Question 1

Deposit insurance is an example of ______ used to prop up the financial system.

Accepted Answer

A)  a giveaway of public funds 
B)  risky lending 
C)  a capital injection 
D)  conventional monetary policy 
A)  a giveaway of public funds 
B)  risky lending 
C)  a capital injection 
D)  conventional monetary policy

Question 2

Ideally, the purpose of providing funds to insolvent banks beyond required insurance payouts is to:

Accepted Answer

A)  transfer funds from taxpayers to financial institutions. 
B)  give taxpayers ownership in a commercial bank. 
C)  reward political loyalty. 
D)  prevent bank failures from multiplying. 
A)  transfer funds from taxpayers to financial institutions. 
B)  give taxpayers ownership in a commercial bank. 
C)  reward political loyalty. 
D)  prevent bank failures from multiplying.

Question 3

The effect of the financial crisis of 2008-2009 on the real economy in the United States was a(n) _____ in aggregate demand, a(n) _____ in output, and a(n) _________ in the unemployment rate.

Accepted Answer

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

Question 4

An indicator of the increased lack of confidence in the banking system during the financial crisis of 2008-2009 was the:

Accepted Answer

A)  increase in the federal government budget deficit. 
B)  decrease in interest rates. 
C)  increase in the TED spread. 
D)  decrease in the TED spread. 
A)  increase in the federal government budget deficit. 
B)  decrease in interest rates. 
C)  increase in the TED spread. 
D)  decrease in the TED spread.

Question 5

Issuing bonds is called _____ financing, while issuing stocks is called _____ financing.

Accepted Answer

A)  debt; equity 
B)  equity; debt 
C)  capital; investment 
D)  private; public 
A)  debt; equity 
B)  equity; debt 
C)  capital; investment 
D)  private; public

Question 6

Financial markets allow savers to:

Accepted Answer

A)  eliminate risk. 
B)  indirectly provide resources for investment. 
C)  directly provide resources for investment. 
D)  avoid adverse selection. 
A)  eliminate risk. 
B)  indirectly provide resources for investment. 
C)  directly provide resources for investment. 
D)  avoid adverse selection.

Question 7

A dislike of randomness in economic circumstances is called:

Accepted Answer

A)  rational expectations. 
B)  risk aversion. 
C)  adverse selection. 
D)  moral hazard. 
A)  rational expectations. 
B)  risk aversion. 
C)  adverse selection. 
D)  moral hazard.

Question 8

Risk aversion is a dislike of:

Accepted Answer

A)  paying interest. 
B)  lending. 
C)  borrowing. 
D)  randomness in economic circumstances. 
A)  paying interest. 
B)  lending. 
C)  borrowing. 
D)  randomness in economic circumstances.

Question 9

When a borrower uses borrowed funds to engage in activities that are detrimental to the profitability of the business venture that was financed, there is a problem of:

Accepted Answer

A)  adverse selection. 
B)  moral hazard. 
C)  systematic risk. 
D)  risk aversion. 
A)  adverse selection. 
B)  moral hazard. 
C)  systematic risk. 
D)  risk aversion.

Question 10

How does TED spread indicate the confidence level the people in an economy have in the banking system?

Accepted Answer

The TED spread is the difference between

Question 11

Provide one example from the 2008-2009 financial crisis of how the following types of policies were used to respond to the crisis: a. conventional monetary and fiscal policy,
b. lender of last resort,
c. injections of government funds.

Accepted Answer

Many responses are possible. a. An examp

Question 12

When the central bank lends to financial institutions in the midst of a liquidity crisis, the central bank is acting as a:

Accepted Answer

A)  lender of last resort. 
B)  shadow bank. 
C)  investment bank. 
D)  mutual fund. 
A)  lender of last resort. 
B)  shadow bank. 
C)  investment bank. 
D)  mutual fund.

