1. Explain the difference between debt finance and equity finance.

2. What is the main advantage of holding a stock mutual fund rather than an individual stock?

3. What are adverse selection and moral hazard? How do banks mitigate these problems?

4. How does the leverage ratio influence a financial institution’s stability in response to bad economic news?

5. Explain how a financial crisis reduces the aggregate demand for goods and services.

6. What does it mean for a central bank to act as lender of last resort?

7. What are the pros and cons of using public funds to prop up a financial system in crisis?