Question 1

A sudden and widespread disruption of financial markets that occurs when people lose faith in the liquidity of financial institutions and markets is a(n):

Accepted Answer

A) asset bubble. 
B) maturity transformation. 
C) financial panic. 
D) debt overhang. 
A) asset bubble. 
B) maturity transformation. 
C) financial panic. 
D) debt overhang.

Question 2

Monetary policy may be ineffective in a banking crisis because interest rates are so low that consumers and businesses borrow and spend too much.

Accepted Answer

A) True 
 B)False

Question 3

The repo market:

Accepted Answer

A) is where the Federal Reserve makes loans to banks. 
B) refers to transactions between lenders and borrowers with bad credit. 
C) is the market for houses in foreclosure. 
D) is the overnight credit market. 
A) is where the Federal Reserve makes loans to banks. 
B) refers to transactions between lenders and borrowers with bad credit. 
C) is the market for houses in foreclosure. 
D) is the overnight credit market.

Question 4

In a vicious cycle of deleveraging, financial institutions:

Accepted Answer

A) sell assets at a deep discounts. 
B) sell assets at unreasonably high prices. 
C) offer higher interest rates to their depositors. 
D) buy assets at unreasonably high prices. 
A) sell assets at a deep discounts. 
B) sell assets at unreasonably high prices. 
C) offer higher interest rates to their depositors. 
D) buy assets at unreasonably high prices.

Question 5

Consumers and businesses with debt overhang are likely to _____ their borrowing and _____ their spending.

Accepted Answer

A) increase; decrease 
B) increase; increase 
C) decrease; decrease 
D) decrease; increase 
A) increase; decrease 
B) increase; increase 
C) decrease; decrease 
D) decrease; increase

Question 6

A credit crunch causes a recession because:

Accepted Answer

A) potential borrowers can't get loans or must pay very high interest rates, so they cut back on spending. 
B) banks have a surplus of funds to loan, so interest rates fall to very low levels. 
C) unemployment falls to very low levels, causing a problem of inflation. 
D) interest rates are so low that investors' incomes fall, and they decrease their spending. 
A) potential borrowers can't get loans or must pay very high interest rates, so they cut back on spending. 
B) banks have a surplus of funds to loan, so interest rates fall to very low levels. 
C) unemployment falls to very low levels, causing a problem of inflation. 
D) interest rates are so low that investors' incomes fall, and they decrease their spending.

Question 7

Shadow banks are not subject to runs.

Accepted Answer

A) True 
 B)False

Question 8

Following the panic of 1893 in the United States and the Swedish banking crisis in 1991, the two countries had rapid growth of real GDP and low unemployment rates.

Accepted Answer

A) True 
 B)False

Question 9

Medieval goldsmiths were strongly opposed to lending out their customers' gold and silver.

Accepted Answer

A) True 
 B)False

Question 10

The national banking era is the period following the establishment of the Federal Reserve in 1913.

Accepted Answer

A) True 
 B)False

Question 11

Most of a bank's assets are:

Accepted Answer

A) loans from the Federal Reserve. 
B) loans to the Federal Reserve. 
C) loans to its customers. 
D) customers' deposits. 
A) loans from the Federal Reserve. 
B) loans to the Federal Reserve. 
C) loans to its customers. 
D) customers' deposits.

Question 12

The Fed usually responds to a recession by:

Accepted Answer

A) buying short-term government debt from banks. 
B) selling short-term government debt to banks. 
C) raising interest rates. 
D) increasing reserve requirements. 
A) buying short-term government debt from banks. 
B) selling short-term government debt to banks. 
C) raising interest rates. 
D) increasing reserve requirements.

Question 13

Commercial banks _____, while investment banks _____.

Accepted Answer

A) accept deposits from customers; trade financial assets but don't accept deposits 
B) are not allowed to make profits; are allowed to profit from buying and selling financial assets 
C) cannot own financial assets; can own a wide variety of financial assets 
D) are a type of shadow bank; are not shadow banks 
A) accept deposits from customers; trade financial assets but don't accept deposits 
B) are not allowed to make profits; are allowed to profit from buying and selling financial assets 
C) cannot own financial assets; can own a wide variety of financial assets 
D) are a type of shadow bank; are not shadow banks

Question 14

Between the Civil War and the Great Depression, the United States' banking system was more stable than it has been since the Great Depression.

Accepted Answer

A) True 
 B)False

Question 15

During the banking crisis in the early 1930s approximately _____ of the banks in the United States failed.

Accepted Answer

A) 2% 
B) 10% 
C) 40% 
D) 90% 
A) 2% 
B) 10% 
C) 40% 
D) 90%

Question 16

A situation in which borrowers cannot find credit or must pay very high interest rates for loans is called a:

Accepted Answer

A) liquidity trap. 
B) zero-bound limit. 
C) credit crunch. 
D) stagflation. 
A) liquidity trap. 
B) zero-bound limit. 
C) credit crunch. 
D) stagflation.

