Question 1

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

Accepted Answer

A panic can lead to a disruption of lending to all sectors of the economy.

Question 2

A financial panic causes a lack of liquidity.

Accepted Answer

A) True 
 B)False  True

Question 3

When the Treasury Department recapitalized some banks, they were

Accepted Answer

A)  engaged in a bailout. 
B)  operating as a lender of last resort. 
C)  decreasing the money supply. 
D)  all of the above. 
A)  engaged in a bailout. 
B)  operating as a lender of last resort. 
C)  decreasing the money supply. 
D)  all of the above. A

Question 4

Loan calls are more likely during a panic.

Accepted Answer

A) True 
 B)False

Question 5

When the Fed bought commercial paper (short term loans to established firms), they were

Accepted Answer

A)  engaged in a bailout. 
B)  operating as a lender of last resort. 
C)  decreasing the money supply. 
D)  all of the above. 
A)  engaged in a bailout. 
B)  operating as a lender of last resort. 
C)  decreasing the money supply. 
D)  all of the above.

Question 6

Ignoring borrowing costs, an investor who borrows three-quarters of the funds to invest in an asset that rises from $100 to $175 makes an effective rate of return of

Accepted Answer

A)  75%. 
B)  400%. 
C)  700%. 
D)  none of the above. 
A)  75%. 
B)  400%. 
C)  700%. 
D)  none of the above.

Question 7

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 8

An investor borrows half the funds to buy a stock at a price of $100. If the price falls to $80, his or her effective rate of return is

Accepted Answer

A)  -20% + borrowing costs. 
B)  -40% + borrowing costs. 
C)  -70% + borrowing costs. 
D)  none of the above. 
A)  -20% + borrowing costs. 
B)  -40% + borrowing costs. 
C)  -70% + borrowing costs. 
D)  none of the above.

Question 9

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 10

What does MBS stand for?

Accepted Answer

mortgage b

Question 11

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 12

Only a leveraged investor can end up with negative equity when a stock market bubble bursts.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A)  lent money to replace private sector funds. 
B)  bailed out failing financial institutions. 
C)  lowered interest rates. 
D)  all of the above. 
A)  lent money to replace private sector funds. 
B)  bailed out failing financial institutions. 
C)  lowered interest rates. 
D)  all of the above.

Question 15

A technological advance can lead to an increase in stock prices primarily through

Accepted Answer

A)  lower interest rates. 
B)  higher expected earnings. 
C)  higher levels of lending. 
D)  none of the above. 
A)  lower interest rates. 
B)  higher expected earnings. 
C)  higher levels of lending. 
D)  none of the above.

Question 16

Asymmetric information problems are more severe during a financial panic.

Accepted Answer

A) True 
 B)False

Question 17

Higher expected future stock prices can lead to increasing prices without any change in the profitability of the firms.

Accepted Answer

A) True 
 B)False

Question 18

Lower levels of leverage can make a financial panic more severe.

Accepted Answer

A) True 
 B)False

Question 19

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 20

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.

Exam 13: Financial Crises: Causes and Consequences

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

A financial panic causes a lack of liquidity.

When the Treasury Department recapitalized some banks, they were

Loan calls are more likely during a panic.

When the Fed bought commercial paper (short term loans to established firms), they were

Ignoring borrowing costs, an investor who borrows three-quarters of the funds to invest in an asset that rises from $100 to $175 makes an effective rate of return of

During a housing bubble, people continue to buy houses because

An investor borrows half the funds to buy a stock at a price of $100. If the price falls to $80, his or her effective rate of return is

Riba is

What does MBS stand for?

Subprime mortgages refer to home loans

Only a leveraged investor can end up with negative equity when a stock market bubble bursts.

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

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

A technological advance can lead to an increase in stock prices primarily through

Asymmetric information problems are more severe during a financial panic.

Higher expected future stock prices can lead to increasing prices without any change in the profitability of the firms.

Lower levels of leverage can make a financial panic more severe.

Lenders of last resort intend to

Musharakah are:

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

Filters