chapter 9

Question 1

flow of funds

Answer 1

1. financial markets
2. investors
3. financial intermediaries
4. savers

Question 2

how do savers give money to financial markets

Answer 2

buying stocks and bonds

Question 3

how do savers give money to financial intermediaries

Answer 3

by putting money in checking account

Question 4

how do financial intermediaries get money

Answer 4

savers give money (deposits)

Question 5

what do financial intermediaries do

Answer 5

lend money to investors

Question 6

who do investors borrow from

Answer 6

financial intermediaries

Question 7

major financial instruments

Answer 7

1. money
2. savings accounts
3. credit markets
4. common stocks
5. money markets
6. common stock

Question 8

what is money markets

Answer 8

collect large investments, divide into stocks and let small investor buy fractional shares

Question 9

what is pension fund

Answer 9

income after retirement

Question 10

what is barter

Answer 10

trading of goods and services for other goods and services

Question 11

what is money

Answer 11

anything people accept as payment for goods

Question 12

characteristics of money important

Answer 12

1. medium of exchange
2. unit of account (standard measure of value)
3. store of value (holds purchasing power)

Question 13

types of demand for money

Answer 13

1. transaction demand: to pay
2. asset demand: to invest

Question 14

advantages of money

Answer 14

1. portability
2. divisibility
3. stability
4. durability
5. uniqueness

Question 15

money is controlled by

Answer 15

central bank or federal reserve bank

Question 16

what is money multiplier

Answer 16

amount by which bank deposits increase in response to an increase in excess reserves

Question 17

how to calculate money multiplier

Answer 17

1/reserve requirement