Question 13

A credit crunch reduces aggregate demand by:

Accepted Answer

A)  increasing the exchange rate. 
B)  increasing interest rates. 
C)  reducing consumption and investment spending. 
D)  reducing the money supply. 
A)  increasing the exchange rate. 
B)  increasing interest rates. 
C)  reducing consumption and investment spending. 
D)  reducing the money supply.

Question 14

Two policies that are intended to make the financial system more stable by restricting the size of financial institutions are:

Accepted Answer

A)  to offer cheaper loans to large financial institutions and to make larger capital injections available for larger banks. 
B)  to lower the cost of deposit insurance for large banks and to provide incentives for large banks to make speculative investments. 
C)  to restrict mergers among large banks and to require higher capital requirements for large banks. 
D)  to allow large banks to be more highly leveraged and to increase deposit insurance coverage for depositors at large banks. 
A)  to offer cheaper loans to large financial institutions and to make larger capital injections available for larger banks. 
B)  to lower the cost of deposit insurance for large banks and to provide incentives for large banks to make speculative investments. 
C)  to restrict mergers among large banks and to require higher capital requirements for large banks. 
D)  to allow large banks to be more highly leveraged and to increase deposit insurance coverage for depositors at large banks.

Question 15

All of the following are examples of shadow banks except:

Accepted Answer

A)  Bear Sterns 
B)  AIG 
C)  Bank of America 
D)  Lehman Brothers 
A)  Bear Sterns 
B)  AIG 
C)  Bank of America 
D)  Lehman Brothers

Question 16

The Treasury used most of the funds allocated by the Troubled Asset Relief Program (TARP) to:

Accepted Answer

A)  purchase mortgage-backed securities. 
B)  make equity injections into troubled financial institutions. 
C)  create a new regulatory agency to oversee risky assets. 
D)  make emergency loans to the FDIC. 
A)  purchase mortgage-backed securities. 
B)  make equity injections into troubled financial institutions. 
C)  create a new regulatory agency to oversee risky assets. 
D)  make emergency loans to the FDIC.

Question 17

The housing price boom prior to the 2008-2009 recession was fueled by all of the following except:

Accepted Answer

A)  unusually large increases in building material costs. 
B)  lax lending standards. 
C)  government policies promoting homeownership. 
D)  homebuyers' expectations of never-declining home prices. 
A)  unusually large increases in building material costs. 
B)  lax lending standards. 
C)  government policies promoting homeownership. 
D)  homebuyers' expectations of never-declining home prices.

Question 18

Conventional fiscal policy was limited during the 2008-2009 financial crisis because of:

Accepted Answer

A)  concerns about increasing the government's budget deficit and debt. 
B)  difficulties paying out tax rebates. 
C)  the inability of the government to reduce spending below zero. 
D)  the inability of the government to raise taxes above 100 percent of income. 
A)  concerns about increasing the government's budget deficit and debt. 
B)  difficulties paying out tax rebates. 
C)  the inability of the government to reduce spending below zero. 
D)  the inability of the government to raise taxes above 100 percent of income.

Question 19

The allocation of resources between those who want to save and those who want to borrow is accomplished through:

Accepted Answer

A)  the velocity of money. 
B)  fiscal policy. 
C)  the financial system. 
D)  foreign trade. 
A)  the velocity of money. 
B)  fiscal policy. 
C)  the financial system. 
D)  foreign trade.

Question 20

Sovereign debt refers to debt issued:

Accepted Answer

A)  without collateral. 
B)  with no rating by a credit-rating agency. 
C)  by governments. 
D)  with a promise to repay in a foreign currency. 
A)  without collateral. 
B)  with no rating by a credit-rating agency. 
C)  by governments. 
D)  with a promise to repay in a foreign currency.

Deposit insurance is an example of ______ used to prop up the financial system.

Ideally, the purpose of providing funds to insolvent banks beyond required insurance payouts is to:

The effect of the financial crisis of 2008-2009 on the real economy in the United States was a(n) ___ in aggregate demand, a(n) _ in output, and a(n) _______ in the unemployment rate.

