate mortgage
Fiscal policies are actions taken by the government to influence the economy through taxing or spending. To assist the economy to come out of a recession, Congress can pursue a fiscal policy that
lowers taxes
In 1791, the US Congress created the Bank of America. The creation of the bank was part of a 3-part plan to strengthen the US economy. Who was responsible for presenting the plan to Congress?
Alexander Hamilton
In 1791, the conflict over the Bank of the United States led to the foundation of two rival political parties. These parties were
Federalist and Democratic-Republican
During the 1800s, the nation’s supply of currency was tied to its national reserves of either gold or silver. In 1900, an act was passed by Congress that would set the standard by which US currency is valued. This standard was set by the
Gold Standard Act
In 1913, Congress passed the Federal Reserve Act. The purpose of this act was to
make the federal government responsible for the regulation of interest rates and the supply of money.
A large bailout of savings and loan institutions became necessary when in 1990 when it was discovered that nearly 2,000 of them were insolvent and facing closure. One of the causes of this crisis was the
reckless financial speculation following the bank deregulation of the 1980s.
Which of the following banking activities was prohibited to commercial banks by the Glass-Steagall Act of 1933?
underwriting stocks
Credit risk is the risk that the borrower will not
repay all the money owed
A financial intermediary
facilitates the transfer of funds from savers to borrowers
Companies raise funds to expand their business by
all of the above (selling stock shares to public, selling bonds, getting bank loans)
Liquidity risk is
the chance that investors will not be able to turn investments back into cash quickly enough to meet their financial needs
The government of the US borrows most of the money it needs by
selling Treasury bills and bonds
Inflation risk is the prospect of
Inflation reducing the value of investors’ financial assets
Yield-to-maturity is
The annual return on a bond held to maturity
Credit unions
are fairly small and specialize in home mortgages and car loans
Finance companies
make loans to consumers
insures customer deposits if a bank fails
represents money that people have easy and immediate access to
A prospectus
provides potential investors with information on the performance of mutual fund portfolios.
Money markets are markets where
securities with less than a year to maturity are traded.
Capital markets are markets where
securities with more than a year to maturity are traded.
Diversification is an investment strategy to
reduce risk y spreading investments among several assets.
If a country’s money loses its function as a store of value,
all of the above
The exp. of the charter of the first bank of the US in 1811 resulted in
currencies that lost value
The Panic of 1907 was caused by
the continuing problems
Which worsened the effects of the Great Depression?
massive bank failures
The Glass Steagall Act
prohibited underwriting stocks
purchase AAA because
very low risk debt securities
Banks make a profit by
all of the above
the 19080s crisis
deregulation high interest rate
paved the way
money market funds

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