Question 1

Many economists and policymakers have raised concerns about crowdfunding due to the existence of

Accepted Answer

A)  information costs facing small investors. 
B)  information costs facing business start ups. 
C)  transactions costs facing business start ups. 
D)  increased competition for banks in funding business start ups. 
A)  information costs facing small investors. 
B)  information costs facing business start ups. 
C)  transactions costs facing business start ups. 
D)  increased competition for banks in funding business start ups. A

Question 2

Financial intermediaries are able to act as delegated monitors for individual savers because

Accepted Answer

A)  other investors are unable to gain a free ride on their monitoring efforts. 
B)  borrowers consider this role to be traditional for financial intermediaries and are willing to put up with it. 
C)  the federal government has granted them waivers from laws protecting privacy. 
D)  they employ a vast network of private detectives to carry out their monitoring role. 
A)  other investors are unable to gain a free ride on their monitoring efforts. 
B)  borrowers consider this role to be traditional for financial intermediaries and are willing to put up with it. 
C)  the federal government has granted them waivers from laws protecting privacy. 
D)  they employ a vast network of private detectives to carry out their monitoring role. A

Question 3

Which of the following is TRUE regarding transactions costs and information costs?

Accepted Answer

A)  Both benefit borrowers at the expense of savers. 
B)  Both benefit savers at the expense of borrowers. 
C)  Transactions costs hurt savers while information costs hurt borrowers. 
D)  Both create profit opportunities for those who can reduce these costs. 
A)  Both benefit borrowers at the expense of savers. 
B)  Both benefit savers at the expense of borrowers. 
C)  Transactions costs hurt savers while information costs hurt borrowers. 
D)  Both create profit opportunities for those who can reduce these costs. D

Question 4

How do car dealers help reduce adverse selection?

Accepted Answer

To maintain their reputations

Question 5

Which of the following is NOT an example of adverse selection?

Accepted Answer

A)  A family with a home ten feet from a large river buys flood insurance. 
B)  A company uses the proceeds of a new stock sale to build an unnecessarily luxurious new headquarters. 
C)  A terminal cancer patient buys life insurance. 
D)  A company in serious financial trouble offers to pay you 30% on a loan. 
A)  A family with a home ten feet from a large river buys flood insurance. 
B)  A company uses the proceeds of a new stock sale to build an unnecessarily luxurious new headquarters. 
C)  A terminal cancer patient buys life insurance. 
D)  A company in serious financial trouble offers to pay you 30% on a loan.

Question 6

Individual investors can reduce transactions costs by

Accepted Answer

A)  buying common stock rather than bonds. 
B)  combining their purchases through an intermediary. 
C)  purchasing common stocks directly, rather than through a mutual fund. 
D)  making loans directly, rather than depositing funds in a bank. 
A)  buying common stock rather than bonds. 
B)  combining their purchases through an intermediary. 
C)  purchasing common stocks directly, rather than through a mutual fund. 
D)  making loans directly, rather than depositing funds in a bank.

Question 7

It is generally agreed that

Accepted Answer

A)  the financial system would be more efficient if intermediaries were eliminated. 
B)  small- and medium-sized firms benefit by the actions of intermediaries. 
C)  the addition of intermediaries adds to transactions costs. 
D)  intermediaries should not seek to profit from reducing transactions costs. 
A)  the financial system would be more efficient if intermediaries were eliminated. 
B)  small- and medium-sized firms benefit by the actions of intermediaries. 
C)  the addition of intermediaries adds to transactions costs. 
D)  intermediaries should not seek to profit from reducing transactions costs.

Question 8

How does the principal-agent problem increase the possibility of moral hazard?

Accepted Answer

The shareholders,as owners of the firm,a

Question 9

When interest rates in the bond market rise

Accepted Answer

A)  adverse selection problems increase. 
B)  adverse selection problems are mitigated. 
C)  moral hazard problems increase. 
D)  moral hazard problems are mitigated. 
A)  adverse selection problems increase. 
B)  adverse selection problems are mitigated. 
C)  moral hazard problems increase. 
D)  moral hazard problems are mitigated.

