The principle of risk aversion means that A.Investors will pay to avoid certain risks.Risk premiums are always negative.Investors never take on risk….

1.The principle of risk aversion means that

A.Investors will pay to avoid certain risks.

B.Risk premiums are always negative.

C.Investors never take on risk.

D.Investors require larger compensation when the risk of a security decreases.

2.In credit markets, there is asymmetric information because:

A.Borrowers know more than lenders

B.Lenders know more than borrowers

C.Borrowers and lenders have the same information

D.Lenders and borrowers have perfect information

3.Although it enjoys a high degree of independence, the Fed is still subject to the influence of Congress because

A.Congress can pass legislation that would restrict the Fed independence.

B.Congress can withhold the Fed’s budget appropriations

C.Congress can remove member of the Board of Governors whenever they wish.

D.all of the above.

4.The Federal Reserve is considered an independent central bank due to

A.Its budgetary independence

B.The long terms of its governors

C.The irreversibility of FOMC decisions

D.All of the above.

5.Consider the Taylor rule. If the current rate of inflation is 5% and the target rate of inflation is 2%, and output is 3% above its potential, the target federal funds rate would be:

A.6.5%

B.2.5%

C.3.5%

D.10.5%

6.As a tool of monetary policy, the reserve requirement is problematic because :

A.Is not controllable

B.It is not observable

C.It is too flexible

D.The impact of changing it is too large.

7.If the Fed targets the interest rate it will likely lose control of the money supply because of

A.fluctuations in bond prices.

B.fluctuations in aggregate supply.

C.fluctuations in money demand.

D.fluctuations in the reserve requirement.

8.The FOMC currently targets

A.The discount rate.

B.The federal funds rate.

C.The monetary base.

D.Excess reserves.

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