ECON 203 Exam 3 (Pakhotina) Latest Update
2025-2026 225 Questions and 100% Verified
Correct Answers Guaranteed A+
2 considerations that make certain money better than others - CORRECT ANSWER: 1.
Stability of value
2. Convenience
2 essential functions of the federal reserve - CORRECT ANSWER: 1. manage the
money supply
2. act as a lender of last resort
2 things that the Fed's dual mandate tries to maintain - CORRECT ANSWER: 1. price
stability
2. ensure full employment
-these goals are often incompatible
2 things that the government's budget contain - CORRECT ANSWER: 1. tax revenues
as a source of income
2. government purchases and transfer payments as expenditures
3 bank functions - CORRECT ANSWER: 1. Serve as an intermediary - bank connects
the borrower to a wide range of people who have spare funds (Ex: bank, stock
exchange)
2. prove liquidity - bank makes cash more readily accessible when and where you want
it
3. diversify risk - bank pools many borrowers and lenders together so individual saver
does not bear the full burden of a failed investment
,3 basic approaches used to pick stocks that are most likely to increase in value -
CORRECT ANSWER: 1. fundamental analysis
2. technical analysis
3. throw a dart
3 costs of predictable inflation - CORRECT ANSWER: 1. menu costs
2. shoe leather costs
3. tax distortion
3 main functions of money - CORRECT ANSWER: 1. Store of value: money represents
a certain amount of purchasing power
2. Medium of exchange: money can be used to purchase goods and services
-a barter system is where people directly offer a good or service for another good or
service
3. Unit of account: money provides a standard unit of comparison
3 tools of monetary policy - CORRECT ANSWER: 1. the reserve requirement
2. the discount rate
3. open market operations
4 major players in the financial system - CORRECT ANSWER: 1. banks and other
financial intermediaries
2. savers and their proxies
3. entrepreneurs and businesses
4. speculators
5 determinants of savings - CORRECT ANSWER: 1. culture (chinese people tend to
save more than americans because of different cultures and traditions)
2. social welfare policies (uncertainty about future increases savings)
,3. wealth (ambiguous affect, but definitely matters)
4. current economic conditions (during recession savings decrease, during economic
boom savings increase)
5. expectations about future economic conditions - low expectations lead to higher
savings
Aggregate price level - CORRECT ANSWER: A measure of the average price level for
GDP (usually is measured by price index like CPI or GDP deflator)
Arbitrage - CORRECT ANSWER: The process of taking advantage of market
inefficiencies to earn a profit
Benefits of government debt - CORRECT ANSWER: -it allows the government to be
flexible when something unexpected happens
-government debt can pay for investments that lead to economic growth and prosperity
Bond - CORRECT ANSWER: A form of debt where the bond issuer promises to repay
the loan plus scheduled interest payments
-the interest payments on bonds are called coupons (usually paid every 3-6 months)
-bonds are often called "fixed income securities"
-bond owners receive the final payment of the original bond amount at the maturity date
-bonds are standardized and can be easily sold and bought at the market
-bond is a more liquid asset than a loan
-government and big companies often issue bonds to raise money
-bonds are less risky and less rewarding compared to stocks
Budget deficit - CORRECT ANSWER: The amount of money a government spends
beyond its revenue
-expenditures > revenues
, -receipts - outlays
Budget surplus - CORRECT ANSWER: The amount of revenue a government brings in
beyond what it spends
-expenditures < revenues
-receipts - outlays
Buyers - CORRECT ANSWER: Borrowers - want to spend funds on something valuable
now
-families buying houses
-students taking loans to go to college
-corporations building new factories
-entrepreneurs starting new ventures
-government
Central bank - CORRECT ANSWER: The institution responsible for managing the
nation's money supply and coordinating the banking system
-in the US, the central bank is the federal reserve
Classical theory of inflation - CORRECT ANSWER: States that in the long run,
increases in the money supply will lead to an increase in prices only
-this theory can be illustrated using the aggregate demand and aggregate supply model
Closed economy - CORRECT ANSWER: An economy that does not interact with other
countries' economies (NX=0)
-the identity between national savings and investment only holds in a closed economy
Commercial banks - CORRECT ANSWER: Banks where people make deposits and
take loans
2025-2026 225 Questions and 100% Verified
Correct Answers Guaranteed A+
2 considerations that make certain money better than others - CORRECT ANSWER: 1.
