ECON333_ch13

Defined-benefit plans:
A. Are more common than defined contribution plans
B. Do not require any responsibility on the part of the employer for the employees' retirement income; it is based on employee contributions
C. Pay a pension based on the amount contributed into the plan by the employee and employer
D. Usually require an employee to work a very long time for the same employer in order to reap a large benefit

Which of the following is an example of the economies of scope argument for increased profits for large financial holding companies?

A. The profitability of financial holding companies does not rely on one particular line of business
B. Financial holding companies need only one CEO, one Board of Directors, and one accounting system regardless of size
C. Financial holding companies are well diversified so risk is reduced
D. Financial holding companies offer a wide array of services under one name

Which of the following is an example of the economies of scale argument for increased profits for large financial holding companies?

A. Financial holding companies need only one CEO, one Board of Directors, and one accounting system regardless of size
B. The profitability of financial holding companies does not rely on one particular line of business
C. Financial holding companies are well diversified so risk is reduced
D. Financial holding companies offer a wide array of services under one name

A homeowner discovers that a large tree in his yard is diseased and may fall in a bad windstorm and if it falls, it will likely destroy the garage. The cost to have the tree cut down is significant but the homeowner has an insurance policy and figures that if the tree falls and destroys the garage, the insurance company will pay, and the deductible is less than the cost to have the tree removed. This is an example of:
A. Information symmetry
B. Moral hazard
C. Screening
D. Adverse selection

The Glass-Steagall Act of 1933:

A. Eliminated the FDIC
B. Required federally chartered banks to meet the branching restrictions of the states
C. Required commercial banks to sell off their investment banking operations
D. Required all state banks to get federal charters

Property and casualty insurers will hold assets of shorter maturities than life insurance companies because:

A. Shorter maturity assets usually have higher returns
B. Property and casualty insurers can find themselves needing to get liquid unexpectedly
C. Life insurance companies generally take on more risk than property and casualty companies
D. Life insurance companies may find they need to get liquid unexpectedly

The actual results of the McFadden Act included:

A. The elimination of banking monopolies
B. A safety net that allowed small inefficient banks to continue to operate
C. Increased efficiency of banking across the country
D. A tight network of interconnected banks across the country

An insurance company provides liability insurance to a restaurant protecting the owner against claims from customers. One area of coverage is protections against food poisoning claims. The insurance company may periodically send an employee into the restaurant to observe food preparation and food storage processes. The insurance company is trying to avoid:

A. Adverse selection
B. Paying claims
C. Moral hazard
D. Transaction costs

In a defined-contribution plan:
A. Only the employee makes contributions into the fund
B. The retirement benefits will vary with both the amount contributed and the performance of the fund
C. The benefits are determined mainly by years of service
D. No vesting is required; employees are eligible for benefits from the time they make their first contribution

A young father needing to provide his family with financial security would be better off purchasing:
A. No life insurance; instead he should focus on saving
B. As much life insurance as they can afford
C. A whole life insurance policy
D. A term life insurance policy

Whole life insurance differs from term life in which of the following ways?

A. Whole life has a variable premium over the life of the policy, increasing as the policyholder gets older.
Term life has a fixed premium forever
B. Term life has a savings component whole life is pure insurance
C. Term life is usually more expensive than whole life
D. Whole life is a combination of term life insurance and a savings account

Many states prohibited bank branching because of all of the following except:

A. They feared the concentration and monopoly power of large banks
B. They generated significant revenue from issuing bank charters
C. They wanted to protect the profits of banks since they generated tax revenue from these profits
D. The McFadden Act of 1927

In most companies, an employee must work for a number of years before qualifying for pension benefits. This process is referred to as:

A. Mandatory benefit pending
B. A defined-benefit period
C. Regulated contribution period
D. Vesting

In many cases, life insurance companies will require applicants to take a physical. This is done to avoid the problem of:

A. Adverse selection
B. Moral hazard
C. Transaction costs
D. Paying claims