Mishkin Quiz 14

On-Line Quiz

Note: There are 10 multiple choice questions below. Answer each question by clicking the appropriate button. When you have answered all of the questions, click the "Check Answers" button at the bottom of the page. Your score will be calculated, and you will see a list of the questions that you answered correctly, and those that you answered incorrectly. You may retake the quiz as often as you wish. Click the "Reset" button to clear all your answers before you retake the quiz.

  1. The purpose of a financial sector is:

      to minimize the payments firms make to state and local governments.
      to maximize the payments firms make to state and local governments.
      to channel funds away from households and firms with surplus funds.
      to channel monies into socially acceptable causes.

  2. Economic agents can raise money capital by:

      repaying a loan.
      providing a subsidy.
      issuing liabilities.
      paying taxes.

  3. The most important source of funds for nonfinancial businesses is ________.

      financial intermediaries.
      insurance companies.
      hedge funds.
      state and local governments.

  4. Mutual funds ________.

      accept deposits and issue loans
      sell shares and buy financial instruments
      are a special type of commercial bank
      issue policies and receive premiums

  5. If one economic agent possesses more information that their fellow transactor:

      economic transactions cannot occur.
      the moral hazard problem has been eliminated.
      the adverse selction problem has been eliminated.
      asymmetric information exists.

  6. Suppose you have money to lend, but will do so only if you are compensated for the risk of default. If you set a high interest rate on your loan, a likely consequence is that ________.

      safe borrowers will look elsewhere, and only risky borrowers will find your terms attractive
      risky borrowers will look elsewhere, so your money is more likely to go to a safe borrower
      competition from other lenders will force you to lower your interest rate
      you will be prosecuted for predatory lending

  7. Providers of health care insurance require applicants to provide information on their medical history. The purpose may be to minimize which of the following problems?

      moral hazard.
      adverse selection.
      government taxes.
      opportunity cost.

  8. Commercial banks limit the adverse selection problem through:

      restrictive covenants.
      moral hazard.

  9. When property rights are well defined and inexpensive to enforce, ________.

      collateral is an efficient solution to asymmetric information problems
      little or no collateral is needed to secure a loan
      banks become less dominant among intermediaries
      poor borrowers are at no disadvantage relative to wealthy borrowers

  10. The tyranny of collateral:

      suggests that government tax rates are too high in the United States.
      gives rise to the twin problems of moral hazard and adverse selection.
      implies that when a poor person has a good idea they find it difficult to acquire financing.
      attributes moral hazard to excessive government regulation


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