Risk Latte - Quiz # 2

The creation of Euro, Europe’s common currency, owes its existence in a large measure to the work of which economist:

(a) Robert Mundell
(b) Arthur Laffer
(c) Robert Solow
(d) Paul Samuelson

Recently, in October/November last year, Dr Ron Paul, a ranking member of the of the Subcommittee on Domestic and International Monetary Policy, railed against the Federal Reserve Bank of the U.S. for causing inflation and disregarding the growth of MZM. Here, MZM is:

(a) the other name for M2 measure of money supply
(b) is M2 minus the time deposits;
(c) is M2 minus the time deposits plus all money market funds;
(d) M0 (narrow money) plus demand deposits;

An price function is given by: y(x) = x³ - 12x² + 36x. The local maximum and minimum are at:

(a) x = 2 is local maximum and x = 6 is local minimum;
(b) x = 2 is local maximum and x = 1 is local minimum;
(a) x = 6 is local maximum and x = 8 is local minimum;
(d) None of the above;

If you are a monetarist who believes in the neo-classical quantity theory of money, then according to you:

(a) if the Central Bank increases the quantity (supply) of money then this will
          result in an increase in prices (inflation) and will no impact on the real
          economic activity;
(b) if the Central Bank increases the quantity (supply) of money then this will
          result both in increase in prices (inflation) as well as economic activity;
(c) if the Central Bank increases the quantity (supply) of money then the
          velocity of money will increase resulting in an expansion of business
          activity;
(d) the impact of an increase in the quantity (supply) of money on the prices
          and economic activity is uncertain and not well defined;

Paul Samuelson (1965) advocated the martingale model of prices as an alternative to the Random Walk hypothesis. In simple English this means:

(a) Prices fluctuate randomly around a mean;
(b) Properly anticipated prices fluctuate randomly;
(c) Prices fluctuate randomly with periodic jumps;
(d) The best anticipated price for the next period is zero;

The measure R², which is the fraction of the total squared error that is explained by the model is:

(a) square of the standard deviation;
(b) square of the correlation coefficient;
(c) square of the mean;
(d) square of the covariance;

In a two dimensional space a reflection against the axis will be given by the following matrix:

(a)

(b)

(c)

(d)

;

Of late, a lot of Central Bankers, have commented and reflected on the issue of “Knightian Uncertainty”. The essence of Knightian uncertainty is that:

(a) the probability distribution of a random outcome is completely unknown;
(b) the probability distribution of a random outcome is partially known;
(c) the probability distribution of a random outcome is Pareto-Levy;
(d) the probability distribution of a random outcome is known (can be assigned
by the agent);

Any financial derivative contract:

(a) can be decomposed as a linear combination of Arrow-Debreu securities;
(b) cannot be decomposed as a linear combination of Arrow-Debreu securities;
(c) can be decomposed into a series of Arrow-Debreu securities in the
presence of incomplete markets;
(d) None of the above;

John Kenneth Galbraith, one of the leading American economists of the Depression era came up with two explanations for the Great Depression, the “Structuralist” explanation and the “macroeconomic” explanation*. The “Structuralist” explanation was influenced by:

(a) John Maynard Keynes’ General Theory of Employment, Interest and
          Money:
(b) Berle and Means’ analysis of the shift in corporate power from owners to
          managers;
(c) Ronald Coarse’s seminal work on the importance of “transaction costs” in
          influencing the formation of firms;
(d) None of the above;