The Authors' Analysis of Adverse Selection Indicates That Financial Intermediaries

question 63

Multiple Choice

The authors' analysis of adverse selection indicates that financial intermediaries in general,and banks in particular (because they hold a large fraction of nontraded loans) ,

• A) have advantages in overcoming the free-rider problem, helping to explain why indirect finance is a more important source of business finance than direct finance.
• B) play a greater role in moving funds to corporations than do securities markets as a result of their ability to overcome the free-rider problem.
• C) provide better-known and larger corporations a higher percentage of their external funds than they do to newer and smaller corporations, which rely to a greater extent on the new issues market for funds.
• D) all of the above.
• E) only A and B of the above.

Calculate the effects of changes in government spending and taxation using fiscal multipliers.

Identify fiscal policy measures for addressing budget deficits and national debt.

Evaluate the effectiveness and timing of fiscal stimulus packages.

Understand the significance of balancing the budget over the business cycle.

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Definitions:

Batch Size

The quantity of units produced in a single production run or batch, affecting efficiency and cost.

Complexity

The state or quality of being intricate or complicated, often referring to processes, systems, or issues with many interrelated parts or aspects.

Value-added Activities

Activities that increase the value of goods or services to the consumer, thereby making them more valuable in the eyes of customers.

Activity-based Costing

An accounting method that assigns costs to products or services based on the activities they require, improving cost accuracy.