Question 1

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 2

Financial problems began in Greece in late 2009, when:

Accepted Answer

A)  the Greek government revealed that it had understated its budget deficits and debt. 
B)  the European Union forced Greece to give up its membership. 
C)  Greece adopted the euro. 
D)  the United Nations imposed trade sanctions on Greece. 
A)  the Greek government revealed that it had understated its budget deficits and debt. 
B)  the European Union forced Greece to give up its membership. 
C)  Greece adopted the euro. 
D)  the United Nations imposed trade sanctions on Greece.

Question 3

When borrowers don't respond to short-term interest rates of zero, the economy is in:

Accepted Answer

A)  a liquidity trap. 
B)  hyperinflation. 
C)  an asset bubble. 
D)  maturity transformation. 
A)  a liquidity trap. 
B)  hyperinflation. 
C)  an asset bubble. 
D)  maturity transformation.

Question 4

Which of the following is NOT a reason banking crises usually lead to recessions?

Accepted Answer

A)  low unemployment rates and high inflation rates 
B)  credit crunches 
C)  debt overhang 
D)  loss of effectiveness of monetary policy 
A)  low unemployment rates and high inflation rates 
B)  credit crunches 
C)  debt overhang 
D)  loss of effectiveness of monetary policy

Question 5

When the Fed purchases short-term government securities from banks, the primary effect on excess reserves is that they:

Accepted Answer

A)  decrease. 
B)  increase. 
C)  remain constant. 
D)  fluctuate randomly. 
A)  decrease. 
B)  increase. 
C)  remain constant. 
D)  fluctuate randomly.

Question 6

What did the panic of 1873 and the panic of 1893 have in common?

Accepted Answer

A)  They were both caused by the Federal Reserve's failure to implement the proper monetary policy. 
B)  They were both caused by a real estate bubble. 
C)  They both led to large increases in real GDP and decreases in the unemployment rate. 
D)  They were both caused by overbuilding in the railroad industry. 
A)  They were both caused by the Federal Reserve's failure to implement the proper monetary policy. 
B)  They were both caused by a real estate bubble. 
C)  They both led to large increases in real GDP and decreases in the unemployment rate. 
D)  They were both caused by overbuilding in the railroad industry.

Question 7

The savings and loans crisis of the 1980s was caused by an asset bubble in commercial real estate.

Accepted Answer

A) True 
 B)False

Question 8

Maturity transformation can be done by:

Accepted Answer

A)  depository banks but not by shadow banks. 
B)  shadow banks but not by depository banks. 
C)  both depository banks and shadow banks. 
D)  neither depository banks nor shadow banks. 
A)  depository banks but not by shadow banks. 
B)  shadow banks but not by depository banks. 
C)  both depository banks and shadow banks. 
D)  neither depository banks nor shadow banks.

Question 9

When the Fed acts as a lender of last resort, it lends money to homeowners who are in danger of losing their home through foreclosure.

Accepted Answer

A) True 
 B)False

Question 10

After the 2008 financial crisis, interest rates on Italian debt increased because:

Accepted Answer

A)  they were approaching the zero bound, so the central bank raised them. 
B)  the Italian government revalued the lira. 
C)  Italy imposed trade sanctions on Iran. 
D)  the Italian economy was growing too slowly to generate enough tax revenue to repay its public debt. 
A)  they were approaching the zero bound, so the central bank raised them. 
B)  the Italian government revalued the lira. 
C)  Italy imposed trade sanctions on Iran. 
D)  the Italian economy was growing too slowly to generate enough tax revenue to repay its public debt.

Question 11

During the 2008 financial crisis:

Accepted Answer

A)  both the United States and the European Union underwent severe economic downturns. 
B)  the United States underwent a severe economic downturn, but the European Union was relatively unaffected by the crisis. 
C)  the European Union underwent a severe economic downturn, but the United States was relatively unaffected by the crisis. 
D)  both the United States and the European Union were unaffected by the crisis, which was severe in Latin America only. 
A)  both the United States and the European Union underwent severe economic downturns. 
B)  the United States underwent a severe economic downturn, but the European Union was relatively unaffected by the crisis. 
C)  the European Union underwent a severe economic downturn, but the United States was relatively unaffected by the crisis. 
D)  both the United States and the European Union were unaffected by the crisis, which was severe in Latin America only.

Question 12

Which of the following is TRUE of the Federal Reserve's response to the banking crises of the 1930s and 2008?

