Discuss research on the role of banks and other financial institutions in the intermediation of funds between lenders and borrowers
What will be an ideal response?
Work by Doug Diamond and Philip Dybvig in the 1980s had clarified the nature of bank runs : liquid assets and liquid liabilities created a risk of runs even for solvent banks. The problem could only be avoided by the provision of liquidity by the central bank if and when needed. Work by Bengt Holmström and Jean Tirole had shown that liquidity issues were endemic to a modern economy. Andrei Shleifer discussed the limits of arbitrage. Behavioral economists had pointed to the way in which individuals differ from the rational individual model typically used in economics, and had drawn implications for financial markets.
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Which of the following is a practical question to implementing Keynesian economic policies to stimulate the economy?
a. Does the government know whether it is better to increase spending or increase taxes? b. Does the government know whether it is better to cut spending or cut taxes? c. Does the government know when there is cyclical unemployment? d. Does the government accurately know what the country’s potential GDP is?
An inferior good is
A. generally of low quality. B. purchased in the underground economy. C. is damaged or referred to as a "second". D. purchased in declining quantities as income rises.
Which of the following scenarios could be an example of increasing marginal utility?
A. A father buying three game CDs for his son. B. A shopkeeper selling the tenth pound of hamburger. C. A stamp collector purchasing an additional stamp for collection. D. A consumer buying an additional unit of apple.
Soldiers in a World War II prisoner-of-war camp
A) used cigarettes as money. B) used cowrie shells as money. C) used U.S. dollars as a commodity money. D) used gold as a fiat money.