Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
39 Cards in this Set
- Front
- Back
According to the solvency/liquidity view, a lower RR would tend to...
|
Increase open market operations
|
|
According to the multiplier theory, a lower RR would tend to...
|
Increase the money available for lending because of the higher amount of excess reserves
|
|
Under the solvency/liquidity approach, which of the following is the main barrier to monetary creation?
|
The amount of reserves
|
|
Under the solvency/liquidity view, does the central bank have control of total reserves?
|
No
|
|
Under the solvency/liquidity view, what is the amount of monetary base created?
|
It is a residual of the advances granted by DIs
|
|
What is the simplest model of monetary base under solvency/liquidity?
|
RR x DD
|
|
What happens to the shape of the yield curve if expected STi are higher than expected?
|
The yield curve becomes steeper.
|
|
If the slope of the yield curve is positive, this means what with relation to yields and term to maturity?
|
Yields decline as the term to maturity decreases.
|
|
What happens if borrowers increase their supply of LT securities?
|
LTi will increase
|
|
According to the expectations theory, when the yield curve is falling market participants expect what?
|
Future STir will rall below current STir
|
|
Under expectations theory, expectations about future STir depend on expectations about what?
|
Future income and inflation
|
|
If the yield curve was negatively sloped, this would most likely reflect expectations of a combination of future...
|
Declines in income and inflation
|
|
What is expected when the economy is going into expansion?
|
Rising future interest rates
|
|
Some researchers believe the expectations theory needs to be modified to reflect what? (3)
|
1. Liquidity premiums
2. Preference between ST and LT placement 3. Tendency of borrowers to prefer LT securities |
|
Preferred habits (segmentation theory) refers to what?
|
Preferred maturities for borrowers and lenders that may lead to market segmentation
|
|
If expected future short-term interest rates are equal to current short-term rates, the liquidity premium will
|
Make long term rates higher than current short term rates
|
|
Name two advantages of municipal securities.
|
1. The credit risk is very low
2. The income is tax exempt |
|
According to expectations theory, what shape should the normal yield curve be?
|
Flat
|
|
According to expectations theory, what shape is most likely to be associated with business cycle peaks? (i.e. late part of expansion into recession)
|
Negative
|
|
According to the liquidity preference theory, what shape should the normal yield curve be?
|
Positive
|
|
What hypothesis does the expectations theory make?
|
ST and LT securities are perfectly substitutable
|
|
According to the New Consensus, what is the role of financial markets?
|
Allocate investment toward savings
|
|
According to the New Consensus what is the best way to promote investment?
|
Promote thriftiness
|
|
What is the strong version of the efficient market theory?
|
All information (including insider info) is used to determine the market prices of securities.
|
|
What are three roles of banks under New Consensus?
|
1. Fix asymmetry of info
2. Intermediary between savers and investors 3. Expert judges of credit worthiness |
|
Whats is the role of financial markets according to the Post-Keynesians?
|
Makes illiquid assets liquid
|
|
According to Post-Keynesians, does saving promote investment?
|
No. Higher savings means lower consumption which leads to lower profits for firms.
|
|
What is the difference between funding and financing?
|
Finance allows the creation of income (production) while funding sustains the acquisition of income.
|
|
What purpose does the difference between funding and financing have? (3)
|
1. To explain how aggregate income is generated
2. To explain why I must come before S. S cannot lead to I 3. Show how the New Consensus view is wrong to promote S |
|
According to Post-Keynesians, what is the role of banks? (3)
|
1. Experts in judging credit worthiness
2. Best at financing stage 3. Main suppliers of monetary instruments |
|
According to the exchange view, what is money? (3)
|
1. Money is what money does
2. Unit of payment, means of exchange, store of value, unit of account 3. Mainly a medium of exchange |
|
According to the exchange view, what are the origins of money?
|
Money emerged from market transactions.
|
|
According to the exchange view, what was the first form of money?
|
Commodities
|
|
What does dematerialization mean?
|
A process that progressively transformed monetary instruments into immaterial things.
|
|
According to the Alternative view, what was the first form of money?
|
Immaterial
|
|
According to the Alternative approach, what are the three characteristics of money?
|
1. Instantaneous maturity
2. Circulates at PAR 3. Impersonal |
|
What is the nature of monetary instruments?
|
It is a financial instrument
|
|
According to the Alternative view, what main function of money must be present for money to be detected?
|
Unit of account
|
|
According to the Alternative view, where does money come from?
|
Money emerged from the need to pay a religious authority.
|