Macro 10,13,14
d
10-1. Expenditure of goods include both short-lived goods and long-lived goods, which are called consumer durables A: net present value B: investment (i) C: impatience D: consumption (c)
a
10-10. When consumption expenditures is less than net income, saving takes place and wealth rises A: savings B: insolvent C: bank money D: solvent
d
10-11. An entity if the value of its assets is less than the value of it's liabilities A: base money B: balance sheet C: investment (i) D: insolvent
a
13-35. A measure of the level of prices for domestically produced output. This is the ratio of nominal (or current price) GDP to real (or constant price) GDP. A: GDP deflator B: gross domestic product (GDP) C: capacity utilization rate D: nash equilibrium
c
10-12. Which of the following statements about the banking system is correct A: the bank lending rate is the rate at which the central bank lends to commercial banks B: the policy rate is determined by the supply and demand of the money market C: the policy rate is the rate at which the central bank lends in the money market D: the spread represents how the central bank's money is distributed among the commercial banks
a
10-13. A medium exchange consisting of bank notes and bank deposits, or anything else that can be used to purchase goods and services, and is accepted as payment because others can use it for the same purpose A: money B: bond C: asset D: solvent
a
10-14. Information that is relevant to the parties in an economic interaction, but is known by some but not by others A: asymmetric information B: maturity transformation C: reservation indifference curve D: balance sheet
b
10-15. The loss in value of a form of wealth that occurs either through use (wear and tear) or the passage of time (adolescence) A: net present value B: depreciation C: broad money D: credit rationing
b
10-16. The price of borrowing base money A: net present value B: interest rate (short-term) C: credit rationing D: interest rate
a
10-17. Which of the following are correct A: net income is the maximum amount that you can consume and leave your wealth unchanged B: in economics, investment means saving in financial assets such as stocks and bonds C: your material wealth is the largest amount that you can consume without borrowing, which includes the value of your home, car, financial savings, and human capital D: depreciation is the loss in your financial savings due to unfavorable movements in the market
b
10-18. A quantity measured per unit of time, such as annual income or hourly wage A: stock B: flow C: bond D: yield
c
10-19. A description of individuals who are unable to borrow on any terms A: market failure B: wealth C: credit-excluded D: credit rationing
b
10-2. A situation in which depositors withdraw funds from a bank because they fear that it may go bankrupt and not honor it's liabilities that is, not repay the funds owned to depositors A: bank money B: bank run C: solvent D: balance sheet
a
10-20. The risk an asset cannot be exchanged for cash rapidly enough to prevent a financial lost A: liquidity risk B: depreciation C: interest rate D: liquidity
b
10-21. The amount of profit, interest, rent, labour earnings, and other payments (including transfers from the government) received , net of taxes paid,measured over a period of time such as a year. The maximum amount that you could consume and leave your wealth unchanged A: collateral B: income C: present value D: money
d
10-22. The following example is a simplified balance sheet of a commercial bank. Based on the information which of the following statements is correct A: the bank's net worth is its cash and reserves of $2 million B: secured borrowing with zero default risk C: the bank's base money of cash and reserves and financial assets D: the bank's leverage is 33.3
b
10-23. A record of the assets, liabilities, and net worth of an economic actor such as a household, bank, firm, or government A: discount rate B: balance sheet C: bank money D: broad money
a
10-24. The stock of money in circulation, which is the sum of base money (excluding legal tender held by banks) and bank money A: broad money B: credit rationing C: balance sheet D: bank money
b
10-25. Anything of value that is owned A: money B: asset C: liability D: gross income
d
10-26. Cash and the balances held by commercial banks in their accounts at the central bank, known as reserves A: bank money B: broad money C: balance sheet D: base money
a
10-27. A firm that creates money in the form of bank deposits in the process of supplying credit A: bank B: flow C: stock D: savings
d
10-28. The process by which with less wealth borrow on unfavorable terms, compared to those with more wealth A: depreciation B: interest rate C: net present value D: credit rationing
c
10-29. Th only bank that can create a country's legal tender. Usually part of the government. Commercial banks have accounts at this bank,holding legal tender A: broad money B: default risk C: central bank D: credit rationing
