Question 1

Following the banking crises of the 1930s, both real GDP and the price level increased immediately.

Accepted Answer

A) True 
 B)False

Question 2

The asset bubble in commercial real estate that caused the savings and loan crisis in the 1980s burst because:

Accepted Answer

A) real estate developers built too much office space. 
B) construction costs were too high. 
C) the interest rates on construction loans were unprofitably low for banks. 
D) the government established rent controls on newly constructed office buildings. 
A) real estate developers built too much office space. 
B) construction costs were too high. 
C) the interest rates on construction loans were unprofitably low for banks. 
D) the government established rent controls on newly constructed office buildings.

Question 3

Long-term unemployment is measured by the percentage of the unemployed who have been out of work for:

Accepted Answer

A) a week or longer. 
B) 6 weeks or longer. 
C) 20 weeks or longer. 
D) 27 weeks or longer. 
A) a week or longer. 
B) 6 weeks or longer. 
C) 20 weeks or longer. 
D) 27 weeks or longer.

Question 4

By acting as a lender of last resort, the central bank:

Accepted Answer

A) prevents a loss of confidence in banks and avoids bank runs. 
B) keeps interest rates high so that spending increases. 
C) increases the amount of reserves that a bank is required to hold. 
D) may keep inflation low but will likely drive unemployment up. 
A) prevents a loss of confidence in banks and avoids bank runs. 
B) keeps interest rates high so that spending increases. 
C) increases the amount of reserves that a bank is required to hold. 
D) may keep inflation low but will likely drive unemployment up.

Question 5

The 2008 financial crisis made it clear that banks were overregulated.

Accepted Answer

A) True 
 B)False

Question 6

Financial regulation was not adequate to deal with the 2008 financial crisis because:

Accepted Answer

A) before 2008 banks were very small and could be effectively regulated by the states. 
B) up until the 2008 crisis, the market had worked very well in preventing banking crises, so there was very little need for bank regulation. 
C) the role of shadow banks had become very important, but shadow banks were not subject to banking regulation at the time of the 2008 crisis. 
D) the Supreme Court had ruled that the regulatory powers of the Federal Reserve were unconstitutional and prohibited the Fed from using its regulatory powers. 
A) before 2008 banks were very small and could be effectively regulated by the states. 
B) up until the 2008 crisis, the market had worked very well in preventing banking crises, so there was very little need for bank regulation. 
C) the role of shadow banks had become very important, but shadow banks were not subject to banking regulation at the time of the 2008 crisis. 
D) the Supreme Court had ruled that the regulatory powers of the Federal Reserve were unconstitutional and prohibited the Fed from using its regulatory powers.

Question 7

Lehman Brothers was forced to declare bankruptcy in September 2008, when:

Accepted Answer

A) Barack Obama was elected president. 
B) it purchased Bear Stearns, another investment bank. 
C) one of its short-term lenders, JPMorgan Chase, demanded $5 billion in cash as collateral for loans it had made to Lehman. 
D) the European Union abandoned the euro. 
A) Barack Obama was elected president. 
B) it purchased Bear Stearns, another investment bank. 
C) one of its short-term lenders, JPMorgan Chase, demanded $5 billion in cash as collateral for loans it had made to Lehman. 
D) the European Union abandoned the euro.

Question 8

During banking crises monetary policy is very effective, but fiscal policy is ineffective.

Accepted Answer

A) True 
 B)False

Question 9

Explain how shadow banks, which don't take deposits, can have bank runs.

Accepted Answer

The liabilities that shadow banks use in

Question 10

During the banking crisis of the 1930s, the Federal Reserve:

Accepted Answer

A) ended the crisis by acting aggressively as a lender of last resort. 
B) rushed to guarantee the liabilities of failing banks. 
C) was established to resolve the banking crisis. 
D) had the legal ability to act as a lender of last resort but failed to do so. 
A) ended the crisis by acting aggressively as a lender of last resort. 
B) rushed to guarantee the liabilities of failing banks. 
C) was established to resolve the banking crisis. 
D) had the legal ability to act as a lender of last resort but failed to do so.

Question 11

A financial intermediary that provides liquid assets in the form of deposits to savers and uses its funds to finance illiquid investment spending needs of borrowers is a(n):

Accepted Answer

A) insurance company. 
B) bank. 
C) pension fund. 
D) hedge fund. 
A) insurance company. 
B) bank. 
C) pension fund. 
D) hedge fund.

Question 12

Why are banking-crisis recessions so bad?

Accepted Answer

Banking crises usually lead to recession

Question 13

A shadow bank is a:

Accepted Answer

A) branch of the main office of a bank. 
B) bank that is operated by a shadow government. 
C) financial firm that is not closely watched or effectively regulated. 
D) a credit union or a savings and loan institution. 
A) branch of the main office of a bank. 
B) bank that is operated by a shadow government. 
C) financial firm that is not closely watched or effectively regulated. 
D) a credit union or a savings and loan institution.

Question 14

As a consequence of the Irish banking crisis:

Accepted Answer

A) the budget surplus of the Irish government is growing to record levels. 
B) the Irish government had to pay high interest rates on money it borrowed in international markets, and its solvency was in question. 
C) unemployment fell to less than 3%. 
D) Ireland has been forced to leave the European Union. 
A) the budget surplus of the Irish government is growing to record levels. 
B) the Irish government had to pay high interest rates on money it borrowed in international markets, and its solvency was in question. 
C) unemployment fell to less than 3%. 
D) Ireland has been forced to leave the European Union.

Question 15

Even if a bank is in excellent financial condition, a bank run can still drive it to failure.

