The
presence of ________ in financial markets leads to adverse selection
and moral hazard  


problems
that interfere with the efficient functioning of financial markets.

4. The theory of PPP suggests that if one countryʹs price level rises relative to anotherʹs, its currency should

3. Everything else held constant, when a countryʹs currency depreciates, its goods abroad become ________ expensive while foreign goods in that country become ________expensive.

2. When the value of the British pound changes from $1.25 to $1.50, the pound has ____and the U.S. dollar has _____.

1.The immediate ( ) exchange of one currency for another is a

10. A borrowed reserves target is ______because increases in income _______interest rates and discount loans, causing the Fed to_______the monetary base, everything else held constant.

9. The Federal Reserve has been _______preemptive because of the changing view that monetary policy has to be _______looking.

8. Targeting interest rates can be procyclical because

7. Which of the following is NOT an argument against using monetary policy to prick asset -price bubbles?

6. A credit-driven bubble arises when _______in lending causes _______in asset prices which can cause _______in lending.

5. Fluctuations in the demand for reserves cause the Fed to lose control over a monetary aggregate if the Fed targets