Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Chapter 10, Problem 4E
To determine
Analyze the balance sheets of two financial institutions.
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Macroeconomics (Fourth Edition)
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- What has happened to the profitability of financial firms in the US economy in recent decades? Why have they been able to increase their profits? Is this a good thing for the US economy as a whole?arrow_forwardUse the following graphic to describe the interactions between markets when there is recession caused by a financial crisis and how might the risk premium evolve in such a situation.arrow_forwardQuestion 1 Briefly explain how the adverse selection problem can affect the financial markets. Explain how financial intermediaries can help to solve the adverse selection problem in stock and bond investmentsarrow_forward
- Could you add more information regarding the below statement? "I do agree with the notion that the Federal Reserve is the most important financial institution in the world. The reason being that it plays such a pivotal role in the economy - for better or for worse. For example, the federal reserve supervises banking institutions and provides many financial services to the U.S government. In addition, the federal reserve has the power to regulate the economy when it is unstable. For example, the Federal Reserve has the ability to manipulate interest rates in order to stabilize the economy when it is needed most. Overall, without the Fed, the economy would have a much more difficult time maintaining itself. When it comes to inflation specifically, I do believe that the Federal Reserve should step in as it is their responsibility. I think that increasing interest rates could be a significant help, but I think that decreasing the money supply/circulation as well as selling bonds could help…arrow_forwardWhy was the Term Auction Facility more widely used by financial institutions than the discount window during the global financial crisis?arrow_forwardWhy do banks choose to securitise their assets? Explain how securitisation may exacerbate the asymmetric information problems in the financial markets. Discuss the role of mortgage-backed securities in the financial crisis of 2007-2008arrow_forward
- Explain why the 2010 Obama Wall Street Reform Act was considered the most extensive overhaul of the US financial system since the Great Depression? What was the logic and need for this law? Explain in detail.arrow_forwardProvide 4 economic reasons as to why portfolio rankings should be inconsistent or consistent with each other.arrow_forwardWhat do the authors mean when they state that financial intermediaries can achieve economies of scale with respect to transaction costs? A. Intermediaries can spread transaction costs across larger transaction volumes, so the cost per unit is lower. B. Intermediaries tend to specialize in certain types of transactions, so their costs are lower because they operate at lower volume than other types of financial firms.arrow_forward
- Please, I need help with number 1, 2, 3, 4 1. Assume that there are two assets in the world, stocks and bonds. If both sell at the same price, and if stocks are twice as risky as bonds, we should expect that the a. Stocks will not sell. b. Rate of return on stocks will be twice the rate of return on bonds c. Rate of return on bonds will be twice the rate of return on stocks d. Rate of return on bonds will be higher than stocks, by an indeterminate amount 2. Which of the following describes the relationship between stock and bond prices and interest rates? a. There is a direct and positive relationship between the rate of interest and stock and bond prices. (As interest go up, stock and bond prices rise as well.) b. The relationship is far too difficult to quantify. c. There is an inverse relationship between interest rates and the price of a stock or a bond. (As interest rates go up, stock and bond prices decline.) d. It varies with the performance of the stock or bond market. 3.…arrow_forwardWhat is leverage, and why is it so important in understanding the financial crisis?arrow_forward
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