Economics of Money, Banking and Financial Markets, The, Business School Edition, 5th Edition Solution Manual

Economics of Money, Banking and Financial Markets, The, Business School Edition, 5th Edition Solution Manual is the perfect resource for breaking down challenging problems step by step.

Seller Steve
Contributor
4.3
95
7 months ago
Preview (31 of 231)
Sign in to access the full document!
PART THREE
Answers
to End-of-Chapter
Questions and Problems
Mishkin Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Business School Edition, Fifth Edition 57
Chapter 1

ANSWERS TO QUESTIONS

1.
What is the typical relationship among interest rates on three-month Treasury bills, long-
term Treasury bonds, and Baa corporate bonds?

The interest rate on three-month Treasury bills fluctuates more than the other interest rates and
is lower on average. The interest rate on Baa corporate bonds is higher on average than the
other interest rates.

2.
What effect might a fall in stock prices have on business investment?
The lower price for a firm’s shares means that it can raise a smaller amount of funds, so
investment in facilities and equipment will fall.

3.
Explain the main difference between a bond and a common stock.
A bond is a debt instrument, which entitles the owner to receive periodic amounts of money
(predetermined by the characteristics of the bond) until its maturity date. A common stock,
however, represents a share of ownership in the institution that has issued the stock. In
addition to its definition, it is not the same to hold bonds or stock of a given corporation,
since regulations state that stockholders are residual claimants (i.e. the corporation has to pay
all bondholders before paying stockholders).

4.
Explain the link between well-performing financial markets and economic growth. Name one
channel through which financial markets might affect economic growth and poverty.

Well performing financial markets tend to allocate funds to its more efficient use, thereby
allowing the best investment opportunities to be undertaken. The improvement in the
allocation of funds results in a more efficient economy, which stimulates economic growth
(and thereby poverty reduction).

5.
What was the main cause of the recession that began in 2007?
The United States economy was hit by the worst financial crisis since the Great Depression.
Defaults in subprime residential mortgages led to major losses in financial institutions,
producing not only numerous bank failures but also the demise of two of the largest
investment banks in the United States. These factors led to the “Great Recession” that began
late in 2007.

Loading page 6...

Loading page 7...

Loading page 8...

Loading page 9...

Loading page 10...

Loading page 11...

Loading page 12...

Loading page 13...

Loading page 14...

Loading page 15...

Loading page 16...

Loading page 17...

Loading page 18...

Loading page 19...

Loading page 20...

Loading page 21...

Loading page 22...

Loading page 23...

Loading page 24...

Loading page 25...

Loading page 26...

Loading page 27...

Loading page 28...

Loading page 29...

Loading page 30...

Loading page 31...

28 more pages available. Scroll down to load them.

Preview Mode

Sign in to access the full document!

100%

Study Now!

XY-Copilot AI
Unlimited Access
Secure Payment
Instant Access
24/7 Support
Document Chat

Document Details

Subject
Economics

Related Documents

View all