Answered: Explain and critically evaluate…

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter13: Money And The Financial System

Section: Chapter Questions

Problem 2.8P

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Question

1. The prices of both soft and hard commodities are very volatile. Explain why?

2. Explain and critically evaluate advantages and disadvantages of fiat money.

3. Explain the opportunity cost of holding money and how does it relate to the interest rates

4. Explain the main premise of the efficient market hypothesis. Use examples.

5. What is the role of commercial banks in the economy? Why are they important?

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

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