Bobby is interested in borrowing money, but he cannot get a loan from a depository institution. He turns to a consumer finance company. In what ways are the loans Bobby might get from a finance company different from the loans he would get from a depository institution?
> When an economy is suffering from deflation, the nominal or market interest rates tend to:
> In 1907 J. Pierpont Morgan was able to help end a financial crisis in great part by restoring confidence. Why weren’t a different set of banker’s actions enough to stop the financial crisis in October 1929?
> How is the structure of the ECB similar to that of the Federal Reserve? How is it different?
> Low interest rates may, or may not, signal that a central bank is pursuing an “expansionary” policy. Explain.
> The Panic of 1907 was primarily ended thanks to the actions of:
> F. Augustus Heinze tried to corner the market for shares of United Copper. What does this mean? How did it help to trigger the Panic of 1907?
> What role did Taylorism, or “scientific management,” play in the expansion of financial markets in the United States?
> If a central bank wants to pursue an expansionary monetary policy, it should change policies to ensure what happens to the required reserves ratio?
> You read in the press that a credit crunch is occurring. How will that affect the money supply multiplier and why?
> Explain why (just mathematically) if people hold relatively more cash—that is, the currency ratio k increases—the money supply multiplier gets smaller.
> If US Treasury and administration officials decide they want to see the dollar rise in value against the euro, what will happen to the monetary base?
> Explain how changes in the Treasury’s tax and loan account balance may affect the monetary base. “tax and loan accounts,” at commercial banks across the country.
> If bank depositors hold more cash and fewer deposits, the monetary base does not change, only the composition of it does. Explain why.
> Critics of the Bank of Japan argue that it played a role in the global financial crisis. What do these critics argue?
> Which of the following are included in the monetary base?
> Explain why the Federal Reserve has more control over the monetary base when it uses open market operations than when it uses discount window lending.
> Explain how the Federal Reserve’s conduct of an expansionary open market operation affects the monetary base.
> The fact that the face value of a bond does not change over the life of the bond is generally considered a benefit to the borrower. Can you explain why?
> Today, shoppers “clip coupons” before they go shopping. Explain how these modern coupons are similar and dissimilar to the “coupons” referred to in the bond market.
> What is the difference between money and currency? When are they the same? Why might they be different?
> If the annual interest rate is 2%, what is the quarterly interest rate?
> What is the future value of $500 in two years if the interest rate is 4%? How would you explain this to someone who has no training in economics?
> Each person might have a different time preference. Explain why an older person might have a higher or lower time preference than a young person.
> In what ways are the Bank of Japan and the Bank of England significantly different from the Federal Reserve?
> Which of the following is the most broad or most inclusive measurement of the money supply?
> Economists are searching for a “good” measurement of the money supply. What constitutes a good measurement of the money supply?
> A critic of money economics once stated, “if you cannot measure the money supply accurately, it is not worth discussing at all.” How would you refute this statement?
> Ricardo and Friedman agree that if the money supply increases “too quickly” the following happens:
> Proponents of the Gold Standard, or using gold as money, often argue that it will keep inflation under control. How does the experience of Europe in the sixteenth century raise doubts about that claim?
> Some believe identifying an asset bubble until it breaks is impossible, and thus monetary policy should not be used to deflate asset bubbles. Stiglitz argues this argument is false because it ignores what economic concept?
> Stiglitz argues that the Fed’s focus on price stability actually contributed to the Great Recession. Explain Stiglitz’s argument. that if one wants economic stability, one must have price level stability first.
> Tommy believes that markets are rational. Explain why Tommy thus would argue that asset bubbles don’t exist. How would economists such as Joseph Stiglitz counter Tommy’s argument?
> According to the Taylor Rule, if the real federal funds rate equals 2%, the inflation target rate is 2%, the actual inflation rate is 4%, and the economy is at the full employment level of output, what should the federal funds target be?
> What problems with the Taylor Rule does the Mankiw Rule attempt to address?
> In what ways are the Bank of Japan and the Bank of England similar to the Federal Reserve?
> Some look at the structure of the Federal Reserve and come to the conclusion that it is “undemocratic.” Why do you think they come to this conclusion? Do you agree with them?
> Which of the following are lags in monetary policy?
> Explain why many economists argue the explicit inflation target for monetary policy is far too rigid to be effective.
> Explain how the time inconsistency problem in monetary policy is used by many to argue in favor of central bank independence.
> The “dual goals” of current monetary policy in the United States are:
> Opponents of the “financial market stability goal” of monetary policy believe it may be difficult for the Federal Reserve, or any central bank, to achieve this goal. Explain their argument.
> Some argue the Federal Reserve should not have “high employment” as one of the goals of monetary policy because there are so many causes of unemployment that are beyond the Fed’s control. What are these various causes of unemployment?
> Under price level-targeting monetary policy, a sharp drop in the inflation rate today means what for the future?
> Explain why some argue that a central bank’s goal of price level stability can hurt the middle class and working people while benefiting more wealthy individuals.
> Explain why deflation leads to an increase in the real burden of debt.
> Scott suffers from what Simon Johnson calls “intellectual capture.” What does that mean?
> The main purpose of term auction lending was to:
> If John Deere Financial provides loans to John Deere customers and is owned by Deere & Company, then John Deere Financial is known as what type of finance company?
> Finance companies are not depository institutions, but they still lend money. If finance companies do not take deposits, where do they get the funds they lend to their customers?
> The first credit unions, or credit cooperatives, in North America were started where and when?