Accepted Answer

A)  In both crises, the Fed acted aggressively as a lender of last resort and to guarantee liabilities of troubled banks. 
B)  In both crises, the Fed failed to use its power to act as a lender of last resort or to guarantee liabilities of troubled banks. 
C)  In the 1930s the Fed acted aggressively as a lender of last resort and to guarantee liabilities of troubled banks, but it did not act in 2008. 
D)  In 2008 the Fed acted aggressively as a lender of last resort and to guarantee liabilities of troubled banks, but it did not act in the 1930s. 
A)  In both crises, the Fed acted aggressively as a lender of last resort and to guarantee liabilities of troubled banks. 
B)  In both crises, the Fed failed to use its power to act as a lender of last resort or to guarantee liabilities of troubled banks. 
C)  In the 1930s the Fed acted aggressively as a lender of last resort and to guarantee liabilities of troubled banks, but it did not act in 2008. 
D)  In 2008 the Fed acted aggressively as a lender of last resort and to guarantee liabilities of troubled banks, but it did not act in the 1930s.

Question 13

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 14

During the financial crisis of 2008, the Fed:

Accepted Answer

A)  was closed for a three-week bank holiday by President George W. Bush. 
B)  remained open but was severely limited in its operations. 
C)  was merged with the Treasury Department to increase its power to deal with the crisis. 
D)  expanded its operations by lending to institutions other than commercial banks and buying financial assets other than Treasury bills. 
A)  was closed for a three-week bank holiday by President George W. Bush. 
B)  remained open but was severely limited in its operations. 
C)  was merged with the Treasury Department to increase its power to deal with the crisis. 
D)  expanded its operations by lending to institutions other than commercial banks and buying financial assets other than Treasury bills.

Question 15

In a recession, the Fed usually sells short-term government securities to increase interest rates and decrease spending.

Accepted Answer

A) True 
 B)False

Question 16

When shadow banks engage in maturity transformation, they raise funds by _____ and invest in _____.

Accepted Answer

A)  issuing stock; stock of other companies 
B)  selling bonds; Treasury bills 
C)  borrowing in short-term credit markets; longer-term speculative investments 
D)  borrowing in long-term credit markets; short-term speculative investments 
A)  issuing stock; stock of other companies 
B)  selling bonds; Treasury bills 
C)  borrowing in short-term credit markets; longer-term speculative investments 
D)  borrowing in long-term credit markets; short-term speculative investments

Question 17

Which of the following is an explanation of banking crises?

Accepted Answer

A)  Many banks make the same mistake: investing in an asset bubble. 
B)  Banks engage in maturity transformation. 
C)  The Federal Reserve, acting as a lender of last resort, introduces too much competition into the system. 
D)  Banks are paying low interest rates on deposits and charging high interest rates on loans. 
A)  Many banks make the same mistake: investing in an asset bubble. 
B)  Banks engage in maturity transformation. 
C)  The Federal Reserve, acting as a lender of last resort, introduces too much competition into the system. 
D)  Banks are paying low interest rates on deposits and charging high interest rates on loans.

Question 18

Banking crises are usually followed by periods of economic expansion.

Accepted Answer

A) True 
 B)False

Question 19

Following the 2008 financial crisis, by 2011, almost half of unemployed workers were long-term unemployed.

Accepted Answer

A) True 
 B)False

Question 20

The European debt crisis in 2011 began with:

Accepted Answer

A)  public debt problems in Great Britain. 
B)  public debt problems in Greece. 
C)  the collapse of the real estate market in Norway. 
D)  strikes by labor unions in Spain. 
A)  public debt problems in Great Britain. 
B)  public debt problems in Greece. 
C)  the collapse of the real estate market in Norway. 
D)  strikes by labor unions in Spain.

Exam 29: Crises and Consequences

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.

Financial problems began in Greece in late 2009, when:

When borrowers don't respond to short-term interest rates of zero, the economy is in:

Which of the following is NOT a reason banking crises usually lead to recessions?

When the Fed purchases short-term government securities from banks, the primary effect on excess reserves is that they:

What did the panic of 1873 and the panic of 1893 have in common?

The savings and loans crisis of the 1980s was caused by an asset bubble in commercial real estate.

Maturity transformation can be done by:

When the Fed acts as a lender of last resort, it lends money to homeowners who are in danger of losing their home through foreclosure.

After the 2008 financial crisis, interest rates on Italian debt increased because:

During the 2008 financial crisis:

Which of the following is TRUE of the Federal Reserve's response to the banking crises of the 1930s and 2008?

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

During the financial crisis of 2008, the Fed:

In a recession, the Fed usually sells short-term government securities to increase interest rates and decrease spending.

When shadow banks engage in maturity transformation, they raise funds by _____ and invest in _____.

Which of the following is an explanation of banking crises?

Banking crises are usually followed by periods of economic expansion.

Following the 2008 financial crisis, by 2011, almost half of unemployed workers were long-term unemployed.

The European debt crisis in 2011 began with:

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

When shadow banks engage in maturity transformation, they raise funds by _ and invest in _.