Terms and concepts for final exam

• Basic principles of economics

  You are responsible for all the terms listed on pp. xiii to xv.

• Chapter 1, "The Nature and Origin of Money"
  • Spontaneous order
  • Reverse inequality of value
  • Transaction costs (three components)
  • Direct exchange (barter)
  • Double coincidence of wants
  • Multilateral exchange
  • Indirect exchange
  • Medium of exchange
  • Marketability
  • Money
  • Unit of account
  • Store of value
  • OMIT "standard of deferred payment"
  • Commodity money
  • Coinage (minting)
  • Specie
  • Bullion
  • Brassage
• Chapter 2, "The Purchasing Power of Money"
  • Purchasing power of money (PPM)
  • Units of PPM
  • Price level (P)
  • Units of P
  • Relative prices
  • Price inflation
  • Money inflation
  • Demand for money
  • Velocity of money
  • Equation of exchange
    • Total form
    • Delta form -- use to predict responses to changes
  • Money stock
  • Seasonal adjustment
  • Supply-and-demand analysis of money; process by which demand adjusts to supply
• Chapter 3: Government Control of Money
  • Real versus nominal magnitudes
  • Conversion between real and nominal magnitudes using indices such as the CPI or price deflator.
  • Real cash balances
  • Real money supply
  • OMIT "neutrality of money"
  • Legal tender
  • Gresham's law
  • Bimetallic standard
  • Seignorage
  • Brassage
  • Debasement
  • Fiat money
  • Token coins
  • Hyperinflation
  • Resource cost
• Chapter 4: The Significance of Saving
  • Credit
  • Saving
  • Leisure as a consumption good
  • Time preference
  • Capital goods
  • Subjective nature of capital goods
  • Three basic categories of disposition of income
  • Direct finance
  • Saving units; dis-saving units
  • Bills of exchange -- diagram on web site
  • Corporations
  • Limited liability
  • Partnerships, limited partnerships
• Chapter 5: The balance sheet
  • The "T" account
  • Accounting balance: assets = liabilities + net worth or shareholder equity
  • Flow of funds
  • "Bonds" encompassing both debt (bonds) and equity (stock)
  • Loanable funds market: who demands, who supplies
  • Price of loanable funds
  • Interest rate function: balancem supply and demand
  • Indirect finance
  • Financial intermediates
  • Mutual funds (open and close); exchange-traded funds
  • Residual beneficiary of a business
  • Forms of corporate finance; priority of claims on corporate assets
    • Common stock
    • Preferred stock
    • Bonds
• Chapter 6: Fractional reserve banking
  • Reserves
  • Fractional reserves
  • Resource costs
  • Bank run
  • Bank panic
  • Bank creation of money under fractional reserves
  • Banknotes
  • Deposit accounts (checking accounts, demand deposits)
  • Central bank
  • Base money: currency plus reserves
  • Pyramiding of deposits
• Chapter 7: Varieties of money
  • Inside money, outside money
  • Fiat money
  • Commodity money
  • Distribution effects of inflation:
    • Debtors and creditors
    • Fixed-income recipients
    • Distorted depreciation schedules
    • Tax on cash balances
    • Cantillon effect
  • Indexation
  • Shoeleather costs
  • Benefits of inflation
    • Bracket creep
    • Short-term economic stimulus
    • "Paper bicycle locks"
    • Hard money
    • Free banking
• Chapter 8: Financial instruments
  • M1
  • M2
  • B (monetary base)
  • Calculation of interest rate for discount securities (section 8.2.1)
  • Muni bonds
    • Issued by any non-federal government agencies
    • Tax-exempt interest
  • Government agency securities
  • Corporate debt securities
    • bonds
    • commercial paper
    • bankers' acceptances
  • Money market mutual funds
    • $1 share price assured by holding debt instruments that
      • have short maturities (90 days or less)
      • are of high quality
    • "Breaking the buck"
  • Present value formula
    • Formula
    • Meanings of variables
    • Solving for any variable given values of the other variables
  • Grading of bonds