1 During the banking history of the USA, a tax was put on money issued by state
ID: 1186234 • Letter: 1
Question
1 During the banking history of the USA, a tax was put on money issued by state banks, with some goal in mind. What item on banks' balance sheets today was created so that goal was not met?
A. (actual) reserves
B. discount loans
C. demand deposits
D. FDIC insurance
2 For the rest of the exam, consider the economy of Columbia. In this economy, there are three firms potentially interested in issuing a $25,000 bond to do a project each hopes will be profitable:
The Heckle Firm has a 70% chance of a $40,000 return.
The Ickle Firm has an 80% chance of a $38,000 return.
The Jackle Firm is credibly guaranteed to get a $30,000 return.
The only other possibility for all firms is failure, a $0 return. Assume that these firms will issue bonds as long as savers want them.
Calculate the expected value of the Ickle Firm
Explanation / Answer
1.C. demand deposits
2.0.8*30000
3.B. Ickle
C. Jackle
4.B. No, because the riskier firm/firms issue bonds, while the less risky firm/firms do not.
5.
6.B. Ickle
8.B. No, because at least one firm will still issue bonds.
9.A. African-Americans
10.400
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