Macroeconomics International Edition 5th Edition by Stephen D. Williamson – Test Bank

Macroeconomics International Edition 5th Edition by Stephen D. Williamson – Test Bank

Macroeconomics, 5e (Williamson)
Chapter 10 Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

1) The phenomenon that some consumers pay a higher interest rate when they borrow than the interest rate they receive when they lend is best described as an example of
A) irrational behavior.
B) a credit market imperfection.
C) a vast banking conspiracy.
D) the burden of public debt.
Answer: B
Question Status: Previous Edition

2) If a consumer borrows at an interest rate greater than the interest rate at which he or she can lend, then
A) banks cannot make a profit.
B) the budget constraint has a kink at the endowment point.
C) the consumer must be a lender.
D) this makes no difference for consumer behavior.
Answer: B
Question Status: New

3) In the two-period model, the budget constraint is kinked for all of these reasons, except
A) the real interest rate is greater than zero.
B) there are costs to banks from lending and borrowing.
C) there is asymmetric information in the credit market.
D) there is limited commitment in the credit market.
Answer: A
Question Status: New

4) Which of the following is not a reason for studying credit market frictions?
A) explaining features of financial crises.
B) explaining key elements of financial market behavior.
C) understanding why Ricardian equivalence may not work.
D) explaining why collateral does not matter.
Answer: D
Question Status: New

5) An interest rate spread is
A) the difference between long-term and short-term interest rates.
B) the difference between nominal and real interest rates.
C) the difference between lending and borrowing interest rates.
D) the difference between public and commercial interest rates.
Answer: C
Question Status: Previous Edition

6) A default premium is the interest rate premium
A) under normal market circumstances.
B) when there are no market fluctuations.
C) covering the default risk.
D) for government debt.
Answer: C
Question Status: Previous Edition

7) Asymmetric information means
A) some market participants have more information than others.
B) some news are more important than others.
C) some market participants interpret news differently.
D) the impact of news on economic outcomes depends on the context.
Answer: A
Question Status: Previous Edition

8) Limited commitment means
A) one cannot credibly promise something.
B) one saves only part of what is optimal.
C) only some households are allowed to save.
D) there is rationing on the credit market.
Answer: A
Question Status: Previous Edition

9) Collateralizable wealth is
A) wealth in non-tangible assets.
B) any asset that can be used to obtain a loan.
C) wealth that increases and income increases.
D) wealth based on mortgage lending.
Answer: B
Question Status: Previous Edition

10) When there are credit market frictions, Ricardian equivalence may not hold because
A) consumers cannot understand the implications of the government budget constraint.
B) a tax cut in the present with a future increase in taxes works effectively like a loan.
C) an increase in government saving is matched one-for-one by a decrease in private saving.
D) social security is fully-funded.
Answer: B
Question Status: New