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O-K-State ECON 2203 - Exam 2 Study Guide
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Econ 2203 1st Edition Exam # 2 Study GuideOutlineChapter 8Chapter 11Chapter 12Chapter 13Chapter 8 Saving, Investment, and the Financial Systemi. Financial Institutionsa) Financial market (The bond market and The Stock market) (3)b) Interest rates of a bond and its risk (4) Financial Intermediaries (Banks and Mutual Funds) (1, 2)ii. National Savinga) Private saving, public saving, national saving, budget surplus, and budget deficit (Calculations; Identities; Definitions) (5,6,7,8)b) Saving and Investment (9)(Notes: 1. in a closed economy, saving = Investment; in an open economy, saving = Investment + NCO (Chp.13) 2. In economics, purchasing bonds and stocks are saving; investment means purchases of capitals.) 1. Two of the economy’s most important financial intermediaries are… a. Banks and mutual funds. b. Suppliers of funds and demanders of funds. c. Banks and the bond market. d. The stock market and the bond market. 2. The primary advantage of mutual funds is that theya. Always make a return that "beats the market." b. Allow people with small amounts of money to diversify. c. Provide customers with a medium of exchange. d. All of the above are correct.Chapter 11: The Monetary System 1. Basic concepts of money a. Barter and coincidence of wants (1, 2) b. Three functions of money (6) c. Two kinds of money (3) d. Liquidity (4) e. M1 and M2 (5)- M1 = Currency + Checkable deposits/demand deposits- M2 = M1 + saving deposits2. Bank and the Money Supply a. Fractional-reserve banking system: Money creations process i. T-account: assets, liabilities (8) ii. Reserve ratio = reserves / deposits (7,9) iii. Money Multiplier = 1/ reserve ratio (10,11) 3. How the Fed influences the money supply (11) (Chp12,2) a. Open-Market Operations: buy and sell bonds b. Fed lending to banks: discount rate (Notes: this part may be combined together with money supply and demand model in Chp.12.)1. Consider five individuals with different occupations. Mary provides legal advice wants knives sharpened Clark grows tomatoes wants legal advice Nathan styles hair wants tomatoes Polly brews beer wants knives sharpened Paul sharpens knives wants beer Which of the following pairs of individualshas a double coincidence of wants? a. Mary and Clark b. Clark and Nathan c. Nathan and Polly d. Polly and Paul Chapter 12 Money Growth and Inflation 1. The quantity theory of money a. Quantity of money supplied determines the price level (1) b. The value of money and price level (4) 2. Money supply-demand model a. Supply and demand curves (3,5) b. Shifts of supply and demand curves (2, 6) 3. The quantity equation a. Real variables vs. Nominal variables (8, 9, 10)b. The Classic Dichotomy and Money neutrality (9,10) c. Velocity of money (7, 11) d. The quantity equation: MV = PY (7, 11) 4. Fisher effect (12, 13) 1. To explain the long-run determinants of theprice level and the inflation rate, most economists rely on the a. Quantity theory of money.b. Price-index theory of money. c. Fisher effects. d. Theory of hyperinflation. 2. When the money market is drawn with the value of money on the vertical axis, if the FederalReserve sells bonds, then the money supply curve (hint: how selling bonds changes the money supply?)a. Shifts right, causing the price level to rise. b. Shifts right, causing the price level to fall. c. Shifts left, causing the price level to rise. d. Shifts left, causing the price level to fall. Chapter 13: The Macroeconomics of Open Economy 1. The flow of goods (1, 2) a. Exports, Imports, and Net Exports (Trade Balance) b. Trade Surplus, Trade Deficit, and Balanced Trade 2. The flow of capital a. Net Capital Outflow (3, 4, 7) b. Foreign direct investment and foreign portfolio investment (5) 3. Two identities (8) a. NCO = NX (4) b. S = I + NCO (6) 4. Exchange rates a. Nominal exchange rates (9) b. Real exchange rates (10) c. Appreciation and Depreciation (11) a. Law of one price b. Purchasing Power Parity1. If U.S. exports are $150 billion and U.S. imports are $100 billion, which of the following is correct? a. The U.S. has a trade surplus of $100 billion.b. The U.S. has a trade surplus of $50 billion. c. The U.S. has a trade deficit of $100 billion. d. The U.S. has a trade deficit of $50 billion. 2. Sonya, a citizen of Denmark, produces boots and shoes that she sells to department stores in the United States. Other things the same, these sales a. Increase U.S. net exports and have no effect on Danish net exports. b. Decrease U.S. net exports andhave no effect on Danish net exports. c. Increase U.S. net exports and decrease Danish net exports. d. Decrease U.S. net exports andincrease Danish net exports. Principles of Macroeconomics Lecture Notes> VERY DETAILED> COLOR CODED> Easy to read> May include information that was stated directly from the teacher in class<p>Principles of Macroeconomics</p><p>Introduction to


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O-K-State ECON 2203 - Exam 2 Study Guide

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