How can specializing in lending help to reduce the adverse selection problem in lending? What will be an ideal response? ANSWER Reducing the adverse selection problem requires the banks to acquire information to screen bad credit risks from good credit risks. It is easier for banks to obtain information about local businesses. Also if […]
Explain the similarities and differences between the European System of Central Banks and the Federal Reserve System. What will be an ideal response? ANSWER The similarities between the two are in their structure. The National Central Banks of the member countries of the Eurosystem have the same role as the Federal Reserve Banks in […]
Everything else held constant, an autonomous tightening of monetary policy will cause A) the quantity of aggregate demand to increase. B) the quantity of aggregate demand to decrease. C) aggregate demand to increase. D) aggregate demand to decrease. ANSWER D
All else constant, an improvement in technology would cause a firm’s total, average and marginal product functions to increase (graphically, shift up). Indicate whether the statement is true or false ANSWER TRUE
All of the following are measures of market power except the: A) Lerner Index. B) Minimum-Efficient Scale Index. C) four-firm concentration ratio for an industry. D) Herfindahl-Hirschman Index. ANSWER B
All of the following are cited as potential explanations for the decrease in demand for Kleenex-brand facial tissues except: A) consumers switching to substitute products. B) market entry by lower-priced private brands. C) the failure of the producer of Kleenex tissues to develop any new and innovative products. ANSWER C
Equity and debt instruments with maturities greater than one year are called ________ market instruments. A) capital B) money C) federal D) benchmark ANSWER A
In the market for reserves, a lower discount rate A) decreases the supply of reserves. B) increases the supply of reserves. C) lengthens the vertical section of the supply curve of reserves. D) shortens the vertical section of the supply curve of reserves. ANSWER D
Using the Gordon growth formula, if D1 is $1.00, ke is 10% or 0.10, and g is 5% or 0.05, then the current stock price is A) $10. B) $20. C) $30. D) $40. ANSWER B
The ________ is below the coupon rate when the bond price is ________ its par value. A) yield to maturity; above B) yield to maturity; below C) discount rate; above D) discount rate; below ANSWER A
