Chapter 15: Q.21 (page 347)
Does Figure 15-3 depict direct finance or indirect finance? Explain. How could the figure be revised to illustrate the alternative form of finance?
The figure depicts indirect finance
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Explain the essential features of federal deposit insurance.
Identify whether each of the following events poses an adverse selection problem or a moral hazard problem in financial markets.
a. A manager of a savings and loan association responds to reports of a likely increase in federal deposit insurance coverage. She directs loan officers to extend mortgage loans to less creditworthy borrowers.
b. A loan applicant does not mention that a legal judgment in his divorce case will require him to make alimony payments to his ex-wife.
c. An individual who was recently approved for a loan to start a new business decides to use some of the funds to take a Hawaiian vacation.
In what respects is the Fed like a private banking institution? In what respects is it more like a government agency?
Consider Figure 15-1, which focuses on liquidity. How might the limited acceptability of old masters' paintings in exchange and difficulties in predicting the values of these paintings from year to year help to explain their relatively low liquidity? How might these characteristics affect the likelihood that these assets could function as forms of money?
Why does a credit-card transaction to buy an item fail to count as part of the measure of money? (Hint: When you make a credit-card payment. the bank that issued you the credit card instantaneously extends a loan to you for the amount of the transaction.)
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