Question 1

Asymmetric information leads to allocational inefficiencies in financial markets.

Accepted Answer

A) True 
 B)False  True

Question 2

Sarbanes-Oxley may have unintentionally increased

Accepted Answer

A)  asymmetric information. 
B)  allocational efficiency. 
C)  transactions costs. 
D)  all of the above. 
A)  asymmetric information. 
B)  allocational efficiency. 
C)  transactions costs. 
D)  all of the above. C

Question 3

Some transactions costs arise from agency problems.

Accepted Answer

A) True 
 B)False  True

Question 4

Credit ratings help with the adverse selection problem inherent in lending

Accepted Answer

A) True 
 B)False

Question 5

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

Question 6

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 7

Asymmetric information:

Accepted Answer

A)  decreases the efficiency of financial markets. 
B)  reduces the flow of funds to entrepreneurs. 
C)  injures the real economy 
D)  all of the above. 
A)  decreases the efficiency of financial markets. 
B)  reduces the flow of funds to entrepreneurs. 
C)  injures the real economy 
D)  all of the above.

Question 8

Interest on loans is an example of a transactions cost that intermediaries can deal with more efficiently than individuals.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is a technique lenders use to alleviate asymmetric information 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 10

Intermediaries must charge higher rates of interest than individuals.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Firms that pay efficiency wages are attempting to minimize

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 13

Diversified lending is intended to help alleviate agency problems.

Accepted Answer

A) True 
 B)False

Question 14

The two types of asymmetric information problems are moral hazard and agency problems.

Accepted Answer

A) True 
 B)False

Question 15

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 16

Laws against fraudulent reporting on financial documents are an attempt to solve the free-rider problem.

Accepted Answer

A) True 
 B)False

Question 17

It is difficult to make profits selling information about stock market analysis due to the free rider problem.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is a technique lenders use to alleviate the adverse selection problem?

Accepted Answer

A)  checking credit ratings 
B)  monitoring borrower activity 
C)  restrictive covenants 
D)  all of the above 
A)  checking credit ratings 
B)  monitoring borrower activity 
C)  restrictive covenants 
D)  all of the above

Question 19

Costly state verification means the same as

Accepted Answer

A)  specialized lending. 
B)  agency costs. 
C)  monitoring. 
D)  all of the above. 
A)  specialized lending. 
B)  agency costs. 
C)  monitoring. 
D)  all of the above.

Question 20

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

Accepted Answer

A)  checking credit ratings 
B)  monitoring borrower activity 
C)  both of the above 
D)  none of the above 
A)  checking credit ratings 
B)  monitoring borrower activity 
C)  both of the above 
D)  none of the above

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

Asymmetric information leads to allocational inefficiencies in financial markets.

Sarbanes-Oxley may have unintentionally increased

Some transactions costs arise from agency problems.

Credit ratings help with the adverse selection problem inherent in lending

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

Specialized lending helps lenders solve the problem of

Asymmetric information:

Interest on loans is an example of a transactions cost that intermediaries can deal with more efficiently than individuals.

Which of the following is a technique lenders use to alleviate asymmetric information problems?

Intermediaries must charge higher rates of interest than individuals.

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

Firms that pay efficiency wages are attempting to minimize

Diversified lending is intended to help alleviate agency problems.

The two types of asymmetric information problems are moral hazard and agency problems.

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

Laws against fraudulent reporting on financial documents are an attempt to solve the free-rider problem.

It is difficult to make profits selling information about stock market analysis due to the free rider problem.

Which of the following is a technique lenders use to alleviate the adverse selection problem?

Costly state verification means the same as

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

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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