Question 1

Fiscal austerity is expansionary fiscal measures, such as increases in government spending and decreases in taxes, designed to reduce unemployment.

Accepted Answer

A) True 
 B)False

Question 2

Debt overhang often causes a recession because businesses and consumers with a _____ level of debt _____ their spending.

Accepted Answer

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

Question 3

Who wrote A Monetary History of the United States?

Accepted Answer

A)  George and Jeb Bush 
B)  Bill Clinton and Al Gore 
C)  John Maynard Keynes and Karl Marx 
D)  Milton Friedman and Anna Schwartz 
A)  George and Jeb Bush 
B)  Bill Clinton and Al Gore 
C)  John Maynard Keynes and Karl Marx 
D)  Milton Friedman and Anna Schwartz

Question 4

The existence of banks:

Accepted Answer

A)  increases the severity of the trade-off between rate of return and liquidity. 
B)  decreases the severity of the trade-off between rate of return and liquidity. 
C)  has no effect on the trade-off between rate of return and liquidity. 
D)  decreases both the rate of return and the liquidity of its customers' assets. 
A)  increases the severity of the trade-off between rate of return and liquidity. 
B)  decreases the severity of the trade-off between rate of return and liquidity. 
C)  has no effect on the trade-off between rate of return and liquidity. 
D)  decreases both the rate of return and the liquidity of its customers' assets.

Question 5

The banking crises in Finland, Sweden, and Japan in the early 1990s were caused by numerous bank runs in each country.

Accepted Answer

A) True 
 B)False

Question 6

Depository banks borrow from depositors primarily on a _____ basis and lend to others on a _____ basis.

Accepted Answer

A)  short-term; long-term 
B)  long-term; long-term 
C)  short-term; short-term 
D)  long-term; short-term 
A)  short-term; long-term 
B)  long-term; long-term 
C)  short-term; short-term 
D)  long-term; short-term

Question 7

Explain the trade-off between rate of return and liquidity. How do banks affect the trade-off?

Accepted Answer

If you hold your wealth as money, it is

Question 8

The purpose of open market purchases is to:

Accepted Answer

A)  decrease the government budget deficit. 
B)  increase the government budget deficit. 
C)  increase consumer and investment spending. 
D)  decrease consumer and investment spending. 
A)  decrease the government budget deficit. 
B)  increase the government budget deficit. 
C)  increase consumer and investment spending. 
D)  decrease consumer and investment spending.

Question 9

The Dodd-Frank bill established the Consumer Financial Protection Bureau to help consumers understand the financial impact of Social Security.

Accepted Answer

A) True 
 B)False

Question 10

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 11

The main purpose of the Federal Reserve, which was established in 1913, was to put an end to the bank crises that occurred during the national banking era.

Accepted Answer

A) True 
 B)False

Question 12

Under the Dodd-Frank Act of 2010, derivatives:

Accepted Answer

A)  have to be bought and sold in open, transparent markets so that there is a limit to the invisible risk that financial traders can assume. 
B)  are prohibited. 
C)  may be purchased and sold in foreign markets only. 
D)  may be purchased and sold only by state and local governments. 
A)  have to be bought and sold in open, transparent markets so that there is a limit to the invisible risk that financial traders can assume. 
B)  are prohibited. 
C)  may be purchased and sold in foreign markets only. 
D)  may be purchased and sold only by state and local governments.

Question 13

Expansionary fiscal measures, such as more government spending and tax cuts designed to reduce unemployment, are called:

Accepted Answer

A)  fiscal austerity. 
B)  fiscal stimulus. 
C)  automatic stabilizers. 
D)  maturity transformation. 
A)  fiscal austerity. 
B)  fiscal stimulus. 
C)  automatic stabilizers. 
D)  maturity transformation.

Question 14

Fiscal stimulus is expansionary fiscal measures, such as increases in government spending and decreases in taxes, designed to reduce unemployment.

Accepted Answer

A) True 
 B)False

Question 15

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 16

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 17

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

Question 18

To put an end to the bank failures during the 1930s President Franklin Roosevelt declared a bank holiday and temporarily closed all banks.

Accepted Answer

A) True 
 B)False

Question 19

The "wholesale" funding that Irish banks used for real estate loans came primarily from:

Accepted Answer

A)  the European Union central bank. 
B)  long-term, low-interest loans from the Irish government. 
C)  bank deposits of individuals. 
D)  short-term loans from other banks and private investors. 
A)  the European Union central bank. 
B)  long-term, low-interest loans from the Irish government. 
C)  bank deposits of individuals. 
D)  short-term loans from other banks and private investors.

Question 20

Resolution authority means that:

Accepted Answer

A)  the government has the power to seize control of financial institutions that need a bailout. 
B)  a member of Congress has the power to propose resolutions on the floor of Congress. 
C)  banks have the ability to transform short-term liabilities into long-term liabilities. 
D)  Congress has given the Federal Reserve permission to act as a lender of last resort. 
A)  the government has the power to seize control of financial institutions that need a bailout. 
B)  a member of Congress has the power to propose resolutions on the floor of Congress. 
C)  banks have the ability to transform short-term liabilities into long-term liabilities. 
D)  Congress has given the Federal Reserve permission to act as a lender of last resort.

Exam 29: Crises and Consequences

Fiscal austerity is expansionary fiscal measures, such as increases in government spending and decreases in taxes, designed to reduce unemployment.

Debt overhang often causes a recession because businesses and consumers with a _____ level of debt _____ their spending.

Who wrote A Monetary History of the United States?

The existence of banks:

The banking crises in Finland, Sweden, and Japan in the early 1990s were caused by numerous bank runs in each country.

Depository banks borrow from depositors primarily on a _____ basis and lend to others on a _____ basis.

Explain the trade-off between rate of return and liquidity. How do banks affect the trade-off?

The purpose of open market purchases is to:

The Dodd-Frank bill established the Consumer Financial Protection Bureau to help consumers understand the financial impact of Social Security.

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

The main purpose of the Federal Reserve, which was established in 1913, was to put an end to the bank crises that occurred during the national banking era.

Under the Dodd-Frank Act of 2010, derivatives:

Expansionary fiscal measures, such as more government spending and tax cuts designed to reduce unemployment, are called:

Fiscal stimulus is expansionary fiscal measures, such as increases in government spending and decreases in taxes, designed to reduce unemployment.

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

Long recessions often follow banking crises because:

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

To put an end to the bank failures during the 1930s President Franklin Roosevelt declared a bank holiday and temporarily closed all banks.

The "wholesale" funding that Irish banks used for real estate loans came primarily from:

Resolution authority means that:

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 often causes a recession because businesses and consumers with a _ level of debt _ their spending.

Depository banks borrow from depositors primarily on a _ basis and lend to others on a _ basis.

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