2. Mr. Weiss Test 5 – Sections 5 & 6 – Vocabulary Review 1. financial asset; 2. New Keynesian Economics; 3. transaction costs; 4. velocity of money; _____the ratio of nominal GDP to the money supply. _____theory that argues that market imperfections can lead to price stickiness for the economy as a whole _____the expenses of negotiating and executing a deal _____a paper claim that entitles the buyer to future income from the seller. Loans, stocks, bonds, and bank deposits are types of financial assets.

3. Mr. Weiss Test 5 – Sections 5 & 6 – Vocabulary Review 1. financial asset; 2. New Keynesian Economics; 3. transaction costs; 4. velocity of money; __4__the ratio of nominal GDP to the money supply. __1__theory that argues that market imperfections can lead to price stickiness for the economy as a whole __3__the expenses of negotiating and executing a deal __4__a paper claim that entitles the buyer to future income from the seller. Loans, stocks, bonds, and bank deposits are types of financial assets.

4. Mr. Weiss Test 5 – Sections 5 & 6 – Vocabulary Review 1. physical asset; 2. New Classical Macroeconomics; 3. diversification; 4. monetarism; _____a claim on a tangible object that gives the owner the right to dispose of the object at he or she wishes. _____investment in several different assets with unrelated, or independent, risks, so that the possible losses are independent events. _____an approach to the business cycle that returns to the traditional view that shifts in the aggregate demand curve affect only the aggregate price level, not aggregate output. _____a theory of business cycles, associated primarily with Milton Friedman, that asserts that GDP will grow steadily if the money supply grows steadily.

5. Mr. Weiss Test 5 – Sections 5 & 6 – Vocabulary Review 1. physical asset; 2. New Classical Macroeconomics; 3. diversification; 4. monetarism; __1__a claim on a tangible object that gives the owner the right to dispose of the object at he or she wishes. __3__investment in several different assets with unrelated, or independent, risks, so that the possible losses are independent events. __2__an approach to the business cycle that returns to the traditional view that shifts in the aggregate demand curve affect only the aggregate price level, not aggregate output. __4__a theory of business cycles, associated primarily with Milton Friedman, that asserts that GDP will grow steadily if the money supply grows steadily.

6. Mr. Weiss Test 5 – Sections 5 & 6 – Vocabulary Review 1. liquid; 2. macroeconomic policy activism; 3. default; 4. long-run Phillips Curve; _____a graphical representation of the relationship between unemployment and inflation after expectations of inflation have had time to adjust to experience. _____the use of monetary policy and fiscal policy to smooth out the business cycle. _____when a borrower fails to make payments as specified by the bond contract. _____describes an asset that can be quickly converted into cash without much loss of value.

7. Mr. Weiss Test 5 – Sections 5 & 6 – Vocabulary Review 1. liquid; 2. macroeconomic policy activism; 3. default; 4. long-run Phillips Curve; __4__a graphical representation of the relationship between unemployment and inflation after expectations of inflation have had time to adjust to experience. __2__the use of monetary policy and fiscal policy to smooth out the business cycle. __3__when a borrower fails to make payments as specified by the bond contract. __1__describes an asset that can be quickly converted into cash without much loss of value.

8. Mr. Weiss Test 5 – Sections 5 & 6 – Vocabulary Review 1. Loan backed securities; 2. cost-push inflation; 3. mutual fund; 4. Short-run Phillips Curve; _____assets created by pooling individual loans and selling shares in that pool. _____a financial intermediary that creates a stock portfolio by buying and holding shares in companies and then selling shares of this portfolio to individual investors. _____inflation that is caused by a significant increase in the price of an input with economy-wide importance. _____a graphical representation of the negative immediate relationship between the unemployment rate and the inflation rate.

9. Mr. Weiss Test 5 – Sections 5 & 6 – Vocabulary Review 1. Loan backed securities; 2. cost-push inflation; 3. mutual fund; 4. Short-run Phillips Curve; __1__assets created by pooling individual loans and selling shares in that pool. __3__a financial intermediary that creates a stock portfolio by buying and holding shares in companies and then selling shares of this portfolio to individual investors. __2__inflation that is caused by a significant increase in the price of an input with economy-wide importance. __4__a graphical representation of the negative immediate relationship between the unemployment rate and the inflation rate.

10. Mr. Weiss Test 5 – Sections 5 & 6 – Vocabulary Review 1. money supply; 2. monetary neutrality; 3. medium of exchange; 4. inflation targeting; _____an approach to monetary policy that requires that the central bank try to keep the inflation rate near a predetermined target rate. _____the concept that changes in the money supply have no real effects on the economy in the long run and only result in a proportional change in the price level. _____the total value of financial assets in the economy that are considered money. _____an asset that individuals acquire for the purpose of trading for goods and services rather than for their own consumption.

11. Mr. Weiss Test 5 – Sections 5 & 6 – Vocabulary Review 1. money supply; 2. monetary neutrality; 3. medium of exchange; 4. inflation targeting; __4__an approach to monetary policy that requires that the central bank try to keep the inflation rate near a predetermined target rate. __2__the concept that changes in the money supply have no real effects on the economy in the long run and only result in a proportional change in the price level. __1__the total value of financial assets in the economy that are considered money. __3__an asset that individuals acquire for the purpose of trading for goods and services rather than for their own consumption.

