Question 1

Which of the following financial reforms were suggested by the Squam Lake Group?

Accepted Answer

A) allow banks to choose the amount of risk 
B) allow a bank to choose its own regulator 
C) enhance capital requirements 
D) allow bonuses to be paid out for only short-term investments 
E) increase leverage ratios 
A) allow banks to choose the amount of risk 
B) allow a bank to choose its own regulator 
C) enhance capital requirements 
D) allow bonuses to be paid out for only short-term investments 
E) increase leverage ratios

Question 2

When a financial institution is deemed too systematically important to go under,it is __________.This leads to __________.

Accepted Answer

A) a monopoly;above marginal cost pricing 
B) too big to fail;moral hazard 
C) an "umbrella" bank;less competition 
D) a bank holding company;adverse selection 
E) an investment bank;nationalization 
A) a monopoly;above marginal cost pricing 
B) too big to fail;moral hazard 
C) an "umbrella" bank;less competition 
D) a bank holding company;adverse selection 
E) an investment bank;nationalization

Question 3

The Monetary History of the United States,1867-1960 was written by Ben Bernanke and Alan Greenspan.

Accepted Answer

A) True 
 B)False

Question 4

When there is deflation,

Accepted Answer

A) the real interest rate rises. 
B) it has no effect on the output gap. 
C) it has no effect on the unemployment rate. 
D) there is decline in real money. 
E) nominal interest rates are negative. 
A) the real interest rate rises. 
B) it has no effect on the output gap. 
C) it has no effect on the unemployment rate. 
D) there is decline in real money. 
E) nominal interest rates are negative.

Question 5

The Taylor rule predicted federal funds rate (in the text)was derived from which of the following equations?

Accepted Answer

A)    
B)    
C)    
D)    
E)    
A)    
B)    
C)    
D)    
E)

Question 6

When the Fed lowers the nominal interest rate to zero,the real interest rate is   
.

Accepted Answer

A) True 
 B)False

Question 7

Prior to the recent financial crisis,the bulk of the Fed's assets on its balance sheet were __________ and its liabilities were __________.

Accepted Answer

A) U.S.Treasury bills;currency 
B) loans;Treasury accounts 
C) reserves;vault cash 
D) stocks;foreign currency 
E) currency;reserves 
A) U.S.Treasury bills;currency 
B) loans;Treasury accounts 
C) reserves;vault cash 
D) stocks;foreign currency 
E) currency;reserves

Question 8

In the aftermath of the recent financial crisis,the Fed financed its additional lending by printing money.

Accepted Answer

A) True 
 B)False

Question 9

Suppose a bank purchases $100 of an asset.To finance this purchase it uses $99 dollars of borrowed funds and $1 of bank capital.To what does this lead?

Accepted Answer

A) moral hazard 
B) adverse selection 
C) Ricardian equivalence 
D) the Butterfly effect 
E) irrational exuberance 
A) moral hazard 
B) adverse selection 
C) Ricardian equivalence 
D) the Butterfly effect 
E) irrational exuberance

Question 10

The Troubled Asset Relief Program was originally designed to __________ but funds were ultimately used for __________.

Accepted Answer

A) purchase and insure assets held by financial institutions;purchase equity financial institutions and bail out U.S.automakers 
B) nationalize banks;unemployment insurance and financing the wars in Iraq and Afghanistan 
C) bail out banks;purchases of "toxic assets" 
D) bolster bank stock prices;paying bank executive bonuses 
E) prevent takeovers of U.S.banks by foreign nationals;insure assets held by member banks 
A) purchase and insure assets held by financial institutions;purchase equity financial institutions and bail out U.S.automakers 
B) nationalize banks;unemployment insurance and financing the wars in Iraq and Afghanistan 
C) bail out banks;purchases of "toxic assets" 
D) bolster bank stock prices;paying bank executive bonuses 
E) prevent takeovers of U.S.banks by foreign nationals;insure assets held by member banks

Question 11

According to projections by the Congressional Budget Office,the federal budget deficit will __________ by the end of 2009 from __________ in 2008.

Accepted Answer

A) grow to 12 percent of GDP;3 percent of GDP 
B) equal 92 percent of GDP;120 percent of GDP 
C) be -10 percent of GDP;0.2 percent of GDP 
D) grow to 120 percent of GDP;-20 percent of debt 
E) equal 0;-12 percent of GDP 
A) grow to 12 percent of GDP;3 percent of GDP 
B) equal 92 percent of GDP;120 percent of GDP 
C) be -10 percent of GDP;0.2 percent of GDP 
D) grow to 120 percent of GDP;-20 percent of debt 
E) equal 0;-12 percent of GDP

Question 12

The burst of the housing bubble can be represented in the IS-MP model as a(n):

Accepted Answer

A) decline in a¯ . 
B) rise in r¯. 
C) decline in inflation. 
D) increase in m¯ . 
E) rise in a¯ . 
A) decline in a¯ . 
B) rise in r¯. 
C) decline in inflation. 
D) increase in m¯ . 
E) rise in a¯ .