a
10-3. A description of individuals who are able to borrow only on unfavorable terms A: credit-constrained B: interest rate C: principal-agent relationship D: credit-excluded
c
10-30. Ease of buying or selling a financial asset at a predictable price A: base money B: equity C: liquidity D: earnings
b
10-31. Broad money A: the process by which those with less wealth borrow on unfavorable terms, compared to those with more wealth B: the stock of money in circulation, which is the sum base money (excluding legal tender held by banks) and bank money C: the loss of value of a form of wealth that occurs either through use (wear and tear) or the passage of time (obsolescence) D: a record of the assets, liabilities, and net worth of an economic actor such as a household, bank, firm, or government
b
10-32. A firm or individual for which net worth is positive or zero. For example a bank for this asset are more that its liabilities (what it owes) A: bond B: solvent C: balance sheet D: insolvent
a
10-33. Anything of value that is owed A: liability B: asset C: gross income D: net worth
b
10-34. The practicing of borrowing money short-term and lending it long-term. For example, a bank accepts a deposit, which it promises to repay at short notice or no notice, and makes long-term loans (which can be rapid over many years) A: interest rate B: maturity transformation C: conspicuous consumption D: arbitrage
d
10-35. Stock of things owned or value of that stock. It includes the market value of a home, car, any land, buildings, machinery other capital goods that a person may own, and any financial assets such as shares or bonds. Debts are subtracted- for example, the mortgage owed to the bank. Debts owe to the person are added A: income B: credit excluded C: principal- agent relationship D: wealth
a
10-36. A loan contracted by a household and business to purchase a property without paying the total value at one time. Over a period of many years, the borrower repays the loan, plus interest. The debt is secured by the property itself, referred to as collateral A: mortgage (or mortgage loan) B: lending rate (bank) C: asymmetric information D: discount rate
c
10-37. The risk that credit given as loans will not be repaid A: central bank B: liquidity risk C: default risk D: depreciation
c
10-38. Wages, salaries, and other income from labour A: endogenous B: net worth C: earnings D: net income
a
10-39. Expenditure on newly produced capital goods (machinery and equipment) and buildings, including new housing A: investment (i) B: insolvent C: credit rationing D: consumption (c)
c
10-4. Assets less liabilities A: net income B: liquidity C: net worth D: liability
a
10-41. The average interest rate charged by commercial banks to firms and households. The rate will typically be above the policy interest rate: the difference is the markup or spread on commercial lending A: lending rate (bank) B: credit rationing C: interest rate (short-term) D: central bank
d
10-42. The interest rate set by the central bank, which applies to banks that borrow base money from each other, and from the central bank A: lending rate (bank) B: maturity transformation C: present value D: policy (interest) rate
a
10-5. An individual's own investment in a project. This is recorded in an individual's or firm's balance sheet as net worth A: equity B: money C: government bond D: solvent
a
10-6. The price of bringing some buying power forward in time A: interest rate B: interest rate (short-term) C: credit rationing D: default risk
a
10-7. The value of assets divided by the equity stake in those assets A: leverage ratio (for banks or households) B: interest rate C: reservation indifference curve D: interest rate (short-term)
c
10-8. This is a characteristic of a person who values an additional unit of consumption now over an additional unit later, when the amount of consumption is the same now and later. It arises when a person is impatient to consume more now because she places less value on consumption in the future for reasons of myopia, weakness of will, or for other reasons. A: consumption (c) B: credit rationing C: pure impatience D: liquidity risk
b
10-9. Which of the following statements are correct A: bank money is the total money in the savers' deposit accounts at the bank B: base money is broad money minus bank money C: money is the cash (coins and notes) used as the medium of exchange to purchase goods and services D: liquidity transformation occurs when the banks transform illiquid accounts into liquid loans
b
13-1. Goods and services produced in a particular country and sold to households, firms and governments in other countries. A: inventory B: exports (x) C: business cycle D: investment (i)
?; a b c
13-10. Which of the following is the strategy households use to cope with fluctuations in their income? Choose all that apply. A: self- insurance B: co-insurance C: work harder D: trust friends and family that will help in hard times
c
