Question 1

The 1990-1992 recession was unlikely to be associated with financial factors since

Accepted Answer

A)  there was little change in interest rates. 
B)  consumption did not drop. 
C)  interest spreads increased right from the start. 
D)  interest rates for lending and borrowing went up. 
E)  profits in the banking sector increased. 
A)  there was little change in interest rates. 
B)  consumption did not drop. 
C)  interest spreads increased right from the start. 
D)  interest rates for lending and borrowing went up. 
E)  profits in the banking sector increased. A

Question 2

A default premium is the interest rate premium

Accepted Answer

A)  under normal market circumstances. 
B)  when there are no market fluctuations. 
C)  covering the default risk. 
D)  for government debt. 
E)  a borrower receives after defaulting. 
A)  under normal market circumstances. 
B)  when there are no market fluctuations. 
C)  covering the default risk. 
D)  for government debt. 
E)  a borrower receives after defaulting. C

Question 3

If consumers use their house as collateral for lending and the value of housing in general falls,then

Accepted Answer

A)  lending is unchanged and future consumption increases. 
B)  borrowing increases further to maintain current consumption. 
C)  lending and aggregate consumption decrease. 
D)  lenders prefer to become borrowers. 
E)  lending and aggregate consumption increase. 
A)  lending is unchanged and future consumption increases. 
B)  borrowing increases further to maintain current consumption. 
C)  lending and aggregate consumption decrease. 
D)  lenders prefer to become borrowers. 
E)  lending and aggregate consumption increase. C

Question 4

Social security is most likely to present political problems when

Accepted Answer

A)  moving from pay-as-you-go to fully-funded and when population growth is low. 
B)  moving from pay-as-you-go to fully-funded and when population growth is high. 
C)  moving from fully-funded to pay-as-you-go and when population growth is low. 
D)  moving from fully-funded to pay-as-you-go and when population growth is high. 
E)  moving from pay-as-you-go to fully-funded and when the government funds benefits for the current old generation. 
A)  moving from pay-as-you-go to fully-funded and when population growth is low. 
B)  moving from pay-as-you-go to fully-funded and when population growth is high. 
C)  moving from fully-funded to pay-as-you-go and when population growth is low. 
D)  moving from fully-funded to pay-as-you-go and when population growth is high. 
E)  moving from pay-as-you-go to fully-funded and when the government funds benefits for the current old generation.

Question 5

When consumers lend at a lower rate than they borrow,a decrease in current taxes implies

Accepted Answer

A)  current consumption increases by the amount of the tax cut. 
B)  current consumption remains unchanged. 
C)  both current and future consumption increase. 
D)  current savings increases by the amount of the tax cut. 
E)  current consumption decreases and future consumption increases. 
A)  current consumption increases by the amount of the tax cut. 
B)  current consumption remains unchanged. 
C)  both current and future consumption increase. 
D)  current savings increases by the amount of the tax cut. 
E)  current consumption decreases and future consumption increases.

Question 6

In a pay-as-you-go social security system,everyone can be made better off only if

Accepted Answer

A)  the population growth rate exceeds the real interest rate. 
B)  the real interest rate remains higher than the population growth rate. 
C)  the number of old households exceeds the number of young households. 
D)  the interest rate for borrowers is sufficiently below that of lenders. 
E)  it is preceeded by a fully funded system. 
A)  the population growth rate exceeds the real interest rate. 
B)  the real interest rate remains higher than the population growth rate. 
C)  the number of old households exceeds the number of young households. 
D)  the interest rate for borrowers is sufficiently below that of lenders. 
E)  it is preceeded by a fully funded system.

Question 7

If the proportion of bad borrowers increases,

Accepted Answer

A)  the lending interest rate increases. 
B)  the lending interest rate decreases. 
C)  the borrowing interest rate increases. 
D)  the borrowing interest rate decreases. 
E)  the borrowing and lending interest rates are equal. 
A)  the lending interest rate increases. 
B)  the lending interest rate decreases. 
C)  the borrowing interest rate increases. 
D)  the borrowing interest rate decreases. 
E)  the borrowing and lending interest rates are equal.

Question 8

Limited commitment means

Accepted Answer

A)  one cannot credibly promise something. 
B)  one saves only part of what is optimal. 
C)  only some households are allowed to save. 
D)  there is rationing on the credit market. 
E)  only governments can borrow. 
A)  one cannot credibly promise something. 
B)  one saves only part of what is optimal. 
C)  only some households are allowed to save. 
D)  there is rationing on the credit market. 
E)  only governments can borrow.

Question 9

Why do consumers benefit from pay-as-you-go social security?