An indicator of the increased lack of confidence in the banking system during the financial crisis of 2008-2009 was the:

Issuing bonds is called _ financing, while issuing stocks is called _ financing.

Financial markets allow savers to:

A dislike of randomness in economic circumstances is called:

Risk aversion is a dislike of:

When a borrower uses borrowed funds to engage in activities that are detrimental to the profitability of the business venture that was financed, there is a problem of:

How does TED spread indicate the confidence level the people in an economy have in the banking system?

Provide one example from the 2008-2009 financial crisis of how the following types of policies were used to respond to the crisis: a. conventional monetary and fiscal policy, b. lender of last resort, c. injections of government funds.

When the central bank lends to financial institutions in the midst of a liquidity crisis, the central bank is acting as a:

A credit crunch reduces aggregate demand by:

Two policies that are intended to make the financial system more stable by restricting the size of financial institutions are:

All of the following are examples of shadow banks except:

The Treasury used most of the funds allocated by the Troubled Asset Relief Program (TARP) to:

The housing price boom prior to the 2008-2009 recession was fueled by all of the following except:

Conventional fiscal policy was limited during the 2008-2009 financial crisis because of:

The allocation of resources between those who want to save and those who want to borrow is accomplished through:

Sovereign debt refers to debt issued:

The Science of Macroeconomics

The Data of Macroeconomics

National Income: Where It Comes From and Where It Goes

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labor Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Is-Lm Model

Aggregate Demand Ii: Applying the Is-Lm Model

The Open Economy Revisited: the Mundell-Fleming Model and the Exchange-Rate Regime

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

A Dynamic Model of Economic Fluctuations

Understanding Consumer Behavior

The Theory of Investment

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

Filters

Exam 20: The Financial System: Opportunities and Dangers

Deposit insurance is an example of ______ used to prop up the financial system.

Ideally, the purpose of providing funds to insolvent banks beyond required insurance payouts is to:

The effect of the financial crisis of 2008-2009 on the real economy in the United States was a(n) _____ in aggregate demand, a(n) _____ in output, and a(n) _________ in the unemployment rate.

An indicator of the increased lack of confidence in the banking system during the financial crisis of 2008-2009 was the:

Issuing bonds is called _____ financing, while issuing stocks is called _____ financing.

Financial markets allow savers to:

A dislike of randomness in economic circumstances is called:

Risk aversion is a dislike of:

When a borrower uses borrowed funds to engage in activities that are detrimental to the profitability of the business venture that was financed, there is a problem of:

How does TED spread indicate the confidence level the people in an economy have in the banking system?

Provide one example from the 2008-2009 financial crisis of how the following types of policies were used to respond to the crisis: a. conventional monetary and fiscal policy, b. lender of last resort, c. injections of government funds.

When the central bank lends to financial institutions in the midst of a liquidity crisis, the central bank is acting as a:

A credit crunch reduces aggregate demand by:

Two policies that are intended to make the financial system more stable by restricting the size of financial institutions are:

All of the following are examples of shadow banks except:

The Treasury used most of the funds allocated by the Troubled Asset Relief Program (TARP) to:

The housing price boom prior to the 2008-2009 recession was fueled by all of the following except:

Conventional fiscal policy was limited during the 2008-2009 financial crisis because of:

The allocation of resources between those who want to save and those who want to borrow is accomplished through:

Sovereign debt refers to debt issued:

The Science of Macroeconomics

The Data of Macroeconomics

National Income: Where It Comes From and Where It Goes

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labor Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Is-Lm Model

Aggregate Demand Ii: Applying the Is-Lm Model

The Open Economy Revisited: the Mundell-Fleming Model and the Exchange-Rate Regime

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

A Dynamic Model of Economic Fluctuations

Understanding Consumer Behavior

The Theory of Investment

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

Filters

The effect of the financial crisis of 2008-2009 on the real economy in the United States was a(n) ___ in aggregate demand, a(n) _ in output, and a(n) _______ in the unemployment rate.

Issuing bonds is called _ financing, while issuing stocks is called _ financing.