Question 1

Which of the following is among the possible reasons that the 2007-2009 financial crisis did not result in an economic depression?

Accepted Answer

A) the declaration of a bank holiday by the nation's President 
B) international policy coordination 
C) strict reliance on conventional monetary policy 
D) government spending restraint 
A) the declaration of a bank holiday by the nation's President 
B) international policy coordination 
C) strict reliance on conventional monetary policy 
D) government spending restraint B

Question 2

A likely consequence of deposit insurance,ceteris paribus,is ________.

Accepted Answer

A) an increase in risk-taking by banks 
B) a bank panic 
C) a credit boom 
D) a reduction in the severity of adverse selection 
A) an increase in risk-taking by banks 
B) a bank panic 
C) a credit boom 
D) a reduction in the severity of adverse selection A

Question 3

________ refers to a decrease in the willingness of banks to lend,while an impairment of the ability of nonfinancial firms to borrow is a consequence of ________.

Accepted Answer

A) Adverse selection;moral hazard 
B) Deleveraging;debt deflation 
C) Fire sales;a bank panic 
D) The shadow banking system;agency theory 
A) Adverse selection;moral hazard 
B) Deleveraging;debt deflation 
C) Fire sales;a bank panic 
D) The shadow banking system;agency theory B

Question 4

Central bank lending to bail out troubled firms is known as ________,while allowing troubled firms to conceal the true value of their assets is called ________.

Accepted Answer

A) crony capitalism;larceny 
B) liquidity provision;regulatory forbearance 
C) securitization;nonconventional monetary policy 
D) subprime lending;regulatory arbitrage 
A) crony capitalism;larceny 
B) liquidity provision;regulatory forbearance 
C) securitization;nonconventional monetary policy 
D) subprime lending;regulatory arbitrage

Question 5

The Great Depression ________.

Accepted Answer

A) was largely confined to the United States 
B) was largely confined to European markets 
C) was largely confined to Asian markets 
D) was worldwide in scope 
A) was largely confined to the United States 
B) was largely confined to European markets 
C) was largely confined to Asian markets 
D) was worldwide in scope

Question 6

Attempts by a central bank to increase bank deposits without a decrease in nominal short-term interest rates are referred to as ________.

Accepted Answer

A) quantitative easing 
B) credit channeling 
C) open market operations 
D) liquidity provision 
A) quantitative easing 
B) credit channeling 
C) open market operations 
D) liquidity provision

Question 7

An asset-price bubble entails ________.

Accepted Answer

A) increasing the value of one's assets to cover liability losses 
B) an increase in asset prices above their fundamental economic value 
C) reducing the number of participants in the underlying financial derivatives market 
D) an economic skins game 
A) increasing the value of one's assets to cover liability losses 
B) an increase in asset prices above their fundamental economic value 
C) reducing the number of participants in the underlying financial derivatives market 
D) an economic skins game

Question 8

In the event that nominal short-term interest rates cannot be lowered further,the Federal Reserve might rely on ________.

Accepted Answer

A) federal government fiscal policy 
B) targeting the fed funds rate 
C) quantitative easing 
D) targeting the inflation rate 
A) federal government fiscal policy 
B) targeting the fed funds rate 
C) quantitative easing 
D) targeting the inflation rate

Question 9

Asset-price bubbles ________.

Accepted Answer

A) impact the macroeconomy only when they burst 
B) are easily recognized by market participants 
C) always involve overly optimistic expectations 
D) are unlikely to occur when credit is readily available 
A) impact the macroeconomy only when they burst 
B) are easily recognized by market participants 
C) always involve overly optimistic expectations 
D) are unlikely to occur when credit is readily available

Question 10

What are the effects of a financial crisis on short-run aggregate supply? How might long-run aggregate supply be affected?

Accepted Answer

A financial crisis affects short-run agg

Question 11

From 1995-2007,the Irish economy ________.

Accepted Answer

A) suffered from severe unemployment,famine and labor migration 
B) witnessed a boom in the real economy,but suffered through a collapse in asset prices 
C) enjoyed one of the highest growth rates in the world 
D) suffered through a period of prolonged deflation 
A) suffered from severe unemployment,famine and labor migration 
B) witnessed a boom in the real economy,but suffered through a collapse in asset prices 
C) enjoyed one of the highest growth rates in the world 
D) suffered through a period of prolonged deflation

Question 12

A $100 million loan with a haircut of four percent requires collateral valued at ________.

Accepted Answer

A) $104 million 
B) $96 million 
C) $4 million 
D) $400,000 
A) $104 million 
B) $96 million 
C) $4 million 
D) $400,000

Question 13

The notion that lenders must select from a pool of bad credit risks,because the most undesirable borrowers are those that most actively seek out a loan is known as the ________.

Accepted Answer

A) moral hazard problem 
B) ornamental torsion problem 
C) adverse selection problem 
D) asymmetric innovation problem 
A) moral hazard problem 
B) ornamental torsion problem 
C) adverse selection problem 
D) asymmetric innovation problem

Question 14

Financial innovations may be expected to cause a decline in ________.

Accepted Answer

A) financial frictions 
B) the credit spread 
C) the real interest rate on investments 
D) all of the above 
E) none of the above 
A) financial frictions 
B) the credit spread 
C) the real interest rate on investments 
D) all of the above 
E) none of the above

Question 15

How is a financial crisis like a power blackout?