13-11. The excess of the value of the output of a production process over the cost of the inputs other than labour and the opportunity cost of capital. A: aggregate demand B: inventory C: value added D: GDP deflator
c
13-12. A decrease in the general price level. A: national accounts B: recession C: deflation D: consumer price index (CPI)
c
13-13. A statistical association in which knowing the value of one variable provides information on the likely value of the other, for example high values of one variable being commonly observed along with high values of the other variable. It can be positive or negative (it is negative when high values of one variable are observed with low values of the other). It does not mean that there is a causal relationship between the variables. A: GDP deflator B: co- insurance C: correlation D: causality
a
13-14. The US National Bureau of Economic Research defines it as a period when output is declining. It is over once the economy begins to grow again. An alternative definition is a period when the level of output is below its normal level, even if the economy is growing. It is not over until output has grown enough to get back to normal. The latter definition has the problem that the 'normal' level is subjective. A: recession B: self-insurnace C: deflation D: national accounts
c
13-15. Business investment projects come in clusters, which means there is either a vicious cycle of investment activities or a virtuous one. In order to make the move from the former to the latter the firms need to develop optimistic beliefs about what the other firms will do, which is called A: dominant strategy B: game theory C: business confidence D: best response E: coordination game
d
13-16. The empirical regularity that changes in the rate of growth of GDP are negatively correlated with the rate of unemployment. A: Okun's coefficient B: value added C: exports (X) D: Okun's law
d
13-17. A means of pooling savings across households in order for a household to be able to maintain consumption when it experiences a temporary fall in income or the need for greater expenditure. A: trade balance B: trade surplus C: value added D: co-insurnace
b
13-18. A measure of the general level of prices that consumers have to pay for goods and services, including consumption taxes. A: consumer durable B: consumer price index (CPI) C: self-insurnace D: inflation
?; a c e
13-19. According to the circular flow diagram shown below, GDP can be calculated in different but equivalent ways. Choose all the valid methods to calculate GDP from the following A: By adding up incomes generated in the production process B: By adding up values created by firms in their production process C: By adding up all the expenditures on domestic goods D: By adding up all the wealth household owns E: By adding up all the income, included transfer payments, less taxes paid by household
c
13-2. The system used for measuring overall output and expenditure in a country. A: inflation B: consumer durable C: national accounts D: self-insurance
b
13-20. The willingness to bear a cost in order to benefit somebody else. A: nominal interest rate B: alturism C:exports (X) D: causality
?; not a or b
13-21. Okun's Law for Brazil between the years 1990 and 2013: the vertical axis gives the change in unemployment rate and the horizontal axis gives the real GDP growth rate: we can state the equation of the line of best fit as If Brazil's economy is not growing at all, according to the estimated Okun's Law, what is the change in unemployment rate? A: on average, unemployment rate will be decreasing B: on average, there is no change in the unemployment rate C:it is hard to tell but it depends on the year D: on average, unemployment will be increasing
c
13-22. The following graph shows the relationship between real GDP growth and change in unemployment for the US between 1961 and 2013. The equation shown is the regression result for the best-fitting line. Based on this information, which of the following statements is correct? A: Okun's coefficient for the US is 1.2298 B: the unemployment rate remains stable when there is zero real GDP growth C: with real GDP falling by 2.8% in 2009, the predicted rise in unemployment rate would have been 2.3% D: from the regression result, policy makers can be sure that a 1 percentage point increase in real GDP next year will defiantly lead to a fall in the unemployment rate of .38%
c d
13-23. In previous chapters we studied lon-run growth and we saw that potential GDP grows smoothly but in the short run actual GDP fluctuates around its long-run trend. From the following choose all the relevant sources of these fluctuations A: government B: foreign sector including exports and imports C: investment D: consumption
a
13-24. The mechanism through which firms' and households' ability to borrow increases when the value of the collateral they have pledged to the lender (often a bank) goes up. A: financial accelerator B: real interest rate C: capacity utilization rate D: okun's coefficient
