1) Why is a financial crisis likely to lead to a contraction in economic activity? a. None of the above are correct. b. Those that borrow funds to finance productive investment opportunities will have a greater opportunity to obtain financing. c. A disruption in the financial system diminishes the flow of funds from savers to borrowers. d. Disruptions in the financial system decreases asymmetric information, thereby decreasing the associated problems of adverse selection and moral hazard.
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1) Why is a financial crisis likely to lead to a contraction in economic activity?
a. None of the above are correct.
b. Those that borrow funds to finance productive investment opportunities will have a greater opportunity to obtain financing.
c. A disruption in the financial system diminishes the flow of funds from savers to borrowers.
d. Disruptions in the financial system decreases asymmetric information, thereby decreasing the associated problems of adverse selection and moral hazard.
2) Suppose the Federal Reserve is selling $10 million of bonds to First National Bank. What is the impact on reserves and the monetary base?
a. Reserves fall by $4 million and the Monetary Base falls by $4 million.
b. Reserves rise by $2 million and the Monetary Base rises by $2 million.
c. Reserves fall by $2 million and the Monetary Base rises by $2 million.
d. Reserves fall by $2 million and the Monetary Base falls by $2 million.
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