Question 1

During a housing bubble, people continue to buy houses because

Accepted Answer

A)  they expect house price to continue to rise. 
B)  they are able to get loans at high interest rates. 
C)  the government guarantees house value won't fall. 
D)  all of the above. 
A)  they expect house price to continue to rise. 
B)  they are able to get loans at high interest rates. 
C)  the government guarantees house value won't fall. 
D)  all of the above.

Question 2

Bailouts often involve taxpayer money.

Accepted Answer

A) True 
 B)False

Question 3

"Under water" means an investor has negative equity.

Accepted Answer

A) True 
 B)False

Question 4

A corporate bond is an example of a securitized asset.

Accepted Answer

A) True 
 B)False

Question 5

Asymmetric information problems are more severe during a financial panic.

Accepted Answer

A) True 
 B)False

Question 6

To help minimize the financial crisis of 2007-2009, the government

Accepted Answer

A)  lent money to replace private sector funds. 
B)  lowered tariffs 
C)  raised interest rates. 
D)  all of the above. 
A)  lent money to replace private sector funds. 
B)  lowered tariffs 
C)  raised interest rates. 
D)  all of the above.

Question 7

What is the primary reason a financial panic can spread to the rest of the economy?

Accepted Answer

A panic can lead to

Question 8

Subprime mortgages refer to home loans

Accepted Answer

A)  to high risk borrowers. 
B)  for real estate with rising prices. 
C)  at below market interest rates. 
D)  all of the above. 
A)  to high risk borrowers. 
B)  for real estate with rising prices. 
C)  at below market interest rates. 
D)  all of the above.

Question 9

A lender of last resort is always a government agency.

Accepted Answer

A) True 
 B)False

Question 10

The Federal Reserve was forced to take over AIG to alleviate the panic in 2008.

Accepted Answer

A) True 
 B)False

Question 11

Bailouts are intended to

Accepted Answer

A)  increase the liquidity in financial institutions. 
B)  prevent insolvencies. 
C)  restrain money supply growth. 
D)  all of the above. 
A)  increase the liquidity in financial institutions. 
B)  prevent insolvencies. 
C)  restrain money supply growth. 
D)  all of the above.

Question 12

Samantha and Jamaal both invest in a stock whose price goes from $40 to $50 after one year and $60 the next. Samantha borrowed 25% of the money to invest while Jamaal borrowed none. Find their effective rates of return on the initial price, ignoring the cost of borrowing.

Accepted Answer

Jamaal's rate of return is 25%

Question 13

All of the following EXCEPT one would have a strong propensity to initiate a financial crisis. Which is the exception?

Accepted Answer

A)  increases in uncertainty 
B)  increases in interest rates 
C)  balance sheet deterioration 
D)  exchange rate appreciation 
A)  increases in uncertainty 
B)  increases in interest rates 
C)  balance sheet deterioration 
D)  exchange rate appreciation

Question 14

Lenders of last resort intend to

Accepted Answer

A)  increase the capital in financial institutions. 
B)  restore confidence in financial markets. 
C)  restrain money supply growth. 
D)  all of the above. 
A)  increase the capital in financial institutions. 
B)  restore confidence in financial markets. 
C)  restrain money supply growth. 
D)  all of the above.

Question 15

The stock market crash of 1929 turned into a systemic crisis.

Accepted Answer

A) True 
 B)False

Question 16

Musharakah are:

Accepted Answer

A)  joint ventures. 
B)  based on equity-ownership and a partnership relationship loans. 
C)  both a and b. 
D)  none of the above. 
A)  joint ventures. 
B)  based on equity-ownership and a partnership relationship loans. 
C)  both a and b. 
D)  none of the above.

Question 17

A stock market bubble can arise

Accepted Answer

A)  due to a technological advance. 
B)  due to lowering of lending standards. 
C)  due to self-fulfilling expectations. 
D)  all of the above. 
A)  due to a technological advance. 
B)  due to lowering of lending standards. 
C)  due to self-fulfilling expectations. 
D)  all of the above.

Question 18

Riba is

Accepted Answer

A)  prohibited under the Quran. 
B)  allowed under the Quran. 
C)  permitted only in very specific circumstances under the Quran. 
D)  all of the above. 
A)  prohibited under the Quran. 
B)  allowed under the Quran. 
C)  permitted only in very specific circumstances under the Quran. 
D)  all of the above.

Question 19

Explain why an increase in stock prices is not necessarily a bubble.

Accepted Answer

An increase in stock

Exam 13: Financial Crises: Causes and Consequences

During a housing bubble, people continue to buy houses because

Bailouts often involve taxpayer money.

"Under water" means an investor has negative equity.

A corporate bond is an example of a securitized asset.

Asymmetric information problems are more severe during a financial panic.

To help minimize the financial crisis of 2007-2009, the government

What is the primary reason a financial panic can spread to the rest of the economy?

Subprime mortgages refer to home loans

A lender of last resort is always a government agency.

The Federal Reserve was forced to take over AIG to alleviate the panic in 2008.

Bailouts are intended to

Samantha and Jamaal both invest in a stock whose price goes from $40 to $50 after one year and $60 the next. Samantha borrowed 25% of the money to invest while Jamaal borrowed none. Find their effective rates of return on the initial price, ignoring the cost of borrowing.

All of the following EXCEPT one would have a strong propensity to initiate a financial crisis. Which is the exception?

Lenders of last resort intend to

The stock market crash of 1929 turned into a systemic crisis.

Musharakah are:

A stock market bubble can arise

Riba is

Explain why an increase in stock prices is not necessarily a bubble.

The Financial System

Money

Interest Rates

The Economics of Interest-Rate Fluctuations

The Economics of Interest-Rate Spreads and Yield Curves

Rational Expectations, Efficient Markets, and the Valuation of Corporate Equities

Financial Structure, Transaction Costs, and Asymmetric Information

Bank Management

Innovation and Structure in Banking and Finance

The Economics of Financial Regulation

Financial Derivatives

Central Bank Form and Function

The Money Supply Process and the Money Multipliers

Monetary Policy Tools

Monetary Policy Targets and Goals

Foreign Exchange

International Monetary Regimes

Money Demand

Is-Lm

Is-Lm in Action

Aggregate Supply and Demand and the Growth Diamond

Monetary Policy Transmission Mechanisms

Inflation and Money

Rational Expectations Redux: Monetary Policy Implications

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