c
13-25. Consumer goods with a life expectancy of more than three years such as home furniture, cars, and fridges. A: national accounts B: consumer price index (CPI) C: consumer durable D: inflation
b
13-26. Exports (X) A: goods and services produced in other countries and purchased by domestic households, firms, and the government B: goods and services produced in a particular country and sold to households, firms, and government in other countries C:the excess of value of the output of a production process over the cost of the inputs other than labour and the opportunity cost of capital D: goods held by a firm prior to sale of use, including raw materials, partially - finished or finished goods, intended for sale
b
13-27. The interest rate corrected for inflation (that is, the nominal interest rate minus the rate of inflation). It represents how many goods in the future one gets for the goods not consumed now. A: aggregate demand B: real interest rate C: nominal interest rate D: weakness of will
d
13-28. A two-way causal relationship in which A affects B and B also affects A. A: aggregate output B: coordination game C: trade surplus D: reverse causality
a
13-29. Okun's Law for Brazil between the years 1990 and 2013: the vertical axis gives the change in unemployment rate and the horizontal axis gives the real GDP growth rate: we can state the equation of the line of best fit as What is the rate of growth for the Brazil's economy to keep the unemployment constant -- not increasing or decreasing? A: 3.5% B: .04161% C: 0% D: -0.1183%
c
13-3. Value of exports minus the value of imports. A: trade deficit B: trade surplus C:trade balance D: business cycle
b
13-30. Alternating periods of faster and slower (or even negative) growth rates. The economy goes from boom to recession and back to boom. A: co-insurance B: business cycle C: investment (i) D: weakness of will
b
13-31. A situation in which government bonds come to be considered so risky that the government may not be able to continue to borrow. If so, the government cannot spend more than the tax revenue they receive. A: aggregate demand B:sovereign debt crisis C: government spending (G) D: capacity utilization rate
a
13-32. The following diagram shows the path of income for a household that receives news about an expected rise and fall in future income at the depicted times. Assume that the household prefers to smooth out its consumption if it can. Based on this information, which of the following statements is correct? A: if the household is credit-constrained and has "weakness of will", then its consumption will match precisely its income path B: if the household is credit-constrained but does not have "weakness of will", then its borrow at t= 1 and save at t= 3 C:if the household is not credit- constrained, then it will consume the same level after t=1 D:if the household is not credit constrained but has "weakness of will", then it will borrow at t=1 and save at t=3
d
13-33. The scatterplot below shows the change in Google Stress Index and change in unemployment rate in different states between 2007 and 2010. According to the graph which of the following would be correct? A: between 2007 and 2010, Nevada was the state where the change in unemployment rate and the stress index was the highest B: from the graph it would be correct to say that increase in unemployment rate cause the stress index C:the change in stress index and the change in unemployment rate is negatively correlated i.e. the higher the change in unemployment rate, the smaller the change in stress index D: the change in the stress index and the change in unemployment rate is positively correlated i.e. the higher the change in unemployment rate, the higher the change in stress index
c
13-34. A measure of the market value of the output of the economy in a given period. A: GDP deflator B: Okun's coefficient C: gross domestic product (GDP) D: capacity utilization rate
a
13-36. Expenditure by the government to purchase goods and services. When used as a component of aggregate demand, this does not include spending on transfers such as pensions and unemployment benefits. A: government spending (G) B: sovereign debt crisis C: real interest rate D: capacity utilization rate
c
13-37. The total of the components of spending in the economy, added to get GDP: Y = C + I + G + X - M. It is the total amount of demand for (or expenditure on) goods and services in the economy. A: weakness of will B: real interest rate C: aggregate demand D: aggregate output
a
13-38. Goods held by a firm prior to sale or use, including raw materials, and partially-finished or finished goods intended for sale. A: inventory B: exports (X) C: investment (I) D: imports (M)
a
