Summary The Economics Of Money Banking And Financial Markets Chapter 1 25 (1)
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1 2 Contractual savings institutions: These are institutions, such as insurance
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What are some examples of financial intermediaries that acquire funds at periodic intervals on a contractual basis?
- LIFE INSURANCE COMPANIES: Insure individuals against financial hazards following death and offer annuities for retirement income.
- FIRE AND CASUALTY INSURANCE COMPANIES: Insure against loss from theft, fire, and accidents.
- PENSION FUNDS AND GOVERNMENT RETIREMENT FUNDS: Provide retirement income through annuities for employees under pension plans. -
3 Chapter 3 What is money? A comparative approach to measuring money
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Differentiate between commodity money and fiat money.
- Commodity money: precious metals or valuable commodity
- Fiat money: paper currency decreed by governments -
What are monetary aggregates?
- Variations in definitions of money supply due to different norms, financial instruments, issuers -
What are the components of M1, the narrowest measure of money?
- Currency in circulation
- Demand deposits
- Other checkable deposits held in depository institutions -
What additional components does M2 include compared to M1?
- Savings deposits
- Most time deposits
- Money market mutual fund shares -
What components are added to M2 to calculate M3, a broader measure of money?
- Repurchase agreements
- MMF shares/units
- Debt securities up to 2 years -
Why is it important to choose the most accurate monetary aggregate?
- Obtaining a single precise, correct measure matters
- The chosen aggregate affects policymakers and economists
- It determines the true measure of money -
What factors lead to an increase in the demanded quantity of an asset, according to the theory of asset demand?
- An increase in wealth
- An increase in the asset's expected return relative to an alternative asset
- A decrease in the risk compared to an alternative asset
- The asset being more liquid relative to an alternative asset -
What does the demand curve in the bond market show?
- The relationship between the quantity demanded and the price of a bond
- As interest rates decrease, bond prices increase, leading to a decrease in demand -
What does the supply curve in the bond market show?
- The relationship between the quantity supplied and the price of a bond
- As interest rates decrease, bond prices increase, making it more attractive for sellers
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