Question 17

Long recessions often follow banking crises because:

Accepted Answer

A) banking crises may cause a surplus of credit, so that interest rates fall to levels so low that investors earn very little in interest income. 
B) the vicious cycle of deleveraging that follows leads to overpriced assets. 
C) consumer and investment spending increase too rapidly, causing high rates of inflation. 
D) monetary policy is not very effective because banks hold on to excess reserves and are unwilling to lend them out. 
A) banking crises may cause a surplus of credit, so that interest rates fall to levels so low that investors earn very little in interest income. 
B) the vicious cycle of deleveraging that follows leads to overpriced assets. 
C) consumer and investment spending increase too rapidly, causing high rates of inflation. 
D) monetary policy is not very effective because banks hold on to excess reserves and are unwilling to lend them out.

Question 18

Maturity transformation is conversion of long-term liabilities to short-term assets.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is an example of maturity transformation?

Accepted Answer

A) Anne sells her house for $200,000 and uses the money to open a bakery. 
B) Matthew sells his car and uses the money to pay college tuition. 
C) Justin takes $10,000 from his savings account and uses it to buy some Apple stock. 
D) Michael closes his checking account at Bank of America and opens a checking account at a local credit union. 
A) Anne sells her house for $200,000 and uses the money to open a bakery. 
B) Matthew sells his car and uses the money to pay college tuition. 
C) Justin takes $10,000 from his savings account and uses it to buy some Apple stock. 
D) Michael closes his checking account at Bank of America and opens a checking account at a local credit union.

Question 20

The special office created by the Dodd-Frank Act to police financial industry practices and protect borrowers is called the:

Accepted Answer

A) Food and Drug Administration. 
B) Consumer Financial Protection Bureau. 
C) Board of Governors. 
D) Consumer Protection Agency. 
A) Food and Drug Administration. 
B) Consumer Financial Protection Bureau. 
C) Board of Governors. 
D) Consumer Protection Agency.

A sudden and widespread disruption of financial markets that occurs when people lose faith in the liquidity of financial institutions and markets is a(n):

Monetary policy may be ineffective in a banking crisis because interest rates are so low that consumers and businesses borrow and spend too much.

The repo market:

In a vicious cycle of deleveraging, financial institutions:

Consumers and businesses with debt overhang are likely to _ their borrowing and _ their spending.

A credit crunch causes a recession because:

Shadow banks are not subject to runs.

Following the panic of 1893 in the United States and the Swedish banking crisis in 1991, the two countries had rapid growth of real GDP and low unemployment rates.

Medieval goldsmiths were strongly opposed to lending out their customers' gold and silver.

The national banking era is the period following the establishment of the Federal Reserve in 1913.

Most of a bank's assets are:

The Fed usually responds to a recession by:

Commercial banks _, while investment banks _.

Between the Civil War and the Great Depression, the United States' banking system was more stable than it has been since the Great Depression.

During the banking crisis in the early 1930s approximately _____ of the banks in the United States failed.

A situation in which borrowers cannot find credit or must pay very high interest rates for loans is called a:

Long recessions often follow banking crises because:

Maturity transformation is conversion of long-term liabilities to short-term assets.

Which of the following is an example of maturity transformation?

The special office created by the Dodd-Frank Act to police financial industry practices and protect borrowers is called the:

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

A sudden and widespread disruption of financial markets that occurs when people lose faith in the liquidity of financial institutions and markets is a(n):

Monetary policy may be ineffective in a banking crisis because interest rates are so low that consumers and businesses borrow and spend too much.

The repo market:

In a vicious cycle of deleveraging, financial institutions:

Consumers and businesses with debt overhang are likely to _____ their borrowing and _____ their spending.

A credit crunch causes a recession because:

Shadow banks are not subject to runs.

Following the panic of 1893 in the United States and the Swedish banking crisis in 1991, the two countries had rapid growth of real GDP and low unemployment rates.

Medieval goldsmiths were strongly opposed to lending out their customers' gold and silver.

The national banking era is the period following the establishment of the Federal Reserve in 1913.

Most of a bank's assets are:

The Fed usually responds to a recession by:

Commercial banks _____, while investment banks _____.

Between the Civil War and the Great Depression, the United States' banking system was more stable than it has been since the Great Depression.

During the banking crisis in the early 1930s approximately _____ of the banks in the United States failed.

A situation in which borrowers cannot find credit or must pay very high interest rates for loans is called a:

Long recessions often follow banking crises because:

Maturity transformation is conversion of long-term liabilities to short-term assets.

Which of the following is an example of maturity transformation?

The special office created by the Dodd-Frank Act to police financial industry practices and protect borrowers is called the:

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

Consumers and businesses with debt overhang are likely to _ their borrowing and _ their spending.

Commercial banks _, while investment banks _.