Question 10

Moral hazard problems arise when

Accepted Answer

A)  lenders have difficulty in distinguishing between good and lemon firms. 
B)  a downturn in economic activity makes repaying loans difficult for borrowers. 
C)  borrowers default on loans. 
D)  borrowers have an incentive to conceal information. 
A)  lenders have difficulty in distinguishing between good and lemon firms. 
B)  a downturn in economic activity makes repaying loans difficult for borrowers. 
C)  borrowers default on loans. 
D)  borrowers have an incentive to conceal information.

Question 11

Since crowdfunding sites do not themselves invest in business start ups that raise funds on their sites,they don't reduce

Accepted Answer

A)  the principal-agent problem. 
B)  information costs. 
C)  transactions costs. 
D)  asymmetric information. 
A)  the principal-agent problem. 
B)  information costs. 
C)  transactions costs. 
D)  asymmetric information.

Question 12

Why do higher interest rates increase adverse selection problems in the loan market?

Accepted Answer

A)  Higher interest rates reduce the gains from economies of scale. 
B)  As interest rates rise, the creditworthiness of the average loan applicant declines. 
C)  Higher interest rates reduce information problems in the loan market. 
D)  At higher interest rates fewer investment projects are profitable. 
A)  Higher interest rates reduce the gains from economies of scale. 
B)  As interest rates rise, the creditworthiness of the average loan applicant declines. 
C)  Higher interest rates reduce information problems in the loan market. 
D)  At higher interest rates fewer investment projects are profitable.

Question 13

To help offset the costs from loan defaults,the First National Bank of Gotham decides to increase the interest rate it charges on its business loans.As a result of this increase in the interest rate,the creditworthiness of Gotham's loan applicants is likely to

Accepted Answer

A)  improve. 
B)  deteriorate. 
C)  be unchanged. 
D)  be unchanged, unless the economy enters a recession at the same time as the interest rate is increased. 
A)  improve. 
B)  deteriorate. 
C)  be unchanged. 
D)  be unchanged, unless the economy enters a recession at the same time as the interest rate is increased.

Question 14

Small investors face

Accepted Answer

A)  high transactions costs in financial markets. 
B)  low transactions costs in financial markets. 
C)  high transactions costs in financial intermediaries. 
D)  high information costs in financial intermediaries. 
A)  high transactions costs in financial markets. 
B)  low transactions costs in financial markets. 
C)  high transactions costs in financial intermediaries. 
D)  high information costs in financial intermediaries.

Question 15

How does adverse selection affect the willingness of corporations to issue stock?

Accepted Answer

Since adverse selection reduce

Question 16

Which of the following is an example of adverse selection?

Accepted Answer

A)  A homeowner with a large fire insurance policy allows the wiring in her house to deteriorate. 
B)  A woman with a large life insurance policy takes up sky diving. 
C)  Your brother-in-law borrows $20,000 from you to open a pizza parlor, but spends it gambling at the racetrack instead. 
D)  A man with a bad heart condition buys a large life insurance policy. 
A)  A homeowner with a large fire insurance policy allows the wiring in her house to deteriorate. 
B)  A woman with a large life insurance policy takes up sky diving. 
C)  Your brother-in-law borrows $20,000 from you to open a pizza parlor, but spends it gambling at the racetrack instead. 
D)  A man with a bad heart condition buys a large life insurance policy.

Question 17

If banks experience higher costs in making loans,they may decide to

Accepted Answer

A)  engage in credit rationing rather than raise interest rates in an attempt to increase adverse selection. 
B)  engage in credit rationing rather than raise interest rates in an attempt to not increase adverse selection. 
C)  raise interest rates rather than engage in credit rationing in an attempt to decrease adverse selection. 
D)  raise interest rates rather than engage in credit rationing in an attempt to eliminate adverse selection. 
A)  engage in credit rationing rather than raise interest rates in an attempt to increase adverse selection. 
B)  engage in credit rationing rather than raise interest rates in an attempt to not increase adverse selection. 
C)  raise interest rates rather than engage in credit rationing in an attempt to decrease adverse selection. 
D)  raise interest rates rather than engage in credit rationing in an attempt to eliminate adverse selection.

