Question 1

Suppose the budget deficit is rising 3 per cent per year and nominal GDP is rising 5 per cent per year.The debt created by these continuing deficits is

Accepted Answer

A) sustainable, but the future burden on your children cannot be offset. 
B) sustainable, and the future burden on your children can be offset if you save for them. 
C) not sustainable, and the future burden on your children cannot be offset. 
D) not sustainable, but the future burden on your children can be offset if you save for them. 
A) sustainable, but the future burden on your children cannot be offset. 
B) sustainable, and the future burden on your children can be offset if you save for them. 
C) not sustainable, and the future burden on your children cannot be offset. 
D) not sustainable, but the future burden on your children can be offset if you save for them. B

Question 2

The _____________ is that part of the economy associated with the buying and selling of assets on financial markets.

Accepted Answer

A) flat economy 
B) shadow economy 
C) real economy 
D) financial economy 
A) flat economy 
B) shadow economy 
C) real economy 
D) financial economy D

Question 3

An accounting practice whereby a firm values assets at current market prices is called

Accepted Answer

A) market fluctuations. 
B) mark-to-market. 
C) go-to-market. 
D) market swaps. 
A) market fluctuations. 
B) mark-to-market. 
C) go-to-market. 
D) market swaps. B

Question 4

Securitization of assets became more popular because it enabled banks to generate additional reserve assets on its books, and thus allowed them to expand lending.

Accepted Answer

A) True 
 B)False

Question 5

The main purpose of financial regulation is to

Accepted Answer

A) penalize risk averse fund managers in financial institutions. 
B) ensure monetary policy is carried out in accordance with the Taylor Rule. 
C) create efficiency and equity in financial markets. 
D) monitor the remuneration packages of senior banking officials. 
A) penalize risk averse fund managers in financial institutions. 
B) ensure monetary policy is carried out in accordance with the Taylor Rule. 
C) create efficiency and equity in financial markets. 
D) monitor the remuneration packages of senior banking officials.

Question 6

Credit markets froze because interest rates were so low that banks thought it was not worth it to lend to each other.

Accepted Answer

A) True 
 B)False

Question 7

The shadow banking system refers to financial intermediaries which act like banks but are outside the scope of regulation.

Accepted Answer

A) True 
 B)False

Question 8

During a severe downturn in the economy, a central bank would be most likely to

Accepted Answer

A) increase its base lending rates. 
B) cut interest rates and increase liquidity in the markets. 
C) instruct markets to cut back lending to reduce inflation. 
D) manage its assets so that the exchange rate falls. 
A) increase its base lending rates. 
B) cut interest rates and increase liquidity in the markets. 
C) instruct markets to cut back lending to reduce inflation. 
D) manage its assets so that the exchange rate falls.

Question 9

Why did a rise in interest rates cause such a problem in the sub-prime market?

Accepted Answer

People with poor credit histories were o

Question 10

Suppose that the Spanish economy is experiencing a recession, while other countries in the eurozone are in long run macroeconomic equilibrium.What would happen to interest rates on long term government bonds issued by eurozone governments if the Spanish government were to increase its budget deficit dramatically to finance additional government spending? Explain your answer.

Accepted Answer

Interest rates on eurozone government bo

Question 11

Is it possible that deficits do not burden future generations?

Accepted Answer

Some programs, such as Social Security,

Question 12

What theory states that problems in financial markets can amplify shocks to the real economy and create a feedback loop, which exacerbates economic problems?

Accepted Answer

A) Financial causal theory. 
B) Financial simulation theory. 
C) Financial accelerator theory. 
D) All of the above. 
A) Financial causal theory. 
B) Financial simulation theory. 
C) Financial accelerator theory. 
D) All of the above.

Question 13

The real economy refers to that part of the economy which is concerned with the production of

Accepted Answer

A) stocks and bonds. 
B) Interest rates. 
C) goods and services. 
D) equity. 
A) stocks and bonds. 
B) Interest rates. 
C) goods and services. 
D) equity.

Question 14

The output gap refers to

Accepted Answer

A) the difference between current output and trend output. 
B) the size of a structural deficit. 
C) the difference between economic growth and the level of inflation. 
D) the difference between the natural rate of unemployment and the claimant count. 
A) the difference between current output and trend output. 
B) the size of a structural deficit. 
C) the difference between economic growth and the level of inflation. 
D) the difference between the natural rate of unemployment and the claimant count.

Question 15

Which of the following is not true with regard to government budget deficits?

Accepted Answer

A) Budget deficits reduce capital investment, future productivity and, therefore, future incomes. 
B) Budget deficits place the burden of current spending on future taxpayers. 
C) Budget deficits should be scrutinized because they are the only way to transfer wealth across generations of taxpayers. 
D) Budget deficits reduce national saving. 
A) Budget deficits reduce capital investment, future productivity and, therefore, future incomes. 
B) Budget deficits place the burden of current spending on future taxpayers. 
C) Budget deficits should be scrutinized because they are the only way to transfer wealth across generations of taxpayers. 
D) Budget deficits reduce national saving.