Accepted Answer

A)  It keeps inflation in check as money is redistributed. 
B)  It is a better way than taxes to finance the government. 
C)  It forces people to save more than they would otherwise. 
D)  With sufficiently high population growth, many young contribute to the benefits of the old. 
E)  With sufficiently low population growth, the young can perpetually contribute more. 
A)  It keeps inflation in check as money is redistributed. 
B)  It is a better way than taxes to finance the government. 
C)  It forces people to save more than they would otherwise. 
D)  With sufficiently high population growth, many young contribute to the benefits of the old. 
E)  With sufficiently low population growth, the young can perpetually contribute more.

Question 10

Moral hazard represents a problem for fully-funded social security because

Accepted Answer

A)  the government is likely to never pay out promised benefits. 
B)  households invest in assets that are too safe. 
C)  population growth remains below the real interest rate. 
D)  households would invest retirement savings in risky assets. 
E)  population growth exceeds the real interest rate. 
A)  the government is likely to never pay out promised benefits. 
B)  households invest in assets that are too safe. 
C)  population growth remains below the real interest rate. 
D)  households would invest retirement savings in risky assets. 
E)  population growth exceeds the real interest rate.

Question 11

The default premium increases when there is a(n)

Accepted Answer

A)  decrease in the fraction of good borrowers. 
B)  increase in the fraction of good borrowers. 
C)  increase in the bank profits. 
D)  decrease in risk. 
E)  increase in liquidity. 
A)  decrease in the fraction of good borrowers. 
B)  increase in the fraction of good borrowers. 
C)  increase in the bank profits. 
D)  decrease in risk. 
E)  increase in liquidity.

Question 12

The committment problem that may make a forced savings social security program beneficial is best described by:

Accepted Answer

A)  too much saving by households becasuse the government cannot committ to providing zero retirement assistance. 
B)  borrowers are unable to committ to a high real interest rate. 
C)  young households cannot committ to participating when they are old. 
D)  the government cannot commit to providing benefits when old. 
E)  under saving by households because the government cannot committ to providing zero retirement assistance. 
A)  too much saving by households becasuse the government cannot committ to providing zero retirement assistance. 
B)  borrowers are unable to committ to a high real interest rate. 
C)  young households cannot committ to participating when they are old. 
D)  the government cannot commit to providing benefits when old. 
E)  under saving by households because the government cannot committ to providing zero retirement assistance.

Question 13

When there are credit-market imperfections,an increase in government debt may be advantageous because it

Accepted Answer

A)  discourages credit-constrained consumers from borrowing too much. 
B)  allows credit-constrained consumers to borrow more. 
C)  eliminates the problems that cause credit-market imperfections. 
D)  encourages more private saving. 
A)  discourages credit-constrained consumers from borrowing too much. 
B)  allows credit-constrained consumers to borrow more. 
C)  eliminates the problems that cause credit-market imperfections. 
D)  encourages more private saving.

Question 14

Consumer choice theory predicts that,with identical consumers,pay-as-you-go social security

Accepted Answer

A)  always makes all generations worse off. 
B)  makes some generations better off, and cannot make any generation worse off. 
C)  may make some generations worse off and cannot make any generation better off. 
D)  may be Pareto improving. 
E)  always makes all generations worse off compared to a fully-funded system. 
A)  always makes all generations worse off. 
B)  makes some generations better off, and cannot make any generation worse off. 
C)  may make some generations worse off and cannot make any generation better off. 
D)  may be Pareto improving. 
E)  always makes all generations worse off compared to a fully-funded system.

Question 15

Asymmetric information in the credit market means that

Accepted Answer

A)  the bank cannot distinguish bad borrowers from good borrowers. 
B)  the bank cannot prevent consumers from defaulting on their loans. 
C)  the default rate on loans is excessively high. 
D)  borrowers can borrow from financial institutions other than banks. 
E)  consumers can only borrow from banks. 
A)  the bank cannot distinguish bad borrowers from good borrowers. 
B)  the bank cannot prevent consumers from defaulting on their loans. 
C)  the default rate on loans is excessively high. 
D)  borrowers can borrow from financial institutions other than banks. 
E)  consumers can only borrow from banks.

Question 16

If the collateral constraint does not bind,then in response to a decrease in the price,p,of the asset

Accepted Answer

A)  the consumer increases both current and future consumption. 
B)  the consumer decreases current consumption and future consumption is unchanged. 
C)  the consumer leaves current consumption unchanged and increases future consumption. 
D)  the consumer increases current consumption and decreases future consumption. 
E)  the consumer decreases both current and future consumption. 
A)  the consumer increases both current and future consumption. 
B)  the consumer decreases current consumption and future consumption is unchanged. 
C)  the consumer leaves current consumption unchanged and increases future consumption. 
D)  the consumer increases current consumption and decreases future consumption. 
E)  the consumer decreases both current and future consumption.

