Briefly describe the following types of financial intermediaries:
1. Commercial bank
2. Investment bank
3. Mutual fund
4. Hedge fund
5. Pension fund
6. Insurance company
1. A commercial bank is a company that takes in deposits and makes loans to households and firms.
2. An investment bank is a company that provides advice to firms issuing new securities, underwrites the issuing of securities, and develops new securities.
3. A mutual fund is a company that sells shares to investors and uses the funds to buy stocks, bonds, or other financial securities.
4. A hedge fund is a company that obtains funds primarily from wealthy investors and and uses the funds to make complicated, and often risky, investments.
5. A pension fund is an institution that receives contributions from workers and uses the funds received to invest in financial securities to fund retirement benefits.
6. An insurance company is a company that sells insurance policies to households and firms and uses the funds received to invest in financial securities.
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Prisoners in World War II POW camps traded products for other products, a process referred to as
A) central planning. B) advantage exchange. C) barter. D) rationing.
In terms of unemployment, hysteresis models try to explain why
a. cyclical unemployment is always present. b. structural unemployment cannot be eradicated. c. high unemployment persists even after its initial cause is long past. d. frictional unemployment is the cause of hysteresis.
Given the following formula for the Taylor rule:Target federal funds rate = natural rate of interest + current inflation + 1/2(inflation gap) +1/2(output gap) If the inflation rate in the economy were to fall by 2% below the target inflation rate, the target federal funds rate would:
A. Remain at 2.5%. B. Increase by 1.0%. C. Decrease by 3.0%. D. Decrease by 1.0%.
What happens when the Fed aims to change interest rates?
A. It asks Congress to legislate new interest rates. B. It buys or sells dollars on the foreign exchange market to achieve the desired rate. C. It buys or sells government bonds on the open market to achieve the desired rate. D. It announces a new discount interest rate.