Answer the following statements true (T) or false (F)
1) When commercial banks retire outstanding loans, the supply of money is increased.
2) Commercial banks monetize claims when they sell securities to Federal Reserve Banks.
3) The banking system can lend by a multiple of its excess reserves because lending does not
result in a loss of reserves to the banking system as a whole.
4) The monetary multiplier and the spending multiplier are two ways of referring to the same
concept.
1) F
2) F
3) T
4) F
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The process by which financial institutions accept savings from businesses, households and governments and lend the savings to other businesses, households and governments is
A) asymmetric information. B) adverse selection. C) moral hazard. D) financial intermediation.
If the cross-elasticity of demand for two goods is negative, this means that:
a. only the poor will buy the goods. b. they are normal goods. c. the goods are substitutes. d. the goods are complements.
The basic purpose of financial markets is:
A. match people who want money to spend now with people who want to save their money for later. B. buy and sell different currencies in order to make a profit. C. sell commodities to firms as inputs. D. buy commodities from firms and the government to sell to the public.
If the random walk theory is correct, a prudent investor might choose her stock portfolio by
a. throwing darts at the newspaper's financial page. b. spending money to consult a stock forecaster. c. spending time analyzing past stock performance. d. not investing in stocks at all, since price behavior is completely erratic.