Question 16

The higher a government budget deficit is the more likely

Accepted Answer

A) the risk of default on sovereign debt. 
B) economic growth is to stall. 
C) It is that interest rates will remain stable over the long run. 
D) the economic cycle will be predictable over a period. 
E) it is that tax rates in the country will remain low. 
A) the risk of default on sovereign debt. 
B) economic growth is to stall. 
C) It is that interest rates will remain stable over the long run. 
D) the economic cycle will be predictable over a period. 
E) it is that tax rates in the country will remain low.

Question 17

Asset bubbles can arise because markets ignore fundamentals, and base decisions on future expectations of themselves and others.

Accepted Answer

A) True 
 B)False

Question 18

The idea of a bank being 'too big to fail' means

Accepted Answer

A) it has such a large asset base that its risk of failure is eliminated. 
B) banks become more risk seeking because they believe they will be rescued if they fail. 
C) a lack of competition in financial markets which increases risk aversion. 
D) a reduced likelihood of adverse selection in financial markets. 
A) it has such a large asset base that its risk of failure is eliminated. 
B) banks become more risk seeking because they believe they will be rescued if they fail. 
C) a lack of competition in financial markets which increases risk aversion. 
D) a reduced likelihood of adverse selection in financial markets.

Question 19

Which is NOT a peripheral country within the eurozone?

Accepted Answer

A) Ireland 
B) Germany 
C) Latvia 
D) Portugal 
A) Ireland 
B) Germany 
C) Latvia 
D) Portugal

Question 20

Which increase does not apply to large structural deficits?

Accepted Answer

A) The likelihood of default by governments. 
B) The costs of servicing the debt. 
C) Currency instability. 
D) All of the above. 
A) The likelihood of default by governments. 
B) The costs of servicing the debt. 
C) Currency instability. 
D) All of the above.

Suppose the budget deficit is rising 3 per cent per year and nominal GDP is rising 5 per cent per year.The debt created by these continuing deficits is

The _____________ is that part of the economy associated with the buying and selling of assets on financial markets.

An accounting practice whereby a firm values assets at current market prices is called

Securitization of assets became more popular because it enabled banks to generate additional reserve assets on its books, and thus allowed them to expand lending.

The main purpose of financial regulation is to

Credit markets froze because interest rates were so low that banks thought it was not worth it to lend to each other.

The shadow banking system refers to financial intermediaries which act like banks but are outside the scope of regulation.

During a severe downturn in the economy, a central bank would be most likely to

Why did a rise in interest rates cause such a problem in the sub-prime market?

Is it possible that deficits do not burden future generations?

What theory states that problems in financial markets can amplify shocks to the real economy and create a feedback loop, which exacerbates economic problems?

The real economy refers to that part of the economy which is concerned with the production of

The output gap refers to

Which of the following is not true with regard to government budget deficits?

The higher a government budget deficit is the more likely

Asset bubbles can arise because markets ignore fundamentals, and base decisions on future expectations of themselves and others.

The idea of a bank being 'too big to fail' means

Which is NOT a peripheral country within the eurozone?

Which increase does not apply to large structural deficits?

What Is Economics

Thinking Like an Economist

Measuring a Nations Well-Being

Measuring the Cost of Living

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Basic Tools of Finance

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Business Cycles

Keynesian Economics and the Is-Lm Analysis

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short Run Trade-Off Between Inflation and Unemployment

Supply Side Policies

Common Currency Areas and European Monetary Union

Filters

Exam 19: The Financial Crisis and Sovereign Debt

Suppose the budget deficit is rising 3 per cent per year and nominal GDP is rising 5 per cent per year.The debt created by these continuing deficits is

The _____________ is that part of the economy associated with the buying and selling of assets on financial markets.

An accounting practice whereby a firm values assets at current market prices is called

Securitization of assets became more popular because it enabled banks to generate additional reserve assets on its books, and thus allowed them to expand lending.

The main purpose of financial regulation is to

Credit markets froze because interest rates were so low that banks thought it was not worth it to lend to each other.

The shadow banking system refers to financial intermediaries which act like banks but are outside the scope of regulation.

During a severe downturn in the economy, a central bank would be most likely to

Why did a rise in interest rates cause such a problem in the sub-prime market?

Is it possible that deficits do not burden future generations?

What theory states that problems in financial markets can amplify shocks to the real economy and create a feedback loop, which exacerbates economic problems?

The real economy refers to that part of the economy which is concerned with the production of

The output gap refers to

Which of the following is not true with regard to government budget deficits?

The higher a government budget deficit is the more likely

Asset bubbles can arise because markets ignore fundamentals, and base decisions on future expectations of themselves and others.

The idea of a bank being 'too big to fail' means

Which is NOT a peripheral country within the eurozone?

Which increase does not apply to large structural deficits?

What Is Economics

Thinking Like an Economist

Measuring a Nations Well-Being

Measuring the Cost of Living

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Basic Tools of Finance

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Business Cycles

Keynesian Economics and the Is-Lm Analysis

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short Run Trade-Off Between Inflation and Unemployment

Supply Side Policies

Common Currency Areas and European Monetary Union

Filters