Question 13

Refer to Figure 14.4 below,which shows the inflation rate and ten-year bond yield,for the following questions.  
-Throughout the first three-fourths or so of 2009,

Accepted Answer

A) real interest rate on ten-year bonds was higher than the nominal interest rate. 
B) the ten-year bonds nominal interest rate was higher than the real interest rate. 
C) real interest rate was zero. 
D) real interest rate was negative. 
E) a and d 
A) real interest rate on ten-year bonds was higher than the nominal interest rate. 
B) the ten-year bonds nominal interest rate was higher than the real interest rate. 
C) real interest rate was zero. 
D) real interest rate was negative. 
E) a and d

Question 14

The effect of the subprime loan crisis pushed the __________.This pushes the MP curve __________ and the AD __________.

Accepted Answer

A) risk premium up;up;down 
B) inflation rate up;up;down 
C) unemployment rate down;down;up 
D) risk-free interest rate up;down;up 
E) federal funds rate to zero;down,down 
A) risk premium up;up;down 
B) inflation rate up;up;down 
C) unemployment rate down;down;up 
D) risk-free interest rate up;down;up 
E) federal funds rate to zero;down,down

Question 15

In standard circumstances a firm __________ when its __________.In financial markets this approach didn't work following the ____.

Accepted Answer

A) files for bankruptcy;liabilities exceed its assets;collapse of Lehman Brothers 
B) sells its assets at fire sale prices;profits are negative;AIG debacle 
C) increases its risky holdings;revenues fall;volatility of exchange rates in Japan 
D) borrows liquidity from the Fed;its leverage ratio rises above 75;passage of the TARP legislation 
E) outsources its labor;net revenues are negative;purchase of Merrill Lynch by the Bank of America 
A) files for bankruptcy;liabilities exceed its assets;collapse of Lehman Brothers 
B) sells its assets at fire sale prices;profits are negative;AIG debacle 
C) increases its risky holdings;revenues fall;volatility of exchange rates in Japan 
D) borrows liquidity from the Fed;its leverage ratio rises above 75;passage of the TARP legislation 
E) outsources its labor;net revenues are negative;purchase of Merrill Lynch by the Bank of America

Question 16

In the aftermath of the recent financial crisis,the Fed's assets on its balance sheet grew to include which of the following?

Accepted Answer

A) term auction credit 
B) mortgage backed securities 
C) bank reserves. 
D) a and b 
E) Treasury accounts 
A) term auction credit 
B) mortgage backed securities 
C) bank reserves. 
D) a and b 
E) Treasury accounts

Question 17

Your uncle is pleased to hear you're taking macroeconomics;this whole financial crisis is puzzling him.He's also not happy about "bailing" out the banks.He is pretty good with graphs,so don't be afraid to use them to explain the following:
a.How does the rapid decline of the housing market and the subprime implosion affect the macroeconomy?
b.And why,pray tell,would we bail out the banks? Aren't there potential long-run problems with doing this?

Accepted Answer

a.First,the decline in the housing marke

Question 18

In the IS-MP framework,when the Fed __________ the federal funds rate in the aftermath of the decline in housing prices,the __________ caused a(n)__________ in the real interest rate.

Accepted Answer

A) raised;higher inflation rate;fall 
B) held constant;Okun effect;decline 
C) lowered;risk premium;increase 
D) manipulated;Fisher effect;increase 
E) raised;unemployment rate;fall 
A) raised;higher inflation rate;fall 
B) held constant;Okun effect;decline 
C) lowered;risk premium;increase 
D) manipulated;Fisher effect;increase 
E) raised;unemployment rate;fall

Question 19

When a risk premium is added to the MP curve we have:

Accepted Answer

A)    
B)    
C)    
D)    
E)    
A)    
B)    
C)    
D)    
E)

Question 20

In the aftermath of the financial crisis that began in 2008,the Fed's assets on its balance sheet:

Accepted Answer

A) grew to $100 billion. 
B) shrank to almost zero. 
C) grew to over $2 trillion. 
D) stayed more or less the same. 
E) grew to about $1 trillion. 
A) grew to $100 billion. 
B) shrank to almost zero. 
C) grew to over $2 trillion. 
D) stayed more or less the same. 
E) grew to about $1 trillion.

Which of the following financial reforms were suggested by the Squam Lake Group?

When a financial institution is deemed too systematically important to go under,it is .This leads to .

The Monetary History of the United States,1867-1960 was written by Ben Bernanke and Alan Greenspan.

When there is deflation,

The Taylor rule predicted federal funds rate (in the text)was derived from which of the following equations?

When the Fed lowers the nominal interest rate to zero,the real interest rate is .

