Question 1

For the most part,countries with ________ of financial development have ________ of real GDP per capita.

Accepted Answer

Research has shown that countries with high levels of financial development, including a well-functioning banking sector and stock market, tend to have high levels of real GDP per capita. This is because financial development can lead to increased access to credit and investment opportunities, which can stimulate economic growth.

Question 2

Financial intermediaries emerged

Accepted Answer

Financial intermediaries emerged to reduce transactions costs for small savers and borrowers.

Question 3

The presence of information and transactions cost result in all of the following EXCEPT

Accepted Answer

The presence of information and transactions costs may lead to reduced efficiency in financial markets, some funds not being lent at all, and borrowers having to pay more for funds. However, it does not necessarily result in higher returns for savers. In fact, higher transaction costs may reduce returns for savers as well.

Question 4

It is generally agreed that

Accepted Answer

Small and medium-sized firms often lack the resources and expertise to engage in direct financing or investment activities. Intermediaries provide valuable services such as credit analysis, risk management, and diversification, which help these firms access funding and reduce risks. This ultimately benefits the firms and the overall economy.

Question 5

All of the following are factors that determine whether a country's economy can provide a high standard of living for its residents and whether that standard of living can increase over time EXCEPT

Accepted Answer

The ability of a country's government to print money in response to high levels of inflation cannot determine whether a country's economy can provide a high standard of living for its residents and whether that standard of living can increase over time. In fact, printing money can lead to high levels of inflation, which would decrease the purchasing power of individuals and decrease their standard of living. A, B, and C are factors that can positively impact a country's economic growth and standard of living.

Question 6

In the 1790s,Treasury Secretary Alexander Hamilton made a series of decisions that helped the United States develop a modern financial system.These decisions included

Accepted Answer

Choice B is the correct answer as it accurately states that one of Alexander Hamilton's decisions was for the federal government to take responsibility for paying off bonds issued by the Continental Congress and state governments. This decision helped to establish the creditworthiness of the federal government and laid the foundation for a modern financial system in the United States. The other choices are incorrect as they do not accurately reflect Hamilton's actions during the 1790s.

Question 7

Information costs

Accepted Answer

Information costs refer to the costs that savers incur to determine the creditworthiness of borrowers, which includes the cost of obtaining and analyzing financial statements, credit reports, and other relevant information. Option A refers to transaction costs, Option C refers to search costs, and Option D is incorrect as financial intermediaries also incur information costs in determining the creditworthiness of borrowers.

Question 8

The presence of transactions costs and information costs

Accepted Answer

The presence of transactions costs and information costs can make lending riskier for lenders, as they may not be able to accurately assess the creditworthiness of borrowers or may incur additional costs in processing loans. This increases the expected return that lenders require to compensate for the added risk and costs, which consequently lowers the expected return to borrowers. Therefore, Choice C - lowers the expected return to lenders - is the best answer. Option A is incorrect because transactions costs and information costs increase the cost of funds to borrowers, rather than decreasing it. Option B is incorrect because it implies that lenders benefit from these costs, which is not true. Finally, Option D is incorrect because higher costs and risk discourage lending and can result in lower efficiency in the financial system.

Question 9

The connection between a developed country's financial system and the performance of the country's economy

Accepted Answer

The connection between a developed country's financial system and the performance of its economy has been recognized since the early days of economic thought and continues to be strong today. A well-functioning financial system is crucial for economic development as it facilitates investment, savings, and the efficient allocation of resources.

Question 10

Financial intermediaries reduce transactions costs by

Accepted Answer

Financial intermediaries can take advantage of economies of scale by pooling the funds of many small savers or investors, which reduces transaction costs such as the cost of researching and monitoring investment opportunities, and the cost of processing transactions. As a result, intermediaries can offer services that would otherwise be too expensive or difficult for small savers or investors to access on their own. Therefore, financial intermediaries can reduce transaction costs by taking advantage of economies of scale. Charging fees to small savers or investors is a way for intermediaries to cover their own costs, but it is not the main way in which intermediaries reduce transaction costs. Avoiding risky investments can also reduce costs in terms of potential losses, but it does not directly reduce transaction costs.

Question 11

Which of the following is TRUE regarding transactions costs and information costs?

Accepted Answer

Both transaction costs and information costs create profit opportunities for those who can reduce them. For example, a financial institution that can lower transaction costs for clients in a particular market can attract more business and generate profits. Similarly, firms that can obtain and process information more efficiently can gain a competitive advantage and earn higher profits. Neither benefits one side at the expense of the other.

Question 12

In the 1790s,stock and bond markets were established in all of the following cities EXCEPT

Accepted Answer

Washington, D.C. did not establish a stock and bond market in the 1790s. However, New York, Boston, and Philadelphia all established stock and bond markets during this time period.

Question 13

In 1791,Congress established the Bank of the United States,which was set up as a

Accepted Answer

The Bank of the United States was established as a private corporation, and its stock was sold to the general public, allowing individuals and entities to invest in it.

Question 14

Initially,the securities traded in the financial markets established in the 1790s were primarily

Accepted Answer

The Bank of the United States was established in 1791 and issued stock, while the government also issued bonds. This makes option C the most accurate choice. Options A and D are incorrect because they imply that only government or corporate bonds were traded, while option B is incorrect because it suggests that only Europe's largest companies were involved in the financial markets.

Question 15

During the 1800s,the United States experienced ________ growth rates when compared to other countries that had also experienced substantial European immigration.

Accepted Answer

The United States experienced significantly higher growth rates during the 1800s when compared to the other countries that had also experienced substantial European immigration. This was due to factors such as abundant land and natural resources, industrialization, and a growing economy.

Question 16

Small investors face

Accepted Answer

Small investors typically have limited financial resources, which means that they cannot take advantage of economies of scale in financial trading. This translates to higher transaction costs when they buy or sell stocks or other financial assets. Large institutional investors, on the other hand, can negotiate lower rates due to their larger trading volumes. Therefore, small investors face high transactions costs in financial markets.

Question 17

Which of the following is NOT an example of transactions costs?

Accepted Answer

High interest rates are not an example of transactions costs. Transactions costs refer to the expenses incurred in buying or selling assets, such as legal fees, brokerage commissions, and minimum investment requirements. High interest rates are related to the cost of borrowing money and do not directly relate to the purchase or sale of assets.

Question 18

Transactions costs are

Accepted Answer

Transactions costs refer to the expenses of engaging in direct financial transactions such as the cost of transferring money from one bank account to another or the cost of buying and selling securities. Financial markets and intermediaries may also have transactions costs, but they are not zero. The taxes imposed on financial transactions are not necessarily equal to transactions costs.

Question 19

Briefly explain what was done in the early years of George Washington's administration that helped the United States develop a modern financial system.

Accepted Answer

The answer of Briefly explain what was done in the...

Question 20

The best measure economists have of how successful a country is in providing a high standard of living to its residents is

Accepted Answer

Real GDP per capita is the best measure as it takes into account both economic output and population size, providing an estimate of a country's economic performance relative to its population. It also factors in inflation, providing a more accurate assessment of the standard of living. Net worth only considers assets minus liabilities and does not provide a comprehensive view of economic development. Nominal GDP does not account for inflation, and national income does not account for population size.

Quiz 9: Transactions Costs, asymmetric Information, and the Structure of the Financial System

For the most part,countries with of financial development have of real GDP per capita.