Exam 2: Financial Systems, Monetary Units, and the Role of Money in the Economy

Demonstrate that for any given time period for any economic unit, current receipts plus additions (positive or negative) to debt and equities outstanding must equal current expenditures plus additions (positive or negative) to holdings of financial assets. Please explain exactly what this statement means.

Disintermediation _____ the dependence of corporations and individuals on financial institutions.

For each sector of the economy the volume of financial assets held must be equal to the volume of financial liabilities incurred.

Financial assets are sought after, according to the text, because they serve as a store of value and generally provide a continuing stream of services to their owners.

The most important financial asset is money. A disadvantage of holding money is:

Without adequate investor protection and rules those in need of capital tend to develop strong relationships with

The net worth account of any economic unit (i.e., business firm, household or unit of government) represents its accumulated savings.

Any asset held by a business firm, government or household that is also recorded as a liability or claim on some other economic unit's balance sheet is a financial asset.

The definition of the U.S. money supply that views money primarily as a medium of exchange is:

Which one of the following is not a financial asset?

Corporations depend on banks and other financial institutions to meet their credit needs more today than they did in the past.

Savings accounts at banks and shares in money market mutual funds are:

From day to day and week to week businesses, governments and households typically fluctuate from a deficit-budget position to a surplus-budget position and back again.

Direct finance is the technique when borrower and lender meet each other and exchange funds for financial assets without the help of a third-party.

A checking account would be classified, according to the text, as a kind of:

One of the most important contributions of the global financial system to our daily lives is in permitting businesses, households and governments to adjust their financial position from that of net borrower (DBU) to net lender (SBU) and back again, smoothly and efficiently.

In semi-direct finance secondary securities are created.

A net lender of funds is the

Real assets are necessarily matched by an equal volume of financial claims held somewhere in the financial system.

The financial system