Question 1

A repo is a long-term loan.

Accepted Answer

A) True 
 B)False

Question 2

A shadow bank engages in maturity transformation by:

Accepted Answer

A)  accepting short-term deposits and making short-term loans. 
B)  accepting long-term deposits and making long-term loans. 
C)  borrowing short term and lending or investing long term. 
D)  borrowing long term and lending or investing short term. 
A)  accepting short-term deposits and making short-term loans. 
B)  accepting long-term deposits and making long-term loans. 
C)  borrowing short term and lending or investing long term. 
D)  borrowing long term and lending or investing short term.

Question 3

When the government guarantees a troubled bank's liabilities:

Accepted Answer

A)  the bank is merged into the Federal Reserve System and becomes a Federal Reserve bank. 
B)  the owners of the bank must pay a fee to receive the guarantee. 
C)  the government takes over the bank temporarily and then reprivatizes the bank by selling it to private investors. 
D)  the bank is permanently closed. 
A)  the bank is merged into the Federal Reserve System and becomes a Federal Reserve bank. 
B)  the owners of the bank must pay a fee to receive the guarantee. 
C)  the government takes over the bank temporarily and then reprivatizes the bank by selling it to private investors. 
D)  the bank is permanently closed.

Question 4

Lehman Brothers was established by Henry Lehman in 1844 as a(n):

Accepted Answer

A)  investment bank. 
B)  commercial bank. 
C)  dry goods store. 
D)  saloon. 
A)  investment bank. 
B)  commercial bank. 
C)  dry goods store. 
D)  saloon.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

On average the unemployment rate increases by 7% following a severe banking crisis.

Accepted Answer

A) True 
 B)False

Question 7

Maturity transformation must always begin with the financial institution accepting deposits.

Accepted Answer

A) True 
 B)False

Question 8

Debt overhang results in _____ levels of debt and assets with _____ values.

Accepted Answer

A)  reduced; higher 
B)  increased; higher 
C)  reduced; lower 
D)  increased; lower 
A)  reduced; higher 
B)  increased; higher 
C)  reduced; lower 
D)  increased; lower

Question 9

In an asset bubble:

Accepted Answer

A)  depositors withdraw their deposits from banks until the bank fails. 
B)  the price of an asset is pushed to an unreasonably high level because of expectations of further price gains. 
C)  the price of an asset falls because demand for the asset is so high. 
D)  savers and investors engage in maturity transformation by long-term borrowing and making short-term loans to take advantage of interest rate increases. 
A)  depositors withdraw their deposits from banks until the bank fails. 
B)  the price of an asset is pushed to an unreasonably high level because of expectations of further price gains. 
C)  the price of an asset falls because demand for the asset is so high. 
D)  savers and investors engage in maturity transformation by long-term borrowing and making short-term loans to take advantage of interest rate increases.

Question 10

The advantage of holding money as an asset is that it is perfectly liquid.

Accepted Answer

A) True 
 B)False

Question 11

Banks:

Accepted Answer

A)  reduce the opportunity cost of the trade-off between rate of return and liquidity. 
B)  increase the opportunity cost of the trade-off between rate of return and liquidity. 
C)  encourage people to hold more cash. 
D)  reduce the amount of liquidity in the economy. 
A)  reduce the opportunity cost of the trade-off between rate of return and liquidity. 
B)  increase the opportunity cost of the trade-off between rate of return and liquidity. 
C)  encourage people to hold more cash. 
D)  reduce the amount of liquidity in the economy.

Question 12

In debt overhang consumers' debt level is diminished and the value of their assets has increased.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

One of the first forms of paper money emerged when:

Accepted Answer

A)  the Federal Reserve was formed in the early 1900s. 
B)  the government of Rome printed money to pay Roman soldiers. 
C)  customers who had deposited gold and silver with medieval goldsmiths began to use their receipts to pay for purchases. 
D)  Europe adopted the euro. 
A)  the Federal Reserve was formed in the early 1900s. 
B)  the government of Rome printed money to pay Roman soldiers. 
C)  customers who had deposited gold and silver with medieval goldsmiths began to use their receipts to pay for purchases. 
D)  Europe adopted the euro.

Exam 29: Crises and Consequences

A repo is a long-term loan.

A shadow bank engages in maturity transformation by:

When the government guarantees a troubled bank's liabilities:

Lehman Brothers was established by Henry Lehman in 1844 as a(n):

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

On average the unemployment rate increases by 7% following a severe banking crisis.

Maturity transformation must always begin with the financial institution accepting deposits.

Debt overhang results in _____ levels of debt and assets with _____ values.

In an asset bubble:

The advantage of holding money as an asset is that it is perfectly liquid.

Banks:

In debt overhang consumers' debt level is diminished and the value of their assets has increased.

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

One of the first forms of paper money emerged when:

First Principles

Economic Models- Trade-Offs and Trade

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas- Meddling With Markets

Elasticity

Taxes

The Rational Consumer

International Trade

Decision Making by Individuals and Firms

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods and Common Resources

The Economics of the Welfare State

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Macroeconomics- the Big Picture

Gdp and the Consumer Price Index

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending

Fiscal Policy

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Macroeconomics- Events and Ideas

Open-Economy Macroeconomics

Graphs in Economics

Toward a Fuller Understanding

Consumer Preferences and Consumer Choice

Indifference Curve Analysis of Labor Supply

Filters

Debt overhang results in _ levels of debt and assets with _ values.