Question 18

You own a 2007 Ford Explorer.Although it has high mileage,you have maintained it very well.You want to sell it,but after checking the prices other owners of 2007 Ford Explorers are able to get for their cars in the used car market,you decide the prices are too low and you decide not to sell.This is an example of

Accepted Answer

A)  the "lemons problem." 
B)  moral hazard. 
C)  economies of scale. 
D)  low information costs. 
A)  the "lemons problem." 
B)  moral hazard. 
C)  economies of scale. 
D)  low information costs.

Question 19

The assumption of asymmetric information means that

Accepted Answer

A)  borrowers and lenders have the same information. 
B)  borrowers and lenders have perfect information. 
C)  borrowers know more than lenders. 
D)  lenders know more than borrowers. 
A)  borrowers and lenders have the same information. 
B)  borrowers and lenders have perfect information. 
C)  borrowers know more than lenders. 
D)  lenders know more than borrowers.

Question 20

Moral hazard arises from

Accepted Answer

A)  the difficulty of distinguishing good-risk borrowers from bad-risk borrowers. 
B)  the likelihood that bad-risk borrowers are more likely to accept a loan than are good-risk borrowers. 
C)  savers' difficulties in monitoring borrowers. 
D)  borrowers' difficulties in locating savers. 
A)  the difficulty of distinguishing good-risk borrowers from bad-risk borrowers. 
B)  the likelihood that bad-risk borrowers are more likely to accept a loan than are good-risk borrowers. 
C)  savers' difficulties in monitoring borrowers. 
D)  borrowers' difficulties in locating savers.

Many economists and policymakers have raised concerns about crowdfunding due to the existence of

Financial intermediaries are able to act as delegated monitors for individual savers because

Which of the following is TRUE regarding transactions costs and information costs?

How do car dealers help reduce adverse selection?

Which of the following is NOT an example of adverse selection?

Individual investors can reduce transactions costs by

It is generally agreed that

How does the principal-agent problem increase the possibility of moral hazard?

When interest rates in the bond market rise

Moral hazard problems arise when

Since crowdfunding sites do not themselves invest in business start ups that raise funds on their sites,they don't reduce

Why do higher interest rates increase adverse selection problems in the loan market?

To help offset the costs from loan defaults,the First National Bank of Gotham decides to increase the interest rate it charges on its business loans.As a result of this increase in the interest rate,the creditworthiness of Gotham's loan applicants is likely to

Small investors face

How does adverse selection affect the willingness of corporations to issue stock?

Which of the following is an example of adverse selection?

If banks experience higher costs in making loans,they may decide to

The assumption of asymmetric information means that

Moral hazard arises from

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

The Economics of Banking

Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I- the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters

Exam 9: Transactions Costs, asymmetric Information, and the Structure of the Financial System

Many economists and policymakers have raised concerns about crowdfunding due to the existence of

Financial intermediaries are able to act as delegated monitors for individual savers because

Which of the following is TRUE regarding transactions costs and information costs?

How do car dealers help reduce adverse selection?

Which of the following is NOT an example of adverse selection?

Individual investors can reduce transactions costs by

It is generally agreed that

How does the principal-agent problem increase the possibility of moral hazard?

When interest rates in the bond market rise

Moral hazard problems arise when

Since crowdfunding sites do not themselves invest in business start ups that raise funds on their sites,they don't reduce

Why do higher interest rates increase adverse selection problems in the loan market?

To help offset the costs from loan defaults,the First National Bank of Gotham decides to increase the interest rate it charges on its business loans.As a result of this increase in the interest rate,the creditworthiness of Gotham's loan applicants is likely to

Small investors face

How does adverse selection affect the willingness of corporations to issue stock?

Which of the following is an example of adverse selection?

If banks experience higher costs in making loans,they may decide to

The assumption of asymmetric information means that

Moral hazard arises from

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

The Economics of Banking

Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I- the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters