The market in which loans are bought and sold is called the: loan market. money
ID: 1202020 • Letter: T
Question
The market in which loans are bought and sold is called the:
loan market.
money market.
secondary loan market.
primary loan market.
Which of the following is omitted in a barter transaction?
trade
medium of exchange
store of value
money
If Bill performs plumbing upgrades for Alice in exchange for her incorporating his business, then their _________________________ will be satisfied.
balance of trade
double coincidence of wants
convenience of exchange
division of labor
If loans become far less available, then sectors of the economy that ______________ like business investment, home construction, and car manufacturing can be dealt a crushing blow.
depend on borrowed money
typically generate extraordinary gains
make loans to financial capital markets
failed to diversify risk
Stealth bank has deposits of $600 million. It holds reserves of $30 million and government bonds worth $80 million. If the bank sells its loans at market value of $400 million, what will its total assets equal?
$110 million
$710 million
$480 million
$510 million
Lance paid $175,000 for his house in 2003 and sold it for $325,000 in 2006. What function did the house serve during the time Lance owned it?
medium of exchange
unit of account
store of value
unit of exchange
Which of the following terms is considered to be a narrow definition of the money supply that includes, among other things, currency?
savings
money
M2
M1
Which of the following institutions determines the quantity of money in the economy as its most important task?
U.S. Department of the Treasury
Federal Open Market Committee
Central Bank
Federal Reserve Board of Governors
How are the specific interest rates for the lending and borrowing markets determined?
U.S. Treasury Department Board policy
by the forces of supply and demand
through open market operations
by altering the discount rate
When the central bank lowers the reserve requirement on deposits:
the money supply increases and interest rates decrease.
the money supply and interest rates decrease.
the money supply and interest rates increase.
the money supply decreases and interest rates increase.
loan market.
money market.
secondary loan market.
primary loan market.
Explanation / Answer
1. The market in which the loans are bought and sold is known as Secondary Loan market, whereas the initial phase when the loan is taken is known as the Primary Loan market.
So, option (C) is the correct answer.
2. A barter system is that where the goods are exchanged with other goods based on their pre-determined or negotiated exchange rate. Here, the money is not present as the goods are goods are exchanged without pegging them to some fixed commodity.
So, option (D) is the correct answer.
3. In this case, they exchange their work for one-another. Bill agrees to perform plumbing up-gradation for Alice in exchange of her incorporating his business. So, they agrees to help each other by the means of exchange of their abilities or labor power.
So, option (C) is the correct answer.
4. Most of the business investment is made based on the money borrowed from the market by the means of taking loans from the financial institutions. So is the case for home construction as well, where the realtors borrow money from the market to build a home to be able to sell it afterwards at a profitable rate. Car manufacturer also sometimes takes loans from the market in order to produce high volume of cars to satisfy the rising demand from the consumers. Therefore, if the loans become far less available, then all these sectors would get a crushing blow as their source of money would be curbed. So, the sectors, which mainly depend on borrowed money for their investment endeavors, would get a major blow if suddenly the loans become available less.
So, option (A) is the correct option.
5. Among the $600 million deposit, if the bank loans out $400 million, then its deposit becomes $(600 – 400) = $200 million. Both these deposit and he loan amount would be assets to them. In addition to this, the bank also holds $30 million of reserves and $80 million of government bonds to sell into the market in case of need. Therefore, the total assets of the bank would be, $(200 + 400 + 30 + 80) = $710 million.
Hence, option (B) would be the correct answer.
6. Lance bought a house for $175,000 in 2003 and holds it for 2006 for its value to increase, which he later sold for $325,000 in 2006. Thus, by holding the house for 3 years, Lance has increased the valuation of the house, which is also known as the store value. This store value increases with time as the demand for houses increase with time.
So, option (C) is the correct answer.
7. The M1 is known as the narrow money because it includes the currency in circulation and saving and other deposit which are liquid in nature. Meaning M1 includes those parts of money which could easily be convertible into cash.
So, the correct option is (D).
8. The quantity of money in the economy is controlled by open market operations and the Federal Open Market Committee is responsible for maintaining the right quantity of money available in the U.S. economy through their monetary policies.
Hence, option (B) is the correct answer.
9. The U.S. economy is fully market based. Here, the money market determines the interest rate by the virtue of demand and supply of money. Therefore, the lending and borrowing rate depends upon the demand and supply of money.
So, option (B) is the correct answer.
10. The reserve requirement is a policy instrument of the Central Bank to control the money supply into the economy, where the commercial banks have to park some portion of their money into the Central Bank as deposit. If the Central Bank lowers the reserve requirement on deposit, then the commercial banks would be left with higher deposit amount to give as loans; which in turn would increase the money supply in the economy. And as the money supply increases in the market, demand requirement remaining the same, the rate of interest on borrowing will go down and in turn the rate of interest given on deposit would go down as well to disburse the extra deposit. So, as a result of this lowering of reserve requirement by the Central Bank, the money supply in the economy would rise and the rate of interest would reduce.
Therefore, option (A) is the correct option.
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