Question 1

A cause of the financial crisis of 2007-2009 was the general belief that housing prices would rise indefinitely.

Accepted Answer

A) True 
 B)False

Question 2

By allowing Lehman to fail, the Federal Reserve worsened the moral hazard problem between regulators and financial institutions.

Accepted Answer

A) True 
 B)False

Question 3

A stock market bubble can start due to

Accepted Answer

A)  low interest rates. 
B)  high expected dividends. 
C)  high levels of lending. 
D)  all of the above. 
A)  low interest rates. 
B)  high expected dividends. 
C)  high levels of lending. 
D)  all of the above.

Question 4

Which of the following institutions was allowed to fail?

Accepted Answer

A)  AIG 
B)  Lehman Brothers 
C)  Bear Stearns 
D)  none of the above 
A)  AIG 
B)  Lehman Brothers 
C)  Bear Stearns 
D)  none of the above

Question 5

Which government action involves putting taxpayer money at risk?

Accepted Answer

A)  lowering interest rates 
B)  bailout 
C)  lender of last resort 
D)  none of the above 
A)  lowering interest rates 
B)  bailout 
C)  lender of last resort 
D)  none of the above

Question 6

An investor borrows 20% of the funds to buy a stock at a price of $100. If the price falls to 50, his or her effective rate of return is

Accepted Answer

A)  -20% + borrowing costs. 
B)  -50% + borrowing costs. 
C)  -62.5% + borrowing costs. 
D)  -66.6% + borrowing costs. 
A)  -20% + borrowing costs. 
B)  -50% + borrowing costs. 
C)  -62.5% + borrowing costs. 
D)  -66.6% + borrowing costs.

Question 7

Explain why securitization led to an erosion of lending standards.

Accepted Answer

Banks who sold mortgage backed

Question 8

How do IBs stop depositor runs?

Accepted Answer

IBs can stop deposit

Question 9

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 10

Lenders of last resort intend to

Accepted Answer

A)  add liquidity to financial markets. 
B)  restore confidence in financial markets. 
C)  lower interest rates. 
D)  all of the above. 
A)  add liquidity to financial markets. 
B)  restore confidence in financial markets. 
C)  lower interest rates. 
D)  all of the above.

Question 11

The housing bubble leading up to the financial crisis of 2007-2009 was exacerbated by

Accepted Answer

A)  rising mortgage rates. 
B)  Treasury Department purchase of CDOs. 
C)  NINJA loans. 
D)  all of the above. 
A)  rising mortgage rates. 
B)  Treasury Department purchase of CDOs. 
C)  NINJA loans. 
D)  all of the above.

Question 12

During the 2007-2009 financial crisis, the government acted as a lender of last resort but did not use bailouts.

Accepted Answer

A) True 
 B)False

Question 13

The Federal Reserve is the most common lender of last resort.

Accepted Answer

A) True 
 B)False

Question 14

In Islamic insurance, or , participants contribute to a common fund, and settlements are settled from that fund.

Accepted Answer

A) True 
 B)False

Question 15

Ignoring borrowing costs, an investor who borrows half the funds to invest in an asset that rises from $200 to $300 makes an effective rate of return of

Accepted Answer

A)  30%. 
B)  50%. 
C)  100%. 
D)  300%. 
A)  30%. 
B)  50%. 
C)  100%. 
D)  300%.

Question 16

What classifies a financial instrument as ?

Accepted Answer

halalTo be considered halal, M

Question 17

Some would argue that the government should not engage in most bailouts due to moral hazard. Explain their reasoning and the nature of the asymmetric information problem.

Accepted Answer

If financial firms know they w

Question 18

What meant by deleveraging? What role does it play in a credit crunch?

Accepted Answer

When asset prices fall and uncertainty r

Question 19

Bailouts are intended to

Accepted Answer

A)  increase the capital in financial institutions. 
B)  restore confidence in financial markets. 
C)  prevent insolvencies. 
D)  all of the above. 
A)  increase the capital in financial institutions. 
B)  restore confidence in financial markets. 
C)  prevent insolvencies. 
D)  all of the above.

Exam 13: Financial Crises: Causes and Consequences

A cause of the financial crisis of 2007-2009 was the general belief that housing prices would rise indefinitely.

By allowing Lehman to fail, the Federal Reserve worsened the moral hazard problem between regulators and financial institutions.

A stock market bubble can start due to

Which of the following institutions was allowed to fail?

Which government action involves putting taxpayer money at risk?

An investor borrows 20% of the funds to buy a stock at a price of $100. If the price falls to 50, his or her effective rate of return is

Explain why securitization led to an erosion of lending standards.

How do IBs stop depositor runs?

A stock market bubble can arise

Lenders of last resort intend to

The housing bubble leading up to the financial crisis of 2007-2009 was exacerbated by

During the 2007-2009 financial crisis, the government acted as a lender of last resort but did not use bailouts.

The Federal Reserve is the most common lender of last resort.

In Islamic insurance, or , participants contribute to a common fund, and settlements are settled from that fund.

Ignoring borrowing costs, an investor who borrows half the funds to invest in an asset that rises from $200 to $300 makes an effective rate of return of

What classifies a financial instrument as ?

Some would argue that the government should not engage in most bailouts due to moral hazard. Explain their reasoning and the nature of the asymmetric information problem.

What meant by deleveraging? What role does it play in a credit crunch?

Bailouts are intended to

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

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Rational Expectations Redux: Monetary Policy Implications

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