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Questions
1. Explain what financial intermediaries are and discuss their importance for the economy.
2. If there was no information asymmetry between a borrower and a lender, would a moral hazard problem still exist? Explain your answer.
Explain in detail the changes that would occur in the demand curves for both products and why?
Which of the following is often not a disadvantage of decentralization?
Why are investors interested in eurodollar interest rate futures and/or interest rate options? How do these instruments relate to financial risk? How might they be used in conjunction with exchange rate derivatives?
Using a required reserve ratio of 10% and assuming that banks keep no excess reserves, what is the value of government securities the Fed must purchase if it wants to increase the money supply by $2 million?
Assume that the marginal propensity to save increases. If the Fed wants to keep the level of output from fluctuating, should it undertake open market purchases or sales? In your answer discuss how the composition of GDP is affected.
Stealth bank has deposits of $350 million. It holds reserves of $30 million and government bonds worth $70 million. If the bank sells its loans at market value of $400 million, what will its total assets equal? $500 million $750 million $450 million ..
A market with demand Q = 10 p is supplied by a monopoly with costs C(Q) = 6 + 2Q. Calculate the equilibrium price, output, and monopoly profits. What would be the equilibrium if the market were supplied competitively by firms, and each firm had the s..
Banks use screening to reduce the adverse selection problem and use monitoring to reduce the moral hazard problem in their loan businesses.
A 6.5% $20,000 bond with interest payable quarterly is due 30 years from now. What is the present value of the bond if the purchaser desires to make a rate of return of 12% per year compounded monthly? Use Present Worth Balancing Equation and solve f..
Assuming there is a $1 increase in the price of gasoline, what change in Toyota demand will result (give the numerical value, too)?
Since the profit is positive, the firm has no immediate reason to switch to producing low-quality umbrellas.
In what ways can government impact the distribution of income?. Are state (and local) tax systems generally progressive or not?.
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