Accepted Answer

A) True 
 B)False

Question 16

Ireland's rapid growth for much of the 1990s and 2000s came to an end as the result of overbuilding in the railroad industry.

Accepted Answer

A) True 
 B)False

Question 17

Following the 2008 financial crisis:

Accepted Answer

A) both the United States and the European Union recovered very quickly, with output reaching its previous level by early 2009. 
B) recovery in both the United States and the European Union was very slow. 
C) the United States recovered very quickly, but recovery in the European Union was very slow. 
D) the European Union recovered very quickly, but recovery in the United States was very slow. 
A) both the United States and the European Union recovered very quickly, with output reaching its previous level by early 2009. 
B) recovery in both the United States and the European Union was very slow. 
C) the United States recovered very quickly, but recovery in the European Union was very slow. 
D) the European Union recovered very quickly, but recovery in the United States was very slow.

Question 18

During the financial crisis of 2008, the Federal Reserve bought not only Treasury bills but also commercial paper issued by private companies and the debt of Fannie Mae and Freddie Mac.

Accepted Answer

A) True 
 B)False

Question 19

In a credit crunch:

Accepted Answer

A) interest rates are so low that savers decrease the quantity of available loanable funds. 
B) borrowers are forced to pay very high interest rates or may not be able to borrow at all. 
C) unemployment is usually very low and the growth rate of output is very high. 
D) the spread becomes negative. 
A) interest rates are so low that savers decrease the quantity of available loanable funds. 
B) borrowers are forced to pay very high interest rates or may not be able to borrow at all. 
C) unemployment is usually very low and the growth rate of output is very high. 
D) the spread becomes negative.

Question 20

Investment banks differ from commercial banks because commercial banks _____, but investment banks _____.

Accepted Answer

A) are allowed to advertise; must not advertise. 
B) can have offices only in one state; can have offices in many countries 
C) do not sell foreign currencies; sell foreign currencies 
D) accept deposits from customers; do not accept deposits 
A) are allowed to advertise; must not advertise. 
B) can have offices only in one state; can have offices in many countries 
C) do not sell foreign currencies; sell foreign currencies 
D) accept deposits from customers; do not accept deposits

Following the banking crises of the 1930s, both real GDP and the price level increased immediately.

The asset bubble in commercial real estate that caused the savings and loan crisis in the 1980s burst because:

Long-term unemployment is measured by the percentage of the unemployed who have been out of work for:

By acting as a lender of last resort, the central bank:

The 2008 financial crisis made it clear that banks were overregulated.

Financial regulation was not adequate to deal with the 2008 financial crisis because:

Lehman Brothers was forced to declare bankruptcy in September 2008, when:

During banking crises monetary policy is very effective, but fiscal policy is ineffective.

Explain how shadow banks, which don't take deposits, can have bank runs.

During the banking crisis of the 1930s, the Federal Reserve:

A financial intermediary that provides liquid assets in the form of deposits to savers and uses its funds to finance illiquid investment spending needs of borrowers is a(n):

Why are banking-crisis recessions so bad?

A shadow bank is a:

As a consequence of the Irish banking crisis:

Even if a bank is in excellent financial condition, a bank run can still drive it to failure.

Ireland's rapid growth for much of the 1990s and 2000s came to an end as the result of overbuilding in the railroad industry.

Following the 2008 financial crisis:

During the financial crisis of 2008, the Federal Reserve bought not only Treasury bills but also commercial paper issued by private companies and the debt of Fannie Mae and Freddie Mac.

In a credit crunch:

Investment banks differ from commercial banks because commercial banks _, but investment banks _.

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial System

Fiscal Policy Appendix Taxes and the Multiplier

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Events and Ideas

Open-Economy Macroeconomics

Graphs in Economics

toward a Fuller Understanding of Present Value

Filters

Exam 17: Crises and Consequences

Following the banking crises of the 1930s, both real GDP and the price level increased immediately.

The asset bubble in commercial real estate that caused the savings and loan crisis in the 1980s burst because:

Long-term unemployment is measured by the percentage of the unemployed who have been out of work for:

By acting as a lender of last resort, the central bank:

The 2008 financial crisis made it clear that banks were overregulated.

Financial regulation was not adequate to deal with the 2008 financial crisis because:

Lehman Brothers was forced to declare bankruptcy in September 2008, when:

During banking crises monetary policy is very effective, but fiscal policy is ineffective.

Explain how shadow banks, which don't take deposits, can have bank runs.

During the banking crisis of the 1930s, the Federal Reserve:

A financial intermediary that provides liquid assets in the form of deposits to savers and uses its funds to finance illiquid investment spending needs of borrowers is a(n):

Why are banking-crisis recessions so bad?

A shadow bank is a:

As a consequence of the Irish banking crisis:

Even if a bank is in excellent financial condition, a bank run can still drive it to failure.

Ireland's rapid growth for much of the 1990s and 2000s came to an end as the result of overbuilding in the railroad industry.

Following the 2008 financial crisis:

During the financial crisis of 2008, the Federal Reserve bought not only Treasury bills but also commercial paper issued by private companies and the debt of Fannie Mae and Freddie Mac.

In a credit crunch:

Investment banks differ from commercial banks because commercial banks _____, but investment banks _____.

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial System

Fiscal Policy Appendix Taxes and the Multiplier

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Events and Ideas

Open-Economy Macroeconomics

Graphs in Economics

toward a Fuller Understanding of Present Value

Filters

Investment banks differ from commercial banks because commercial banks _, but investment banks _.