Typically, the economy recovers fairly quickly from a recession. Why did this NOT happen in the United States during the Great Depression? What will be an ideal response? ANSWER The 25% decline in the price level from 1930-1933 triggered a debt deflation. The loss of net worth increased adverse selection and moral hazard problems […]
Banks acquire the funds that they use to purchase income-earning assets from such sources as A) cash items in the process of collection. B) savings accounts. C) reserves. D) deposits at other banks. ANSWER B
What role does the price elasticity of demand play in markup pricing, i.e., how does it affect the firm’s ability to mark up price over marginal cost? What will be an ideal response? ANSWER The price elasticity of demand acts as a constraint on the firm’s ability to mark up price over the marginal […]
From 1980 to 1985 the dollar appreciated relative to the British pound. Holding everything else constant, one would expect that, when compared to 1980 A) fewer Britons traveled to the United States in 1985. B) Britons imported more wine from California in 1985. C) Americans exported more wheat to England in 1985. D) more Britons […]
Open market purchases and sales are conducted at the: A) Federal Reserve Bank of Kansas City. B) Federal Reserve Bank of New York. C) Federal Reserve Bank of Chicago. D) Federal Reserve Bank of St. Louis. ANSWER B
An increase in the liquidity of corporate bonds, other things being equal, shifts the demand curve for corporate bonds to the ________ and the demand curve for Treasury bonds shifts to the ________. A) right; right B) right; left C) left; left D) left; right ANSWER B
A hyperinflation is A) a period of extreme inflation generally greater than 50% per month. B) a period of anxiety caused by rising prices. C) an increase in output caused by higher prices. D) impossible today because of tighter regulations. ANSWER A
If there is a current account surplus, then there is a financial account deficit. Indicate whether the statement is true or false ANSWER TRUE
Open market purchase of government securities results in: A) an increase in bank reserves. B) a decrease in bank reserves. C) an increase in interest rates. D) none of the above. ANSWER A
________ is a process of bundling together smaller loans (like mortgages) into standard debt securities. A) Securitization B) Origination C) Debt deflation D) Distribution ANSWER A