13-39. Okun's Law for Brazil between the years 1990 and 2013: the vertical axis gives the change in unemployment rate and the horizontal axis gives the real GDP growth rate: we can state the equation of the line of best fit as According to the estimated Okun's law in Brazil, if the economy grows 2% a year what is the average predicted change in unemployment rate? A: increases by .01795 percentage points B: increases by .4161 percentage points C: increase by .2978 percentage points D: increase by .6527 percentage points
b
13-4. An exogenous change in some of the fundamental data used in a model. A: reverse capacity B: shock C:trade deficit D: trade surplus
? not b or d
13-40. Consider the GDP deflator as the ratio of nominal GDP to real GDP, ie . According to this definition how import and export prices affect the inflation rate that is calculated using the GDP deflator. A: export prices will impact the inflation rate but import prices will not affect it B: both import and export prices will impact inflation rate C: none of the prices will impact inflation rate D: import prices will impact the inflation rate but export prices will not affect it
c
13-41. A way of measuring a quantity based on the logarithm function, f(x) = log(x). The logarithm function converts a ratio to a difference: log (a/b) = log a - log b. This is very useful for working with growth rates. For instance if national income doubles from 50 to 100 in a poor country and from 1,000 to 2,000 in a rich country, the absolute difference in the first case is 50 and in the second 1,000, but log(100) - log(50) = 0.693, and log(2000) - log(1000) = 0.693. The ratio in each case is 2 and log(2) = 0.693. A: nash equilibrium B: natural experiment C: logarithmic scale D: coordination game
d
13-42. Expenditure on newly produced capital goods (machinery and equipment) and buildings, including new housing. A: imports (M) B: business cycle C: government spending (G) D: investment (I)
?
13-43. Household consumption path may have to follow its income path because A: co-insurnace may not be widely available B: of weakness and will it may not commit to a savings plan C: shocks to economy reduce household ability to save D: some households are credit-constrained
c
13-44. A direction from cause to effect, establishing that a change in one variable produces a change in another. While a correlation is simply an assessment that two things have moved together, causation implies a mechanism accounting for the association, and is therefore a more restrictive concept. A: inventory B: value added C: causality D: co-insurance
?, not b or d
13-45. The estimated Okun's Law for Germany is given as . In 2009, GDP growth rate for Germany was -5.1%. According to the estimated Okun's Law, What is the predicted average change in the unemployment rate for Germany in 2009? A: it will decrease by 1.58 percentage points B: it will decrease by 1.02 percentage points C: it will increase by 1.58 percentage points D: it will increase by 1.02 percentage points
d
13-46. The interest rate uncorrected for inflation. It is the interest rate quoted by high-street banks. A: linear regression line B: okun's coefficient C: real interest rate D: nominal interest rate
b
13-5. The change in the unemployment rate in percentage points predicted to be associated with a 1% change in the growth rate of GDP. A: nominal interest rate B:Okun's coefficient C: real interest rate D: coordination game
b
13-6. The best-fitting line through a set of data. A: Okun's coefficient B: linear regression line C: nominal interest rate D: aggregate demand
d
13-7. An empirical study exploiting naturally occurring statistical controls in which researchers do not have the ability to assign participants to treatment and control groups, as is the case in conventional experiments. Instead, differences in law, policy, weather, or other events can offer the opportunity to analyse populations as if they had been part of an experiment. The validity of such studies depends on the premise that the assignment of subjects to the naturally occurring treatment and control groups can be plausibly argued to be random. A: real interest rate B: nominal interest rate C: logarithmic scale D: natural experiment
d
13-8. A measure of the extent to which a firm, industry, or entire economy is producing as much as the stock of its capital goods and current knowledge would allow. A: sovereign debt crisis B:gross domestic product (GDP) C:co insurance D: capacity utilization rate
c
13-9. Goods and services produced in other countries and purchased by domestic households, firms, and the government. A: inventory B: business cycle C: imports (M) D: exports (X)
b
QUESTION 10.1 CHOOSE THE CORRECT ANSWER(S) Which of the following statements are correct? A: Your material wealth is the largest amount that you can consume without borrowing, which includes the value of your house, car, financial savings, and human capital. B: Net income is the maximum amount that you can consume and leave your wealth unchanged. C: In economics, investment means saving in financial assets such as stocks and bonds. D: Depreciation is the loss in your financial savings due to unfavourable movements in the market.