Stability of value
2. Convenience
2 essential functions of the federal reserve - CORRECT ANSWER: 1. manage the
money supply
2. act as a lender of last resort
2 things that the Fed's dual mandate tries to maintain - CORRECT ANSWER: 1. price
stability
2. ensure full employment
-these goals are often incompatible
2 things that the government's budget contain - CORRECT ANSWER: 1. tax revenues
as a source of income
2. government purchases and transfer payments as expenditures
3 bank functions - CORRECT ANSWER: 1. Serve as an intermediary - bank connects
the borrower to a wide range of people who have spare funds (Ex: bank, stock
exchange)
2. prove liquidity - bank makes cash more readily accessible when and where you want
it
3. diversify risk - bank pools many borrowers and lenders together so individual saver
does not bear the full burden of a failed investment
,3 basic approaches used to pick stocks that are most likely to increase in value -
CORRECT ANSWER: 1. fundamental analysis
2. technical analysis
3. throw a dart
3 costs of predictable inflation - CORRECT ANSWER: 1. menu costs
2. shoe leather costs
3. tax distortion
3 main functions of money - CORRECT ANSWER: 1. Store of value: money represents
a certain amount of purchasing power
2. Medium of exchange: money can be used to purchase goods and services
-a barter system is where people directly offer a good or service for another good or
service
3. Unit of account: money provides a standard unit of comparison
3 tools of monetary policy - CORRECT ANSWER: 1. the reserve requirement
2. the discount rate
3. open market operations
4 major players in the financial system - CORRECT ANSWER: 1. banks and other
financial intermediaries
2. savers and their proxies
3. entrepreneurs and businesses
4. speculators
5 determinants of savings - CORRECT ANSWER: 1. culture (chinese people tend to
save more than americans because of different cultures and traditions)
2. social welfare policies (uncertainty about future increases savings)
,3. wealth (ambiguous affect, but definitely matters)
4. current economic conditions (during recession savings decrease, during economic
boom savings increase)
5. expectations about future economic conditions - low expectations lead to higher
savings
Aggregate price level - CORRECT ANSWER: A measure of the average price level for
GDP (usually is measured by price index like CPI or GDP deflator)
Arbitrage - CORRECT ANSWER: The process of taking advantage of market
inefficiencies to earn a profit
Benefits of government debt - CORRECT ANSWER: -it allows the government to be
flexible when something unexpected happens
-government debt can pay for investments that lead to economic growth and prosperity
Bond - CORRECT ANSWER: A form of debt where the bond issuer promises to repay
the loan plus scheduled interest payments
-the interest payments on bonds are called coupons (usually paid every 3-6 months)
-bonds are often called "fixed income securities"
-bond owners receive the final payment of the original bond amount at the maturity date
-bonds are standardized and can be easily sold and bought at the market
-bond is a more liquid asset than a loan
-government and big companies often issue bonds to raise money
-bonds are less risky and less rewarding compared to stocks
Budget deficit - CORRECT ANSWER: The amount of money a government spends
beyond its revenue
-expenditures > revenues
, -receipts - outlays
Budget surplus - CORRECT ANSWER: The amount of revenue a government brings in
beyond what it spends
-expenditures < revenues
-receipts - outlays
Buyers - CORRECT ANSWER: Borrowers - want to spend funds on something valuable
now
-families buying houses
-students taking loans to go to college
-corporations building new factories
-entrepreneurs starting new ventures
-government
Central bank - CORRECT ANSWER: The institution responsible for managing the
nation's money supply and coordinating the banking system
-in the US, the central bank is the federal reserve
Classical theory of inflation - CORRECT ANSWER: States that in the long run,
increases in the money supply will lead to an increase in prices only
-this theory can be illustrated using the aggregate demand and aggregate supply model
Closed economy - CORRECT ANSWER: An economy that does not interact with other
countries' economies (NX=0)
-the identity between national savings and investment only holds in a closed economy
Commercial banks - CORRECT ANSWER: Banks where people make deposits and
take loans
