Question 1

Factors that lead to worsening conditions in financial markets include

Accepted Answer

A) declining interest rates. 
B) anticipated increases in the price level. 
C) bank panics. 
D) only A and C of the above. 
E) only B and C of the above. 
A) declining interest rates. 
B) anticipated increases in the price level. 
C) bank panics. 
D) only A and C of the above. 
E) only B and C of the above.

Question 2

Stock market declines preceded a full-blown financial crisis

Accepted Answer

A) in the United States in 1987. 
B) in the United States in 2000. 
C) in Indonesia in 1997. 
D) in all of the above. 
E) in none of the above. 
A) in the United States in 1987. 
B) in the United States in 2000. 
C) in Indonesia in 1997. 
D) in all of the above. 
E) in none of the above.

Question 3

In an emerging market economy, a country typically faces a ________ fiscal policy before a crisis initiates.

Accepted Answer

A) solid 
B) poor 
C) weakening 
D) uncertain 
A) solid 
B) poor 
C) weakening 
D) uncertain

Question 4

Describe the sequence of events in a financial crisis in an advanced economy and explain why they can cause economic activity to decline.

Accepted Answer

A financial crisis in an advanced econom

Question 5

The Internet stock market bubble of the late 1990s led to one of the worst financial crises in U.S. history. Banks lost billions of dollars as Internet companies went bankrupt.

Accepted Answer

A) True 
 B)False

Question 6

In an advanced economy, a financial crisis can begin in several ways, including:

Accepted Answer

A) mismanagement of financial liberalization or innovation. 
B) asset pricing booms and busts. 
C) an increase in uncertainty caused by failure of financial institutions. 
D) all of the above. 
A) mismanagement of financial liberalization or innovation. 
B) asset pricing booms and busts. 
C) an increase in uncertainty caused by failure of financial institutions. 
D) all of the above.

Question 7

Debt deflation refers to

Accepted Answer

A) an increase in net worth, leading to a relative fall in general debt levels. 
B) a decline in general debt levels due to deleveraging. 
C) a decline in bond prices as default rates rise. 
D) a decline in net worth as price levels fall while debt burden remains unchanged. 
A) an increase in net worth, leading to a relative fall in general debt levels. 
B) a decline in general debt levels due to deleveraging. 
C) a decline in bond prices as default rates rise. 
D) a decline in net worth as price levels fall while debt burden remains unchanged.

Question 8

The impact of the 2007-2009 financial crisis was widespread, including

Accepted Answer

A) the first major bank failure in the UK in over 100 years. 
B) the failure of Bear Stearns, the fifth-largest U.S. investment bank. 
C) the bailout of Fannie Mae and Freddie Mac by the U.S. Treasury. 
D) all of the above. 
E) only B and C of the above. 
A) the first major bank failure in the UK in over 100 years. 
B) the failure of Bear Stearns, the fifth-largest U.S. investment bank. 
C) the bailout of Fannie Mae and Freddie Mac by the U.S. Treasury. 
D) all of the above. 
E) only B and C of the above.

Question 9

What is the problem with government safety nets, such as deposit insurance, during the formative stages of a financial crisis?

Accepted Answer

The answer of What is the problem with government safety...

Question 10

Debt deflation refers to the decline in debt values as creditors agree to lower interest rates as an alternative to defaults.

Accepted Answer

A) True 
 B)False

Question 11

Most financial crises in the United States have begun with

Accepted Answer

A) a steep stock market decline. 
B) an increase in uncertainty resulting from the failure of a major firm. 
C) a steep decline in interest rates. 
D) all of the above. 
E) only A and B of the above. 
A) a steep stock market decline. 
B) an increase in uncertainty resulting from the failure of a major firm. 
C) a steep decline in interest rates. 
D) all of the above. 
E) only A and B of the above.

Question 12

In an emerging market economy, a financial crisis generally begins with

Accepted Answer

A) mismanagement of financial liberalization or innovation. 
B) asset pricing booms and busts. 
C) an increase in uncertainty caused by failure of financial institutions. 
D) all of the above. 
A) mismanagement of financial liberalization or innovation. 
B) asset pricing booms and busts. 
C) an increase in uncertainty caused by failure of financial institutions. 
D) all of the above.