> When it comes to lending to businesses, credit unions often argue they should be allowed to write more business loans, whereas critics contend credit unions’ business lending should be restricted. Explain each side’s argument.
> Credit unions are similar to commercial banks in that they are both depository institutions. Explain how credit unions are also very different from commercial banks.
> Which government agency was created to close and liquidate the failed thrifts?
> Explain how zombie institutions are in one sense “dead” but in another sense are still “alive.”
> Explain why the phasing out of Regulation Q by DIDMCA did not end the problems faced by the thrifts.
> When market interest rates increased during the 1960s, thrifts found it difficult to attract deposits because of which Depression-era policy?
> In what ways did the Fed’s balance sheet change in response to the global financial crisis?
> Explain how savings banks and Savings & Loans were similar but also very different.
> Initially, thrifts were depository institutions that often were considered “special.” Why were they viewed this way?
> Explain the controversies that exist over the Bureau of Consumer Financial Protection. How can some critics claim it has too much power, whereas other claim it has no meaningful use at all?
> The Community Reinvestment Act was created in response to the issue of redlining. What is/was redlining and how did the act attempt to address it?
> In a “pay off and liquidate” approach, what is being liquidated?
> Explain how regulators use the CAMEL rating in the regulation process.
> Robert is confused about why regulators created the too big to fail policies. What would you tell Robert?
> The Basel Accords attempted to address which of the following issues?
> Explain how depository institutions successfully “got around” Regulation Q without actually breaking the law.
> Why is it that bank executives today may not want their banks to hold sufficient levels of bank capital, even if doing so would make their banks more stable?
> What does it mean that the Federal Reserve is the “fiscal agent” of the US government?
> What did the Riegle-Neil Act of 1994 allow US banks to do?
> Ted argues that we should return to the “old days” when banks were forbidden from branching across state lines. Ted believes this will make banks safer because they will concentrate on one, narrowly defined market. Evaluate Ted’s argument.
> The Glass-Steagall Act of 1933 separated commercial banks, investment banks, and insurance companies. Explain how the act was slowly chipped away at before it was finally phased out in 1999.
> If the economy is currently “overheating,” this means:
> Johnny believes input markets, such as financial markets, are inefficient. Use the aggregate supply and aggregate demand to explain why this leads Johnny to argue that government policy is needed to end economic slowdowns.
> Bobby believes input markets, such as financial markets, are efficient. Use aggregate supply and aggregate demand to explain why this leads Bobby to believe economic slowdowns will “end themselves.”
> If the cost of doing business for producers increases, which of the following occurs?
> Why is the long-run aggregate supply curve vertical? Why might the long-run aggregate supply curve move?
> Explain the difference between movement along the short-run aggregate supply curve and shifts of the short-run aggregate supply curve.
> Deep economic contractions, such as the Great Depression of the 1930s, are depicted in the Keynesian framework as which part of the aggregate supply curve?
> Which of the following has resulted in questions being raised about the future of the Social Security public pension system?
> Why was an upward-sloping part of the aggregate supply curve added to Keynes’s original aggregate supply curve?
> Explain to someone with no training in economics why the aggregate supply curve might be vertical at the full employment level of output.
> Which of the following are characteristics that make hedge funds different from open-ended mutual funds?
> Explain how close-ended mutual funds are, at the same time, in some ways very similar to but in other ways very different from open-ended mutual funds.
> Explain why ETFs seldom trade at a premium or discount relative to their NAV.
> Doug sees that his mutual fund is charging him with a 12b-1 fee. He has no idea what this is. Which of the following would correctly summarize for Doug what he is being charged?
> Adrienne is a registered financial advisor. What role do mutual funds and mutual funds play in Adrienne’s career?
> Jason is thinking about purchasing some mutual fund shares, but he is confused by the terminology. How would you explain to Jason the difference between a mutual fund with loads and a no-load mutual fund?
> Grace is disappointed with the relatively low rate of return she is earning on her government bond mutual fund. She sees another bond fund that invests in corporate securities offered by firms that are in financial distress and/or do not have much experi
> Bob lives in Texas, is 64 years old, and is close to retirement. What type of mutual funds might be best for Bob? Why?
> Charlotte is fully vested in her defined contribution pension plan where she works. What will happen if Charlotte decides to quit her job and go work for a different employer?
> Trudy, who lives in New York, is concerned that her investment portfolio suffers from the “home country bias.” Explain what Trudy is worried about and how might she use mutual funds to address her concern.
> You read a story in the Financial Times reporting that mutual funds that invest primarily in equities are currently holding a high level of cash. Based on this, where do many analysts think stock prices are headed and why?
> Bob is confused about how the pricing of the open-end mutual fund he owns is actually calculated. Bob sees that stock prices have increased, yet the market value of his mutual fund, as determined by the NAV, has declined. Bob thinks that this should not
> If the total market value of an open-end mutual fund is $2,500 and there are 100 shares outstanding at the end of trading on Monday, what would the NAV of the fund be?
> If savings is greater than investment, what is the implication for aggregate demand?
> If the MPC is 0.7 and business investment spending decreases by $10, determine what will happen to total spending according to the spending multiplier.
> In subprime home mortgages the term subprime refers to:
> Explain how an increase in defaults of home mortgages in the United States could affect savers on the other side of the world via CMOs.
> Explain how the economic policies of both the Clinton and George W. Bush Administrations toward home ownership helped to contribute to the financial crisis.
> In a collateralized debt obligation (CDO) such as a collateralized mortgage obligation (CMO), the senior tranche:
