Maddox Smith Staff asked 4 years ago

Businesses and Consumers Change Their Economic Behavior

The following questions are from “Questions” and “Applied Problems” at the end of chapter in Mishkin textbook (11th edition). Chapter 1. Why Study Money, Banking, and Financial Markets? 2. What effect might a fall in stock prices have on business investment? 11. When interest rates decrease, how might businesses and consumers change their economic behavior? 12. Is everybody worse off when interest rates rise? 19. When the dollar is worth more in relation to currencies of other countries, are you more likely to buy American-made or foreign-made jeans? Are U.S. companies that manufacture jeans happier when the dollar is strong or when it is weak? What about an American company that is in the business of importing jeans into the United States? Chapter 2. An Overview of the Financial System 4. If you suspect that a company will go bankrupt next year, which would you rather hold, bonds issued by the company or equities issued by the company? Why? 5. “Because corporations do not actually raise any funds in secondary markets, secondary markets are less important to the economy than primary markets are.” Is this statement true, false, or uncertain? 11. How can the adverse selection problem explain why you are more likely to make a loan to a family member than to a stranger? 22. In 2008, as a financial crisis began to unfold in the United States, the FDIC raised the limit on insured losses to bank depositors from $100,000 per account to $250,000 per account. How would this help stabilize the financial system?If the interest rate is 10%, what is the present value of a security that pays you $1,100 next year, $1,210 the year after, and $1,331 the year after that? 15. Calculate the present value of a $1,000 discount bond with five years to maturity if the yield to maturity is 6% 16. A lottery claims its grand prize is $10 million, payable over 5 years at $2,000,000 per year. If the first payment is made immediately, what is this grand prize really worth? Use an interest rate of 6%