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

    This is a preview. There are 1 more flashcards available for chapter 1
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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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