Finance 320 Exam 2
C + I + G + (X-M)
aggregate demand is equal to
have a bettr sense of future profitability
an example of asymmetric information in financial market is that, in equity markets, directors _________________ than shareholders
False
an increase in the price of bonds will cause a decrease in the demand for bonds
2%
Armand buys a 10-year, $10,000 bond that pays him $500 every year for 10 years and repays the face value in year 10. During the 10-year period, the rate of inflation holds steady at 3% per year. The real rate of return on Armand's investment is
the principal-agent problem
Cleo is hired as the CEO of Wolfstarter Company, a publicly owned corporation. After she is hired, she authorizes the purchase of a company limousine to chauffeur her around town, purchases a skybox at the stadium of the local NFL team, and provides herself with a company-paid membership at the local country club. This behavior could be an example of
True
Deductibles are one way insurance companies protect themselves from careless drivers True or False
compensating balance as a way to mitigate the problem of moral hazard
Holly goes to her bank to take out a loan, and the bank agrees to the loan on the condition that Holly maintain a balance of $1,000 in her savings account with the bank. This is an example of a bank using a
a deductible to try to mitigate the problem of moral hazard
In Vance's homeowner's insurance policy, it states that he is required to pay out-of-pocket the first $5,000 for any homeowner's insurance claim that he submits before the insurance company will reimburse for any loss. This is an example of using
government spending of some kind
Keynes suggested that what kind of spending would be necessary to move the economy out of the Depression?
horizontal; vertical
Originally, Keynes conceived of the aggregate supply curve as consisting of two distinct segments. In this conception, below the full-employment level of output the aggregate supply curve is _________, and once the economy reachees the full-employment level of output it becomes ___________
moral hazard
Petra has an automobile accident and finds that as a result her auto insurance premium will increase by 25%. This is an eexample of an adjustable premium that insurance companies often use as a mechanism to combat
inversely related
bond prices and interest rates are:
altering the real interest rate when inflation is changing quickly
changes in the federal funds rate influence the economy's growth rate through all of the following except by
borrowers
inflation is a benefit in the short run to:
a measure of the ease with which one asset can be converted into another asset, usually money
liquidity is the term that has which of these meanings?
is appointed by the US President, selected from the Board of Governors
the Chairman of the Board of Governors
three branches with overlapping responsibilities
the Fed is composed of:
the operations of the Fed, commerical bank regulation, and monetary policy
the board of governors of the Federal Reserve has three primary responsibilites, which are
adverse selection
the bond rating system, in which companies like Moody's and Standard & Poor's provide ratings for a company's default risk, is one way to deal with
a liquidity mismatch with savers desiring liquidity and borrowers desiring illiquid loans
the busniess of banking solves the problem of
banks charge each other for overnight loans on excess resrves held at the Fed
the federal funds rate is the interest rate
president of the United States
the governors of the federal reserve system are appointed by the
federal funds rate
the interest rate the FOMC currently choose to control is the
adverse selection
the loan application process that banks require potential borrowers to go through is an attempt to deal with
the chair of the Fed is appointed by the president of the United States and confirmed by the US Senate
the position of chair of the Federal Reserve is filled in what way?
decide on how to influence financial conditions
the primary purpose of meetings of the FOMC is to
inverse
the relationship between the economy-wide price level and the level of real GDP illustrated by the aggregate demand curve is
adverse
the result of asymmetric information in a market is ___________ selection
US Treasury securities, federal agency debt, and privately issued mortgage-backed securities
the securities that the Federal Reserve hold on its balance sheet include
the Federal Deposit Insurance Corporation
the three bracnhes of the Federal Reserve System includes each of the following, expect which one?
the Pigou effect, Keynes's interest rate effect, and the foreign trade effect
the three reasons that the economy-wide pricee level and the level of real GDP move in opposite directions are
the average price for used cars would go down and drive the better used cars out of the market
what would be expected in a market for used cars, assuming asymmetric information and buyers who have little way to determine good used cars from poor used cars?
to maintain the gold standard and be "lender of last resort" to commercial banks
when the Federal Reserve was created in 1913, what were its two primary purpose?
asymmetric
when the parties to a transaction have different levels of knowledge about each other and/or the nature and implications of the transaction, it is said that there exists _____________ information
the Secretary of the Treasury
which of the following is (are) not a permanent voting member on the FOMC?
demand deposits
which of the following qualifies as a liability to a bank
a consumer loan
which of the following would be considered an asset on a bank's balance sheet?
Securities
which of these catergories is the largest asset on the Federal Reserve's balance sheet - by far?
bond issuers have better insight about their future profitability than bond buyers
which of these describes an example of asymmetric information in the bond market
borrowers know more about their capacity to repay loans than lenders
which of these is an example of asymmetric information in banking?
the board of governors consists of six memebers plus the chair; the term length for members is fourteen years
which of these statements is appointed by the chair and serves a four-year term
banks plahy a key role in creating money, and they help with the problem of adverse selection
which of these statements is most true of the function of banks?
an increase in imports
which of these would cause a decrease in aggregate demand?
the chairman position has no formal qualifications; the four-year term is renewable
which of thesee is currently true for the chair of the Federal Reserve?
moral hazard
The principal of a school hires Daniel to teach eighth grade students. One goal the principal has is to prepare the students to do well on standardized tests, as he will be judged based on the results of those tests. Daniel prefers to teach in a more creative way, so the students learn a lot, but perform poorly on their standardized tests. This is an example of what problem?
the opportunity cost of household consumption increases, causing households to bring more of their after-tax income to the pool of loanable funds
The quantity of loanable funds supplied is directly related to interest rates because as interest rates increase
an upward-sloping short-run aggregate supply curve and a vertical long-run supply curve at the full employment level of GDP
The rational expectations approach postulates what two aggregate supply curves?
an increase in business confidence
Suppose the market for loanable funds is currently in equilibrium. Which of the following factors will cause an increase in the interest rate?
goes down, peples' savings are able to purchase more stuff so the total level of spending increase
The Pigou effect is one of the reasons that the aggregate demand curve slopes downward. According to this argument, when the price level :
the interviewer has asymmetric information as she knows less about Rachel than Rachel knows of herself
Rachel goes for a job interview and knows a lot about the job she is applying for. The woman who interviews her is filling in for another employee and knows very little about Rachel. We might say the woman conducting the interview is likely to have what kind of situation?
True
Several factors can cause the SRAS curve to shift; these factors include a change in the cost of inputs, a change in taxes, and even a change in seller expectations True or False
an increase; no increase
Using a two-part aggregate supply curve, an increase in aggregat demand when the economy is at less than full employment would be expected to lead to __________ in real GDP and __________ in the price level
Direct
What is the best description of the relationship between the price of bonds and the quantity of bonds supplied, all else equal?
True
When the actual level of output is less than the potential level of output, there is an output gap, sometimes called a reccesionary gap. True or False
Expansionary monetary policy being followed by the Federal Reserve
Which of the following could cause an increase in the supply of loanable funds?
A decrease in expectations about future inflation
Which of these could be a reason for a decrease in the demand for loanable funds?
lenders and working class people
Which of these groups of people is most hurt by inflation?
it causes an increase in the interest rate, due to greater consumer demand for money to spend; business spending decrease
according to Keynes, when the price level rises, it causes the interest rate to do what? It causes the level of business spending to do what?