ECON 343 TEST 3 REVIEW QUESTIONS
COMPLETE WITH 100% VERIFIED
ANSWERS
\.Financial intermediaries' low transaction costs allow them to provide ________
services that make it easier for customers to conduct transactions.
A) conduction
B) equitable
C) liquidity
D) transcendental - ANSWERS✔-C) liquidity
\.The analysis of how asymmetric information problems affect economic behavior
is called ________.
A) parallel
B) principal
C) agency
D) uneven - ANSWERS✔-C) agency
\.An example of the ________ problem would be if Brian borrowed money from
Sean in order to purchase a used car and instead took a trip to Atlantic City using
those funds.
A) adverse selection
,B) moral hazard
C) costly state verification
D) agency - ANSWERS✔-B) moral hazard
\.High net worth helps to diminish the problem of moral hazard by
A) requiring the state to verify the debt contract
B) collateralizing the debt contract
C) giving the debt contract characteristics of equity contracts
D) making the debt contract incentive compatible - ANSWERS✔-D) making the
debt contract incentive compatible
\.Because of the weak systems of property rights in many developing and
transition economies, the financial system is unable to use collateral effectively
worsening the ________ problem.
A) moral hazard
B) diversification
C) principal/agent
D) adverse selection - ANSWERS✔-D) adverse selection
\.In developing countries, it can be expensive and time-consuming for the poor to
legalize their property ownership. Without legal title, the property cannot be used
as ________ to borrow funds.
A) points
B) restrictive covenants
,C) collateral
D) interest - ANSWERS✔-C) collateral
\.Which of the following is NOT one of the eight basic puzzles about financial
structure?
A) Indirect finance, which involves the activities of financial intermediaries, is
many times more important than direct finance, in which businesses raise funds
directly from lenders in financial markets.
B) Debt contracts are typically extremely complicated legal documents that place
substantial restrictions on the behavior of the borrower.
C) There is very little regulation of the financial system.
D) Collateral is a prevalent feature of debt contracts for both households and
business. - ANSWERS✔-C) There is very little regulation of the financial system
\.The current structure of financial markets can be best understood as the result
of attempts by financial market participants to
A) reduce transaction costs
B) cartelize the provision of financial services
C) deal with the great number of small firms in the United States
D) adapt to continually changing government regulations - ANSWERS✔-A) reduce
transaction costs
\.Of the four sources of external funding for nonfinancial business, the least often
used in the U.S. is
A) bank loans
, B) nonbank loans
C) stock
D) bonds - ANSWERS✔-C) stock
\.American businesses get their external funds primarily from
A) bank loans
B) stock issues
C) bonds and commercial paper issues
D) loans from nonbank financial intermediaries - ANSWERS✔-D) loans from
nonbank financial intermediaries
\.Direct finance involves the sale to ________ of marketable securities such as
stocks and bonds.
A) households
B) pension funds
C) insurance companies
D) financial intermediaries - ANSWERS✔-A) households
\.By bundling share purchases of many investors together mutual funds can take
advantage of economies of scale and thereby lower
A) moral hazard
B) diversification
C) adverse selection
D) transaction costs - ANSWERS✔-D) transaction costs
COMPLETE WITH 100% VERIFIED
ANSWERS
\.Financial intermediaries' low transaction costs allow them to provide ________
services that make it easier for customers to conduct transactions.
A) conduction
B) equitable
C) liquidity
D) transcendental - ANSWERS✔-C) liquidity
\.The analysis of how asymmetric information problems affect economic behavior
is called ________.
A) parallel
B) principal
C) agency
D) uneven - ANSWERS✔-C) agency
\.An example of the ________ problem would be if Brian borrowed money from
Sean in order to purchase a used car and instead took a trip to Atlantic City using
those funds.
A) adverse selection
,B) moral hazard
C) costly state verification
D) agency - ANSWERS✔-B) moral hazard
\.High net worth helps to diminish the problem of moral hazard by
A) requiring the state to verify the debt contract
B) collateralizing the debt contract
C) giving the debt contract characteristics of equity contracts
D) making the debt contract incentive compatible - ANSWERS✔-D) making the
debt contract incentive compatible
\.Because of the weak systems of property rights in many developing and
transition economies, the financial system is unable to use collateral effectively
worsening the ________ problem.
A) moral hazard
B) diversification
C) principal/agent
D) adverse selection - ANSWERS✔-D) adverse selection
\.In developing countries, it can be expensive and time-consuming for the poor to
legalize their property ownership. Without legal title, the property cannot be used
as ________ to borrow funds.
A) points
B) restrictive covenants
,C) collateral
D) interest - ANSWERS✔-C) collateral
\.Which of the following is NOT one of the eight basic puzzles about financial
structure?
A) Indirect finance, which involves the activities of financial intermediaries, is
many times more important than direct finance, in which businesses raise funds
directly from lenders in financial markets.
B) Debt contracts are typically extremely complicated legal documents that place
substantial restrictions on the behavior of the borrower.
C) There is very little regulation of the financial system.
D) Collateral is a prevalent feature of debt contracts for both households and
business. - ANSWERS✔-C) There is very little regulation of the financial system
\.The current structure of financial markets can be best understood as the result
of attempts by financial market participants to
A) reduce transaction costs
B) cartelize the provision of financial services
C) deal with the great number of small firms in the United States
D) adapt to continually changing government regulations - ANSWERS✔-A) reduce
transaction costs
\.Of the four sources of external funding for nonfinancial business, the least often
used in the U.S. is
A) bank loans
, B) nonbank loans
C) stock
D) bonds - ANSWERS✔-C) stock
\.American businesses get their external funds primarily from
A) bank loans
B) stock issues
C) bonds and commercial paper issues
D) loans from nonbank financial intermediaries - ANSWERS✔-D) loans from
nonbank financial intermediaries
\.Direct finance involves the sale to ________ of marketable securities such as
stocks and bonds.
A) households
B) pension funds
C) insurance companies
D) financial intermediaries - ANSWERS✔-A) households
\.By bundling share purchases of many investors together mutual funds can take
advantage of economies of scale and thereby lower
A) moral hazard
B) diversification
C) adverse selection
D) transaction costs - ANSWERS✔-D) transaction costs
