财政学第一单元 概要 试题

Chapter 1 Problems and Solutions

1.The United States Treasury borrows money on behalf of the federal government all

the time. One type of government borrowing, called a Treasury bill, promises a

fixed payment at some number of months in the future. The Treasury receives less for a promise to make a payment of $100 in six months than it does for a promise to make a payment of $100 in three months. Why? Explain how this arrangement illustrates the core principle that time has value.

Answer: Since time has value, a promise to make a payment of $100 three months from now is worth less than $100 today.

2.Describe the links between the five components of the financial system and the five

core principles of money and banking.

Answer:

a.Money economizes on the need to obtain information. Sellers don’t need to know

who buyers are.

b.Financial instruments promise payment that may or may not be made in the future.

Pricing them uses the first two core principles: time has value and risk requires

compensations.

c.Financial markets are where financial instruments are bought and sol

d. They provide

information, and they set prices. Core principles #3 and #4 come into play.

d.Financial institutions collect and process information. They are based on then fact

that information is the basis for decisions.

e.Central banks are engaged in stabilizing the economy and averting financial crisis;

their behavior is based on the core principle that stability improves welfare.

3.Socialists argue that, to reduce the power exerted by the owners of capital, the state

should control the allocation of resources. Thus, in a socialist system, the state

allocates investment resources. In a market-based capitalist system, financial

markets do that job. Which approach do you think works better, and why? Relate your answer to the core principle that markets set prices and allocate resources.

Answer: Markets allocate use the price system to allocate resources to their most efficient uses. Markets aggregate information from a multitude of sources. Command economies do not aggregate information as well, and do not allocate resources as efficiently.

4.Most investment advisers tell their clients to purchase shares in one or more mutual

funds rather than to buy individual stocks. They argue that this practice reduces risk.

Explain why.

Answer: Holding a large number of investments tends to reduce risk since they are unlikely to all go down (or up) at the same time.

5.Small businesses tend to borrow money from banks. Would you lend directly to a

small business? Relate your answer to the third core principle of money and

banking, that information is the basis for decisions.

Answer: It would not be very prudent for you to make a loan to a small business. This is true for two reasons. First, you have a difficult time evaluating the borrower’s creditworthiness; and second, it will be very costly for you to monitor what they do with the funds.

6.Financial innovation has reduced individuals’ need to carry cash. Explain how. Answer: Everyone has a number of alternative methods of payment. Electronic forms, like credit and debit cards, are the primary ones that have reduced need to carry cash.

7.For many years, people got their mortgages at local banks. Today, prospective

homeowners can get a mortgage through a broker who obtains funds from institutions all over the country. What effect do you think this financial innovation has had on an individual’s ability to obtain a mortgage? What effect do you think it has had on interest rates and mortgage fees?

Answer: Mortgages have become more available and cheaper (both in terms of fees and interest rates). Increased competition has been good for borrowers. One of the primary reasons for this is that funds now flow easily between geographic regions. Banks used to be local, taking deposits and making loans in their communities. If the bank had no funds to loan, a potential borrower was out of luck. Innovation has changed all that.

8.Suppose central bankers have figured out a way to eliminate recessions. What

financial and economic changes would you expect to see? Relate them to the core principle that stability improves welfare.

Answer: If recession were completely eliminated, then everyone’s income would be stabilized and the returns to business investment would become more predictable. This would reduce risk and allow people to do things that they otherwise would not do. One possibility is the economy would grow more quickly.

9.What is it important that financial markets offer individuals the ability to buy and sell

financial instruments quickly and cheaply?

Answer: Without the ability to buy and sell stocks, bonds, and other financial instruments no one would want to hold them. Who would buy something they couldn’t sell? So ease and low cost are essential for financial markets to work. And without those