Prior to the recent financial crisis,the bulk of the Fed's assets on its balance sheet were and its liabilities were .

In the aftermath of the recent financial crisis,the Fed financed its additional lending by printing money.

Suppose a bank purchases $100 of an asset.To finance this purchase it uses $99 dollars of borrowed funds and $1 of bank capital.To what does this lead?

The Troubled Asset Relief Program was originally designed to but funds were ultimately used for .

According to projections by the Congressional Budget Office,the federal budget deficit will by the end of 2009 from in 2008.

The burst of the housing bubble can be represented in the IS-MP model as a(n):

Refer to Figure 14.4 below,which shows the inflation rate and ten-year bond yield,for the following questions. -Throughout the first three-fourths or so of 2009,

The effect of the subprime loan crisis pushed the .This pushes the MP curve and the AD __.

In standard circumstances a firm ____ when its .In financial markets this approach didn't work following the .

In the aftermath of the recent financial crisis,the Fed's assets on its balance sheet grew to include which of the following?

In the IS-MP framework,when the Fed the federal funds rate in the aftermath of the decline in housing prices,the caused a(n)__ in the real interest rate.

When a risk premium is added to the MP curve we have:

In the aftermath of the financial crisis that began in 2008,the Fed's assets on its balance sheet:

Introduction to Macroeconomics

Measuring the Macroeconomy

An Overview of Long- Run Economic Growth

A Model of Production

The Solow Growth Model

Growth and Ideas

The Labor Market,wages,and Unemployment

Inflation

An Introduction to the Short Run

The Great Recession: a First Look

The Is Curve

Monetary Policy and the Phillips Curve

Stabilization Policy and the Asad Framework

Consumption

Investment

The Government and the Macroeconomy

International Trade

Exchange Rates and International Finance

Parting Thoughts

Filters

Exam 14: The Great Recession and the Short-Run Model

Which of the following financial reforms were suggested by the Squam Lake Group?

When a financial institution is deemed too systematically important to go under,it is __________.This leads to __________.

The Monetary History of the United States,1867-1960 was written by Ben Bernanke and Alan Greenspan.

When there is deflation,

The Taylor rule predicted federal funds rate (in the text)was derived from which of the following equations?

When the Fed lowers the nominal interest rate to zero,the real interest rate is .

Prior to the recent financial crisis,the bulk of the Fed's assets on its balance sheet were __________ and its liabilities were __________.

In the aftermath of the recent financial crisis,the Fed financed its additional lending by printing money.

Suppose a bank purchases $100 of an asset.To finance this purchase it uses $99 dollars of borrowed funds and $1 of bank capital.To what does this lead?

The Troubled Asset Relief Program was originally designed to __________ but funds were ultimately used for __________.

According to projections by the Congressional Budget Office,the federal budget deficit will __________ by the end of 2009 from __________ in 2008.

The burst of the housing bubble can be represented in the IS-MP model as a(n):

Refer to Figure 14.4 below,which shows the inflation rate and ten-year bond yield,for the following questions. -Throughout the first three-fourths or so of 2009,

The effect of the subprime loan crisis pushed the __________.This pushes the MP curve __________ and the AD __________.

In standard circumstances a firm __________ when its __________.In financial markets this approach didn't work following the ____.

In the aftermath of the recent financial crisis,the Fed's assets on its balance sheet grew to include which of the following?

In the IS-MP framework,when the Fed __________ the federal funds rate in the aftermath of the decline in housing prices,the __________ caused a(n)__________ in the real interest rate.

When a risk premium is added to the MP curve we have:

In the aftermath of the financial crisis that began in 2008,the Fed's assets on its balance sheet:

Introduction to Macroeconomics

Measuring the Macroeconomy

An Overview of Long- Run Economic Growth

A Model of Production

The Solow Growth Model

Growth and Ideas

The Labor Market,wages,and Unemployment

Inflation

An Introduction to the Short Run

The Great Recession: a First Look

The Is Curve

Monetary Policy and the Phillips Curve

Stabilization Policy and the Asad Framework

Consumption

Investment

The Government and the Macroeconomy

International Trade

Exchange Rates and International Finance

Parting Thoughts

Filters

When a financial institution is deemed too systematically important to go under,it is .This leads to .

Prior to the recent financial crisis,the bulk of the Fed's assets on its balance sheet were and its liabilities were .

The Troubled Asset Relief Program was originally designed to but funds were ultimately used for .

According to projections by the Congressional Budget Office,the federal budget deficit will by the end of 2009 from in 2008.

The effect of the subprime loan crisis pushed the .This pushes the MP curve and the AD __.

In standard circumstances a firm ____ when its .In financial markets this approach didn't work following the .

In the IS-MP framework,when the Fed the federal funds rate in the aftermath of the decline in housing prices,the caused a(n)__ in the real interest rate.