12. Mr. Weiss Test 5 – Sections 5 & 6 – Vocabulary Review 1. fiat money; 2. contractionary monetary policy; 3. required reserve ratio; 4. target federal funds rate; _____a medium of exchange whose value derives entirely from its official status as a means of payment. _____the smallest fraction of deposits that the Federal Reserve allows banks to hold. _____the Federal Reserve’s desired level for the federal funds rate. _____monetary policy that, through the raising of the interest rate reduces aggregate demand and therefore output.

13. Mr. Weiss Test 5 – Sections 5 & 6 – Vocabulary Review 1. fiat money; 2. contractionary monetary policy; 3. required reserve ratio; 4. target federal funds rate; __1__a medium of exchange whose value derives entirely from its official status as a means of payment. __3__the smallest fraction of deposits that the Federal Reserve allows banks to hold. __4__the Federal Reserve’s desired level for the federal funds rate. __2__monetary policy that, through the raising of the interest rate reduces aggregate demand and therefore output.

14. Mr. Weiss Test 5 – Sections 5 & 6 – Vocabulary Review 1. Deposit insurance; 2. expansionary monetary policy; 3. reserve requirements; 4. debt-GDP ratio 1. Deposit insurance; 2. expansionary monetary policy; 3. reserve requirements; 4. debt-GDP ratio; _____monetary policy that, through the lowering of the interest rate, increases aggregate demand and therefore output. _____government debt as a percentage of GDP, frequently used as a measure of a government’s ability to pay its debts. _____a guarantee that a bank’s depositors will be paid even if the bank can’t come up with the funds, up to a maximum amount per account. _____rules set by the Federal Reserve that set the minimum reserve ratio for banks.

15. Mr. Weiss Test 5 – Sections 5 & 6 – Vocabulary Review 1. Deposit insurance; 2. expansionary monetary policy; 3. reserve requirements; 4. debt-GDP ratio 1. Deposit insurance; 2. expansionary monetary policy; 3. reserve requirements; 4. debt-GDP ratio; __2__monetary policy that, through the lowering of the interest rate, increases aggregate demand and therefore output. __4__government debt as a percentage of GDP, frequently used as a measure of a government’s ability to pay its debts. __1__a guarantee that a bank’s depositors will be paid even if the bank can’t come up with the funds, up to a maximum amount per account. __3__rules set by the Federal Reserve that set the minimum reserve ratio for banks.

16. Mr. Weiss Test 5 – Sections 5 & 6 – Vocabulary Review 1. discount window; 2. fiscal year; 3. excess reserves; 4. money multiplier; _____an arrangement in which the Federal Reserve stands ready to lend money to banks. _____the ratio of the money supply to the monetary base; _____a bank’s reserves over and above the reserves required by law or regulation. _____the time period used for much of government accounting, running from October 1 to September 30.

17. Mr. Weiss Test 5 – Sections 5 & 6 – Vocabulary Review 1. discount window; 2. fiscal year; 3. excess reserves; 4. money multiplier; __1__an arrangement in which the Federal Reserve stands ready to lend money to banks. __4__the ratio of the money supply to the monetary base; __3__a bank’s reserves over and above the reserves required by law or regulation. __2__the time period used for much of government accounting, running from October 1 to September 30.

18. Mr. Weiss Test 5 – Sections 5 & 6 – Vocabulary Review 1. federal funds rate; 2. leverage; 3. subprime lending; 4. securitization; _____the degree to which a financial institution is financing its investments with borrowed funds. _____lending to home buyers who don’t meet the usual criteria for borrowing. _____the interest rate at which funds are borrowed and lent in the federal funds market. _____the pooling of loans and mortgages made by a financial institution and the sale of shares in such a pool to other investors.

19. Mr. Weiss Test 5 – Sections 5 & 6 – Vocabulary Review 1. federal funds rate; 2. leverage; 3. subprime lending; 4. securitization; __2__the degree to which a financial institution is financing its investments with borrowed funds. __3__lending to home buyers who don’t meet the usual criteria for borrowing. __1__the interest rate at which funds are borrowed and lent in the federal funds market. __4__the pooling of loans and mortgages made by a financial institution and the sale of shares in such a pool to other investors.

20. Mr. Weiss Test 5 – Sections 5 & 6 – Vocabulary Review 1. crowding out; 2. discount rate; 3. loanable funds market; 4. open- market operations; _____a hypothetical market in which the demand for funds is generated by borrowers and the supply of funds is provided by lenders. _____a purchase or sale of U.S. Treasury bills by the Federal Reserve, undertaken to change the monetary base, which in turn changes the money supply. _____the negative effect of budget deficits on private investment, which occurs because government borrowing drives up interest rates. _____the interest rate the Fed charges on loans to banks.

21. Mr. Weiss Test 5 – Sections 5 & 6 – Vocabulary Review 1. crowding out; 2. discount rate; 3. loanable funds market; 4. open- market operations; __3__a hypothetical market in which the demand for funds is generated by borrowers and the supply of funds is provided by lenders. __4__a purchase or sale of U.S. Treasury bills by the Federal Reserve, undertaken to change the monetary base, which in turn changes the money supply. __1__the negative effect of budget deficits on private investment, which occurs because government borrowing drives up interest rates. __2__the interest rate the Fed charges on loans to banks.