b d
QUESTION 10.10 CHOOSE THE CORRECT ANSWER(S) The following diagram depicts Julia's choice of consumptions in periods 1 (now) and 2 (later) under different interest rates. She has no income in period 1 but an income in period 2 against which she can borrow. Based on this information, which of the following statements are correct? A: A cut in the interest rate increases the marginal rate of transformation of consumption from period 2 to period 1. B: Julia will unambiguously increase her consumption in period 1 after an interest rate cut. C: Julia will unambiguously decrease her consumption in period 2 after an interest rate cut. D: The graph of interest rate (vertical axis) versus period-1 consumption (horizontal axis) is downward sloping.
c d
QUESTION 10.11 CHOOSE THE CORRECT ANSWER(S) Which of the following statements are correct regarding the principal-agent problem? A: A principal-agent problem exists in loans due to a positive possibility of the principal not being repaid. B: The principal-agent problem can be resolved by writing a binding contract for the borrower to exert full effort. C: One solution for the principal-agent problem in loans is for the borrower to provide equity. D: The principal-agent problem leads to credit rationing in the loans market.
d
QUESTION 10.12 CHOOSE THE CORRECT ANSWER(S) In an economy with a population of 100, there are 80 farmers and 20 lenders. The farmers use the funds to finance the planting and tending of their crops. The rate of profit for the harvest is 12.5%, while the interest rate charged is 10%. Compare the following two cases: Case A: All farmers are able to borrow. Case B: Only 50 farmers are able to borrow. Based on this information, which of the following statements is correct? A: The share of total output received by the farmers who can borrow is 25%. B: The Gini coefficient for Case A is 0.5. C: The Gini coefficient for Case B is 0.6. D: There is a 10% increase in the Gini coefficient in Case B compared to Case A.
d
QUESTION 10.2 CHOOSE THE CORRECT ANSWER(S) Mr Bond has wealth of £500,000. He has a market income of £40,000 per year, on which he is taxed 30%. Mr Bond's wealth includes some equipment, which depreciates by £5,000 every year. Based on this information, which of the following statements is correct? A: Mr Bond's disposable income is £40,000. B: Mr Bond's net income is £28,000. C: The maximum amount of consumption expenditure possible for Mr Bond is £23,000. D: If Mr Bond decides to spend 60% of his net income on consumption and the rest on investment, then his investment is £9,200.
a
QUESTION 10.3 CHOOSE THE CORRECT ANSWER(S) Figure 10.3a depicts Julia's indifference curves for consumption in periods 1 (now) and 2 (later). Based on this information, which of the following statements is correct? A: The slope of the indifference curve is the marginal rate of substitution between the consumption in the two periods. B: The marginal return to consumption in period 1 is higher at E than at C. C: Julia's consumption is more equal (more 'smoothed') at C than at E. Therefore she prefers consumption choice C to E. D: Consuming exactly the same amount in the two periods is Julia's most preferred choice.
