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Finance concepts 101

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  • Explain the problems of hyperinflation and deflation with the example of buying a new refrigerator.
    Everybody buying as soon as possible / Nobody buying, biding their time
  • What are the 3 main purposes of money?
    Medium of exchange/store of value/unit of account
  • What is the gold standard?
    Money is redeemable for a specific amount of gold; can't issue more money than gold reserves
  • Alan Greenspan said about the bank bailout, "If they're too big to fail, …"
    "... they're too big."
  • What is common in bonds and stocks?
    They are traded on markets
  • What is a stagflation?
    Production slows down / stops (stagnates) while prices rise
  • What caused the 1923 German hyperinflation?
    To pay massive reparations to the Allies after World War I, Germany printed a lot of their currency
  • What is a perverse incentive?
    When a policy ends up having a negative effect, opposite of what was intended
  • What are the 3 main ways lenders and borrowers interact?
    Bank deposits/loans, bonds, stocks
  • The Nobel Prize winning economist Milton Friedman said, "The pieces of green paper have value because …
    … everyone thinks they have value."
  • What is a barter system?
    Swap/exchange goods for goods
  • Give 3 examples for money that’s not coins or banknotes
    cigarettes, stamps, grain, shells, etc.
  • What is a stock/share?
    A slice of ownership
  • Which country had the largest ever hyperinflation and when?
    Hungary, (1945-)1946
  • What is a bond? (Keep it simple)
    An IOU
  • What did the US government do to stabilize the financial market in 2008?
    Emergency loans to banks (bank bailout), stimulus package with tax cuts
  • Which country had the largest ever denomination of currency issued? How did this country get out of hyperinflation?
    Zimbabwe / gave up its currency
  • How is Bitcoin different from other currencies?
    No regulating country, more anonymous, speculative asset
  • What two factors were the predominant in the 1970’s stagflation?
    Rising oil prices, die-off of Peruvian anchovies
  • What is a subprime mortgage?
    Loans to people with low income and a poor credit history.
  • What is a mortgage?
    A loan with a house as collateral
  • What is “to default/a default”?
    When a borrower stops paying back what they owe.
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