Question 17

Asymmetric information means

Accepted Answer

A)  some market participants have more information than others. 
B)  some news are more important than others. 
C)  some market participants interpret news differently. 
D)  the impact of news on economic outcomes depends on the context. 
E)  consumers do not understand completely their own preferences. 
A)  some market participants have more information than others. 
B)  some news are more important than others. 
C)  some market participants interpret news differently. 
D)  the impact of news on economic outcomes depends on the context. 
E)  consumers do not understand completely their own preferences.

Question 18

In the two-period model,the nature of the asymmetric information is that

Accepted Answer

A)  only the bank knows who the bad borrowers are. 
B)  only borrowers know whether they are bad or not. 
C)  only borrowers know the value of their collateral. 
D)  only banks can value the collateral. 
E)  only consumers know their income when it is received. 
A)  only the bank knows who the bad borrowers are. 
B)  only borrowers know whether they are bad or not. 
C)  only borrowers know the value of their collateral. 
D)  only banks can value the collateral. 
E)  only consumers know their income when it is received.

Question 19

In a simple model of credit imperfections,when consumers borrow and lend at different interest rates,the budget line is kinked because

Accepted Answer

A)  the consumer cannot consumer more than disposable income in any period. 
B)  taxes exceed income. 
C)  the consumer lends at a higher rate than they borrow. 
D)  the consumer lends at a lower rate than they borrow 
E)  income exceeds taxes. 
A)  the consumer cannot consumer more than disposable income in any period. 
B)  taxes exceed income. 
C)  the consumer lends at a higher rate than they borrow. 
D)  the consumer lends at a lower rate than they borrow 
E)  income exceeds taxes.

Question 20

In the two-period model,a bank

Accepted Answer

A)  creates money. 
B)  keeps money safely. 
C)  multiplies reserves. 
D)  borrows and lends. 
E)  is generally unecessary. 
A)  creates money. 
B)  keeps money safely. 
C)  multiplies reserves. 
D)  borrows and lends. 
E)  is generally unecessary.

The 1990-1992 recession was unlikely to be associated with financial factors since

A default premium is the interest rate premium

If consumers use their house as collateral for lending and the value of housing in general falls,then

Social security is most likely to present political problems when

When consumers lend at a lower rate than they borrow,a decrease in current taxes implies

In a pay-as-you-go social security system,everyone can be made better off only if

If the proportion of bad borrowers increases,

Limited commitment means

Why do consumers benefit from pay-as-you-go social security?

Moral hazard represents a problem for fully-funded social security because

The default premium increases when there is a(n)

The committment problem that may make a forced savings social security program beneficial is best described by:

When there are credit-market imperfections,an increase in government debt may be advantageous because it

Consumer choice theory predicts that,with identical consumers,pay-as-you-go social security

Asymmetric information in the credit market means that

If the collateral constraint does not bind,then in response to a decrease in the price,p,of the asset

Asymmetric information means

In the two-period model,the nature of the asymmetric information is that

In a simple model of credit imperfections,when consumers borrow and lend at different interest rates,the budget line is kinked because

In the two-period model,a bank

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behavior: The Work–Leisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity Among Countries and Endogenous Growth

A Two-Period Model: The Consumption–Savings Decision and Credit Markets

A Real Intertemporal Model with Investment

Money, Banking, Prices, and Monetary Policy

Business Cycle Models with Flexible Prices and Wages

New Keynesian Economics: Sticky Prices

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking: A Deeper Look

Filters

Exam 10: Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

The 1990-1992 recession was unlikely to be associated with financial factors since

A default premium is the interest rate premium

If consumers use their house as collateral for lending and the value of housing in general falls,then

Social security is most likely to present political problems when

When consumers lend at a lower rate than they borrow,a decrease in current taxes implies

In a pay-as-you-go social security system,everyone can be made better off only if

If the proportion of bad borrowers increases,

Limited commitment means

Why do consumers benefit from pay-as-you-go social security?

Moral hazard represents a problem for fully-funded social security because

The default premium increases when there is a(n)

The committment problem that may make a forced savings social security program beneficial is best described by:

When there are credit-market imperfections,an increase in government debt may be advantageous because it

Consumer choice theory predicts that,with identical consumers,pay-as-you-go social security

Asymmetric information in the credit market means that

If the collateral constraint does not bind,then in response to a decrease in the price,p,of the asset

Asymmetric information means

In the two-period model,the nature of the asymmetric information is that

In a simple model of credit imperfections,when consumers borrow and lend at different interest rates,the budget line is kinked because

In the two-period model,a bank

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behavior: The Work–Leisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity Among Countries and Endogenous Growth

A Two-Period Model: The Consumption–Savings Decision and Credit Markets

A Real Intertemporal Model with Investment

Money, Banking, Prices, and Monetary Policy

Business Cycle Models with Flexible Prices and Wages

New Keynesian Economics: Sticky Prices

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking: A Deeper Look

Filters