Accepted Answer

A blackout occurs when a breakdown at on

Question 16

Which of the following statements is correct?

Accepted Answer

A) assets plus liabilities equal net worth 
B) liabilities plus net worth equal assets 
C) assets plus net worth equal liabilities 
D) liabilities minus net worth equal assets 
A) assets plus liabilities equal net worth 
B) liabilities plus net worth equal assets 
C) assets plus net worth equal liabilities 
D) liabilities minus net worth equal assets

Question 17

The most important component of the Economic Recovery Act passed by the Bush Administration was ________.

Accepted Answer

A) the creation of the Federal Reserve discount window 
B) the establishment of the Troubled Asset Relief Program (TARP) 
C) the decrease in taxes for the wealthiest one percent of all Americans 
D) the creation of the Federal Reserve 
A) the creation of the Federal Reserve discount window 
B) the establishment of the Troubled Asset Relief Program (TARP) 
C) the decrease in taxes for the wealthiest one percent of all Americans 
D) the creation of the Federal Reserve

Question 18

Subprime borrowers ________.

Accepted Answer

A) are those individuals who owe more on their mortgage than the value of their home 
B) possess a relatively low FICO score 
C) rely on mortgage-backed securities to support their mortgage applications 
D) are those with an income level below the value of their mortgage 
A) are those individuals who owe more on their mortgage than the value of their home 
B) possess a relatively low FICO score 
C) rely on mortgage-backed securities to support their mortgage applications 
D) are those with an income level below the value of their mortgage

Question 19

Compared to the central bank response to the financial crisis in 2007-2009,the response to the Great Depression of the 1930s may be characterized as ________,while the response of Japan's central bank to the banking crisis in the early 1990s merits the label ________.

Accepted Answer

A) hasty;sluggish 
B) intrusive;tenacious 
C) complacent;indulgent 
D) corrupt;technocratic 
A) hasty;sluggish 
B) intrusive;tenacious 
C) complacent;indulgent 
D) corrupt;technocratic

Question 20

Assume that a firm has $100 million in real assets and $90 in real liabilities.If the price level rise by ten percent,the real value of its assets would ________.

Accepted Answer

A) fall 
B) rise 
C) change,but more information must be provided to determine their exact movement 
D) remain unchanged 
A) fall 
B) rise 
C) change,but more information must be provided to determine their exact movement 
D) remain unchanged

Exam 15: Financial Crises and the Economy

Which of the following is among the possible reasons that the 2007-2009 financial crisis did not result in an economic depression?

A likely consequence of deposit insurance,ceteris paribus,is ________.

________ refers to a decrease in the willingness of banks to lend,while an impairment of the ability of nonfinancial firms to borrow is a consequence of ________.

Central bank lending to bail out troubled firms is known as ________,while allowing troubled firms to conceal the true value of their assets is called ________.

The Great Depression ________.

Attempts by a central bank to increase bank deposits without a decrease in nominal short-term interest rates are referred to as ________.

An asset-price bubble entails ________.

In the event that nominal short-term interest rates cannot be lowered further,the Federal Reserve might rely on ________.

Asset-price bubbles ________.

What are the effects of a financial crisis on short-run aggregate supply? How might long-run aggregate supply be affected?

From 1995-2007,the Irish economy ________.

A $100 million loan with a haircut of four percent requires collateral valued at ________.

The notion that lenders must select from a pool of bad credit risks,because the most undesirable borrowers are those that most actively seek out a loan is known as the ________.

Financial innovations may be expected to cause a decline in ________.

How is a financial crisis like a power blackout?

Which of the following statements is correct?

The most important component of the Economic Recovery Act passed by the Bush Administration was ________.

Subprime borrowers ________.

Compared to the central bank response to the financial crisis in 2007-2009,the response to the Great Depression of the 1930s may be characterized as ________,while the response of Japan's central bank to the banking crisis in the early 1990s merits the label ________.

Assume that a firm has $100 million in real assets and $90 in real liabilities.If the price level rise by ten percent,the real value of its assets would ________.

The Policy and Practice of Macroeconomics

Measuring Macroeconomic Data

Aggregate Production and Productivity

Saving and Investment in Closed and Open Economies

Money and Inflation

The Sources of Growth and the Solow Model

Drivers of Growth: Technology, policy, and Institutions

Business Cycles: an Introduction

The Is Curve

Monetary Policy and Aggregate Demand

Aggregate Supply and the Phillips Curve

The Aggregate Demand and Supply Model

Macroeconomic Policy and Aggregate Demand and Supply Analysis

The Financial System and Economic Growth

Fiscal Policy and the Government Budget

Exchange Rates and International Economic Policy

Consumption and Saving

Investment

The Labor Market, employment, and Unemployment

The Role of Expectations in Macroeconomic Policy

Modern Business Cycle Theory

Filters

refers to a decrease in the willingness of banks to lend,while an impairment of the ability of nonfinancial firms to borrow is a consequence of .

Central bank lending to bail out troubled firms is known as ,while allowing troubled firms to conceal the true value of their assets is called .

Compared to the central bank response to the financial crisis in 2007-2009,the response to the Great Depression of the 1930s may be characterized as ,while the response of Japan's central bank to the banking crisis in the early 1990s merits the label .