1.Liquidity is the term that has which of these meanings?

a.

A measure of the ease with which one asset can be converted into another asset, usually money

b.

A measure of the ease with which one can use money to purchase goods

c.

A measure of the ease in which one can get out of debt to become a lender

d.

A measure of the ease with which one can borrow money

2 points

QUESTION 14

1.Which entities, by definition, issue the legal contracts known as bonds?

a.

Corporationsand government agencies

b.

Government agencies only

c.

Governments, corporations, and government agencies

d.

Governments and banks

2 points

QUESTION 15

1.The principal of a school hires Daniel to teach eighth grade students. One goal the principal has is to prepare the students to do well on standardized tests, as he will be judged based on the results of those tests. Daniel prefers to teach in a more creative way, so the students learn a lot, but perform poorly on their standardized tests. This is an example of what problem?

a.

Moral hazard

b.

Free-riding

c.

Adverse hazard

d.

Adverse selection

2 points

QUESTION 16

1.Initially, the US Federal Reserve was created by Congress for what primary function?

a.

Be a repository of all gold deposits in the US financial system

b.

Serve as the chief monitor of economic activity in the US economy

c.

Print all currency for the US economy

d.

Serve as a lender of last resort

2 points

QUESTION 17

1.An example of asymmetric information in financial markets is that, in equity markets, directors __________ than shareholders.

a.

have a better sense of future profitability

b.

have a different rate of time preference

c.

are less certain about the future

d.

are less optimistic about the future

2 points

QUESTION 18

1.The advantage of municipal bonds over corporate bonds increases as the federal marginal tax rate

a.

increases.

b.

remains unchanged.

c.

decreases.

d.

is eliminated.