Question 1

When banks refuse to lend to borrowers with low net worth, they are trying to alleviate moral hazard problems.

Accepted Answer

A) True 
 B)False

Question 2

Legislation banning fraudulent financial documentation is intended to reduce

Accepted Answer

A)  agency costs. 
B)  moral hazard problems. 
C)  asymmetric information. 
D)  all of the above. 
A)  agency costs. 
B)  moral hazard problems. 
C)  asymmetric information. 
D)  all of the above.

Question 3

Diversified lending is intended to minimize transactions costs.

Accepted Answer

A) True 
 B)False

Question 4

The free-rider problem affects decisions of participants in

Accepted Answer

A)  the stock market. 
B)  internal finance 
C)  both of the above. 
D)  neither of the above. 
A)  the stock market. 
B)  internal finance 
C)  both of the above. 
D)  neither of the above.

Question 5

Which of the following is a technique lenders use to alleviate moral hazard problems?

Accepted Answer

A)  specialized lending 
B)  diversified lending 
C)  requiring collateral 
D)  all of the above 
A)  specialized lending 
B)  diversified lending 
C)  requiring collateral 
D)  all of the above

Question 6

What is the free-rider problem in relation to the stock market?

Accepted Answer

Stock market investors do not

Question 7

Credit ratings help with the adverse selection problem inherent in lending

Accepted Answer

A) True 
 B)False

Question 8

During the housing crisis of 2008, many homeowners went "under water," meaning their home is worth less than the value of their mortgage. What solution to asymmetric information problems is affected? Why is this a problem for lenders?

Accepted Answer

The value of the collateral is the value

Question 9

Specialized lending helps lenders solve the problem of

Accepted Answer

A)  adverse selection. 
B)  moral hazard. 
C)  transactions costs. 
D)  all of the above. 
A)  adverse selection. 
B)  moral hazard. 
C)  transactions costs. 
D)  all of the above.

Question 10

When banks refuse to lend to borrowers at very high rates of interest, they are trying to alleviate the moral hazard problem.

Accepted Answer

A) True 
 B)False

Question 11

Banks commonly monitor the activities and check the credit ratings of borrowers. Which solves the moral hazard problem, and which solves the adverse selection problem? Explain briefly.

Accepted Answer

Monitoring borrower activities

Question 12

How does the free-rider problem affect the size of the firms with access to the IPO market?

Accepted Answer

The free-rider problem makes i

Question 13

How do efficiency wages reduce agency costs?

Accepted Answer

Workers who receive efficiency

Question 14

A possible problem with Sarbanes-Oxley is that in worsens the free-rider problem for financial intermediaries.

Accepted Answer

A) True 
 B)False

Question 15

Transactional costs are any and all costs associated with completing an exchange.

Accepted Answer

A) True 
 B)False

Question 16

Efficiency wages are _____ the level firms would have to pay to fill all their open positions.

Accepted Answer

A)  higher than 
B)  lower than 
C)  equal to 
D)  none of the above 
A)  higher than 
B)  lower than 
C)  equal to 
D)  none of the above

Question 17

It is difficult to make profits in the mortgage market due to the free-rider problem.

Accepted Answer

A) True 
 B)False

Question 18

What transactions cost could arise from screening?

Accepted Answer

Banks must hire peop

Question 19

Spinning, in relation to IPOs, is a practice that hurts

Accepted Answer

A)  underwriters. 
B)  investors. 
C)  the company going public. 
D)  all of the above. 
A)  underwriters. 
B)  investors. 
C)  the company going public. 
D)  all of the above.

Question 20

Deductibles on car insurance are solutions to the _____ problem for insurers.

Accepted Answer

A)  adverse selection 
B)  moral hazard 
C)  free-rider 
D)  all of the above 
A)  adverse selection 
B)  moral hazard 
C)  free-rider 
D)  all of the above

Exam 8: Financial Structure, Transaction Costs, and Asymmetric Information

When banks refuse to lend to borrowers with low net worth, they are trying to alleviate moral hazard problems.

Legislation banning fraudulent financial documentation is intended to reduce

Diversified lending is intended to minimize transactions costs.

The free-rider problem affects decisions of participants in

Which of the following is a technique lenders use to alleviate moral hazard problems?

What is the free-rider problem in relation to the stock market?

Credit ratings help with the adverse selection problem inherent in lending

During the housing crisis of 2008, many homeowners went "under water," meaning their home is worth less than the value of their mortgage. What solution to asymmetric information problems is affected? Why is this a problem for lenders?

Specialized lending helps lenders solve the problem of

When banks refuse to lend to borrowers at very high rates of interest, they are trying to alleviate the moral hazard problem.

Banks commonly monitor the activities and check the credit ratings of borrowers. Which solves the moral hazard problem, and which solves the adverse selection problem? Explain briefly.

How does the free-rider problem affect the size of the firms with access to the IPO market?

How do efficiency wages reduce agency costs?

A possible problem with Sarbanes-Oxley is that in worsens the free-rider problem for financial intermediaries.

Transactional costs are any and all costs associated with completing an exchange.

Efficiency wages are _____ the level firms would have to pay to fill all their open positions.

It is difficult to make profits in the mortgage market due to the free-rider problem.

What transactions cost could arise from screening?

Spinning, in relation to IPOs, is a practice that hurts

Deductibles on car insurance are solutions to the _____ problem for insurers.

The Financial System

Money

Interest Rates

The Economics of Interest-Rate Fluctuations

The Economics of Interest-Rate Spreads and Yield Curves

Rational Expectations, Efficient Markets, and the Valuation of Corporate Equities

Bank Management

Innovation and Structure in Banking and Finance

The Economics of Financial Regulation

Financial Derivatives

Financial Crises: Causes and Consequences

Central Bank Form and Function

The Money Supply Process and the Money Multipliers

Monetary Policy Tools

Monetary Policy Targets and Goals

Foreign Exchange

International Monetary Regimes

Money Demand

Is-Lm

Is-Lm in Action

Aggregate Supply and Demand and the Growth Diamond

Monetary Policy Transmission Mechanisms

Inflation and Money

Rational Expectations Redux: Monetary Policy Implications

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