1.Compared to an economy that uses a medium of exchange, in a barter economy,
A. transaction costs are lower.
B. transaction costs are higher.
C. liquidity costs are lower.
D. liquidity costs are higher.
- A financial crisis occurs when an increase in asymmetric information from a disruption in the financial system
A. causes severe adverse selection and moral hazard problems that make financial markets incapable of channeling funds efficiently.
B. allows for a more efficient use of funds.
C. increases economic activity.
D. reduces uncertainty in the economy and increases market efficiency.
- A bond with default risk will always have a risk premium and an increase in its default risk will the risk premium.
A. positive; raise
B. positive; lower
C. negative; raise
D. negative; lower
- Moral hazard is an important concern of insurance arrangements because the existence of insurance
A. is a hindrance to efficient risk taking.
B. causes the private cost of the insured activity to increase.
C. creates an adverse selection problem but no moral hazard problem.
D. provides increased incentives for risk taking.
- Financial markets have the basic function of
A. getting people with funds to lend together with people who want to borrow funds.
B. assuring that the swings in the business cycle are less pronounced.
C. assuring that governments need never resort to printing money.
D. providing a risk-free repository of spending power.
- The principal-agent problem would not occur if of a firm had complete information about actions of the .
A. managers; customers
B. managers; owners
C. owners; managers
D. owners; customers
- If a $1000 face value coupon bond has a coupon rate of 3.75 percent, then the coupon payment every year is
- The quantity of reserves supplied equals
A. required reserves plus borrowed reserves.
B. total reserves minus required reserves.
C. nonborrowed reserves minus borrowed reserves.
D. nonborrowed reserves plus borrowed reserves.
- Factors that can cause the supply curve for bonds to shift to the right include
A. an expansion in overall economic activity.
B. a decrease in expected inflation.
C. a decrease in government deficits.
D. a business cycle recession.
- A substantial decrease in the aggregate price level that reduces firms’ net worth may stall a recovery from a recession. This process is called
A. moral hazard.
C. adverse selection.
D. debt deflation.
- Net worth can perform a similar role to
D. economies of scale.
- The present value of an expected future payment _ as the interest rate increases.
C. is constant
D. is unaffected
- If the amount payable in two years is $2420 for a simple loan at 10 percent interest, the loan amount is
- Because of the adverse selection problem
A. good credit risks are more likely to seek loans causing lenders to make a disproportionate amount of loans to good credit risks.
B. lenders may refuse loans to individuals with high net worth, because of their greater proclivity to “skip town.”
C. lenders will write debt contracts that restrict certain activities of borrowers.
D. lenders are reluctant to make loans that are not secured by collateral.
- The total collection of pieces of property that serve to store value is a person’s