We will now become briefly aware of what monetary theory is. You may think that it is the same as monetary policy, but there is a difference between the two. That is why the distinction will be made now. What is Monetary Theory? When compared to monetary policy, monetary theory seeks to explain the effect that changes in the money supply can have on the main macroeconomic variables within a country, such as an economy’s price level (or inflation rate), employment and growth. You would have realised by now, that while monetary policy will tangibly adjust the money supply (whether increasing the money supply or decreasing the money supply)of a country to bring about change in the economy, monetary theory will seek to explain how changes to the money supply, can affect the macroeconomic variables (main economic variables in the economy), such as business cycles, unemployment and inflation. Therefore, a greater understanding of these concepts will help you to understand how changes in the money supply can bring about changes in the economy. (10 mins, ungraded) Instructions : Please choose the best answer for each question below. 1. The essential role of financial markets is to provide a a. method of borrowing. b. method of saving. c. method of channeling funds between borrowers and savers. d. way for the government to finance a budget deficit. 2. With direct finance a. individuals and/or firms borrow directly from banks. b. individuals and/or firms borrow directly from the savers. c. firms deposit savings directly in banks. d. individuals deposit savings directly in banks. 3. Which of the following are benefits of Financial Intermediaries? Financial Intermediaries a. channel funds from savers to borrowers. b. allow people to time their purchases better. c. provide a safe way for savers to earn a return on their savings. d. do all of the above.
37 ECON3005 Monetary Theory & Policy - UNIT 1 LEARNING ACTIVITY 1.8 CONT’D • A Unit QUiz 4. The difference between equities and debt securities is a. Equities represent ownership in a corporation and debt represents a contractual liability of the corporation. b. Equities are short term and debt securities are long term. c. Holders of equity securities get paid before holders of debt securities in the event of a bankruptcy. d. Equities pay interest and debt securities pay dividends. 5. Transaction costs are : a. the time and money spent carrying out financial transactions. b. the costs of clearing checks. c. required by law. d. increased with financial intermediaries. 6. Which of the following are NOT depository financial institutions? a. Republic bank b. Unit Trust Corporation c. Jamaica Police Co-operative Credit Union d. British-American Insurance Company Limited e. Bank of Nova Scotia 7. A corporation working with an investment bank to issue new shares of stock is engaged in a market, market transaction.
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- Spring '20