Question 1:
A. Define efficient capital market. How do we know if we haven an efficient capital market?
B. Some people say that an efficient capital market is impossible to have, ever. Why do some say that efficient capital markets are impossible?
C. How would an effective capital market cause long term sustainable economic growth?
Question 2:
A, B, C. Each state issues licenses for private companies to operate savings banks within the state. For example, the NY State Banking Department issues licenses (also called “charters”) that are mandatory to have before operating a savings bank within NY State. Separately answering as parts A, B and C, give and explain three different legal requirements in NY State to have a license to operate a savings bank.
Question 3:
A, B, C. John Kenneth Galbraith described several historic episodes of asset markets going through boom and bust. One episode that he described was the stock market crash of 1929. Separately answering as parts A, B and C, identify and explain three different causes of the crash of 1929. With each cause that you explain, include how it contributed to the 1929 stock market crash.
Question 4:
A, B, C. An expected rate of return (e.g. an interest rate on a home mortgage) usually has three separate parts. Separately answering as parts A, B and C, give and define the three separate parts of one expected rate of return. In addition, along with each part, give at least one reason why each of the three components of the expected rate of return must be included, or the lender will not lend.
Question 5:
A. Draw a short run Philips curve. Label it in full, and include it in your email, as an attachment with your exam. Explain the reasons that underlie the short run cause and effect relationship, as originally stated by A. W. Philips.
B. How is the short run Philips curve being used today (2020) in the USA? Give one example of the method being practiced today. What is the expected gain?
Sample Solution