Question 13

In an emerging market economy, the financial globalization process further weakens the credit culture by allowing domestic banks to borrow abroad.

Accepted Answer

A) True 
 B)False

Question 14

Stage Three of a financial crisis in an advanced economy features

Accepted Answer

A) a general increase in inflation. 
B) debt deflation. 
C) an increase in general price levels. 
D) a full-fledged financial crisis. 
A) a general increase in inflation. 
B) debt deflation. 
C) an increase in general price levels. 
D) a full-fledged financial crisis.

Question 15

Why was the shadow banking system important during the 2007-2009 U.S. financial crisis?

Accepted Answer

The shadow banking system played a cruci

Question 16

The failure of Ohio Life Insurance and Trust in 1857 did not signal the start of a recession due to prompt actions by the Fed.

Accepted Answer

A) True 
 B)False

Question 17

In an emerging market economy, bank regulators typically provide ________ supervision.

Accepted Answer

A) overbearing 
B) adequate 
C) weak 
D) expert 
A) overbearing 
B) adequate 
C) weak 
D) expert

Question 18

Factors that lead to worsening conditions in financial markets include

Accepted Answer

A) increases in interest rates. 
B) declining stock prices. 
C) increasing uncertainty in financial markets. 
D) all of the above. 
E) only A and B of the above. 
A) increases in interest rates. 
B) declining stock prices. 
C) increasing uncertainty in financial markets. 
D) all of the above. 
E) only A and B of the above.

Question 19

During the 1800s, many U.S. financial crises were precipitated by an increase in ________, often originating in London.

Accepted Answer

A) interest rates 
B) housing prices 
C) gasoline prices 
D) heating oil prices 
A) interest rates 
B) housing prices 
C) gasoline prices 
D) heating oil prices

Question 20

Prior to the financial crisis in Mexico in 1994, Mexico ran a budget deficit of around ________ of GDP.

Accepted Answer

A) 120% 
B) 40% 
C) 15% 
D) 1% 
A) 120% 
B) 40% 
C) 15% 
D) 1%

Exam 8: Why Do Financial Crises Occur and Why Are They so Damaging to the Economy

Factors that lead to worsening conditions in financial markets include

Stock market declines preceded a full-blown financial crisis

In an emerging market economy, a country typically faces a ________ fiscal policy before a crisis initiates.

Describe the sequence of events in a financial crisis in an advanced economy and explain why they can cause economic activity to decline.

The Internet stock market bubble of the late 1990s led to one of the worst financial crises in U.S. history. Banks lost billions of dollars as Internet companies went bankrupt.

In an advanced economy, a financial crisis can begin in several ways, including:

Debt deflation refers to

The impact of the 2007-2009 financial crisis was widespread, including

What is the problem with government safety nets, such as deposit insurance, during the formative stages of a financial crisis?

Debt deflation refers to the decline in debt values as creditors agree to lower interest rates as an alternative to defaults.

Most financial crises in the United States have begun with

In an emerging market economy, a financial crisis generally begins with

In an emerging market economy, the financial globalization process further weakens the credit culture by allowing domestic banks to borrow abroad.

Stage Three of a financial crisis in an advanced economy features

Why was the shadow banking system important during the 2007-2009 U.S. financial crisis?

The failure of Ohio Life Insurance and Trust in 1857 did not signal the start of a recession due to prompt actions by the Fed.

In an emerging market economy, bank regulators typically provide ________ supervision.

Factors that lead to worsening conditions in financial markets include

During the 1800s, many U.S. financial crises were precipitated by an increase in ________, often originating in London.

Prior to the financial crisis in Mexico in 1994, Mexico ran a budget deficit of around ________ of GDP.

Why Study Financial Markets and Institutions

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation

Why Do Interest Rates Change

How Do Risk and Term Structure Affect Interest Rates

Are Financial Markets Efficient

Why Do Financial Institutions Exist

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging With Financial Derivatives

Savings Associations and Credit Unions

Finance Companies

Filters