b
QUESTION 10.4 CHOOSE THE CORRECT ANSWER(S) Figure 10.4 depicts Julia's choice of consumptions in periods 1 and 2. She has no income in period 1 (now) and an income of $100 in period 2 (later). The current interest rate is 10%. Based on this information, which of the following statements is correct? A: At F, the interest rate exceeds Julia's discount rate (degree of impatience). B: At E, Julia is on the highest possible indifference curve given her feasible set. C: E is Julia's optimal choice, as she is able to completely smooth out her consumption over the two periods and consume the same amount. D: G is not a feasible choice for Julia.
b d
QUESTION 10.5 CHOOSE THE CORRECT ANSWER(S) Figure 10.6 depicts Marco's choice of consumption in periods 1 (now) and 2 (later). He has $100 worth of grain in period 1 and no income in period 2. Marco has two choices. In scheme 1, he can store the grain that he does not consume in period 1. This results in a loss of 20% of the grain due to pests and rotting. In scheme 2, he can sell the grain that he does not consume and lend the money at 10%. Based on this information, which of the following statements is correct? A: With scheme 1, if Marco consumes $68 worth of grain in period 1, he can consume $32 worth of grain in period 2. B: With scheme 2, if Marco consumes $68 worth of grain in period 1, he can consume $35 worth of grain in period 2. C: The marginal rate of transformation is higher under scheme 1 than under scheme 2. D: Marco will always be on a higher indifference curve under scheme 2 than under scheme 1.
d
QUESTION 10.6 CHOOSE THE CORRECT ANSWER(S) Figure 10.10 depicts four possible feasible frontiers for Marco, who has $100 worth of grain in period 1 (now) and no income in period 2 (later). In scheme 1, he can store the grain that he does not consume in period 1. This results in 20% loss of the grain due to pests and rotting. In scheme 2, he can sell the grain that he does not consume and lend the money at 10%. In scheme 3, he can invest the remaining grain (for example by planting it as seed) for a return of 50%. Finally in scheme 4, he can invest the entire amount of grain and borrow against his future income at 10%. Based on this information, which of the following statements is correct? A: 20% depreciation from storage means that Marco is worse off at H than at his initial endowment of consuming all $100 worth of grain in period 1. B: The consumption choice J can only be attained under scheme 2. C: If the rate of lending increases, the feasible frontier for scheme 2 tilts inwards from the point 100 on the horizontal axis (becomes flatter). D: If the rate of borrowing increases, the feasible frontier for scheme 4 tilts inwards from the point 150 on the vertical axis (becomes steeper).
d
QUESTION 10.7 CHOOSE THE CORRECT ANSWER(S) The following diagram depicts Julia's choice of consumption in periods 1 (now) and 2 (later) when the interest rate is 78%. She has no income in period 1 and an income of $100 in period 2. She chooses the consumption choice G. Based on this information, which of the following statements regarding Julia's balance sheet is correct? A: The asset after borrowing but before consumption in period 1 is 56. B: The net worth after consumption in period 1 is 0. C: The liability before consumption in period 2 is 35. D: The asset after consumption but before repaying the loan in period 2 is 62.
c
QUESTION 10.8 CHOOSE THE CORRECT ANSWER(S) Which of the following statements is correct? A: Money is the cash (coins and notes) used as the medium of exchange to purchase goods and services. B: Bank money is the total money in the savers' deposit accounts at the bank. C: Base money is broad money minus bank money. D: Liquidity transformation occurs when the banks transform illiquid deposits into liquid loans.
d
QUESTION 10.9 CHOOSE THE CORRECT ANSWER(S) The following example is a simplified balance sheet of a commercial bank. Based on this information, which of the following statements is correct? AssetsLiabilitiesCash and reserves£2mDeposits£45mFinancial assets£27mSecured borrowing£32mLoans to other banks£10mUnsecured borrowing£20mLoans to households and firms£55mFixed assets£6mTotal assets£100mTotal liabilities£97m A: The bank's base money consists of cash and reserves and financial assets. B: Secured borrowing is borrowing with zero default risk. C: The bank's net worth is its cash and reserves of £2 million. D: The bank's leverage is 33.3.