Question 1

Banks help mitigate the problem of moral hazard in lending by:

Accepted Answer

A)  requiring lengthy applications for loans. 
B)  making loans to many different types of borrowers. 
C)  adjusting the amount of the loan to fit the requirements of the borrower. 
D)  monitoring the business after a loan is made to the business. 
A)  requiring lengthy applications for loans. 
B)  making loans to many different types of borrowers. 
C)  adjusting the amount of the loan to fit the requirements of the borrower. 
D)  monitoring the business after a loan is made to the business.

Question 2

A bond (or debt instrument) is a(n):

Accepted Answer

A)  ownership claim by the shareholder of a firm. 
B)  loan to a firm. 
C)  ongoing relationship between customers and a firm. 
D)  legal restriction on products a firm may produce. 
A)  ownership claim by the shareholder of a firm. 
B)  loan to a firm. 
C)  ongoing relationship between customers and a firm. 
D)  legal restriction on products a firm may produce.

Question 3

In the event that a bank converted previously issued CoCo bonds (contingent convertible debt), then holders of the bonds would change from _____ of the bank.

Accepted Answer

A)  creditors to part owners 
B)  creditors to debtors 
C)  debtors to creditors 
D)  part owners to creditors 
A)  creditors to part owners 
B)  creditors to debtors 
C)  debtors to creditors 
D)  part owners to creditors

Question 4

In the credit crunch during the 2008-2009 recession, banks tightened lending standards:

Accepted Answer

A)  only for mortgages. 
B)  only for small business loans. 
C)  only for consumer loans. 
D)  for mortgages, small business loans, and consumer loans. 
A)  only for mortgages. 
B)  only for small business loans. 
C)  only for consumer loans. 
D)  for mortgages, small business loans, and consumer loans.

Question 5

A major disruption in the financial system that impedes the economy's ability to intermediate between those who want to save and those who want to borrow and invest is called a:

Accepted Answer

A)  moral hazard. 
B)  speculative bubble. 
C)  financial crisis. 
D)  stagflation. 
A)  moral hazard. 
B)  speculative bubble. 
C)  financial crisis. 
D)  stagflation.

Question 6

A well-functioning financial system does all of the following except:

Accepted Answer

A)  foster economic growth by directing savings to its most productive use. 
B)  allocate risk among market participants. 
C)  eliminate risk through diversification. 
D)  direct resources from savers to borrowers. 
A)  foster economic growth by directing savings to its most productive use. 
B)  allocate risk among market participants. 
C)  eliminate risk through diversification. 
D)  direct resources from savers to borrowers.

Question 7

A key obstacle facing regulators who want to prevent financial institutions from taking excessive risks is the difficulty in:

Accepted Answer

A)  finding diversified pools of assets to reduce risk. 
B)  drawing the line between excessive and appropriate risk taking. 
C)  eliminating idiosyncratic risk through diversification. 
D)  distinguishing between equity and debt financing. 
A)  finding diversified pools of assets to reduce risk. 
B)  drawing the line between excessive and appropriate risk taking. 
C)  eliminating idiosyncratic risk through diversification. 
D)  distinguishing between equity and debt financing.

Question 8

To the extent that the undervaluation of the riskiness of mortgage-backed securities contributed to the financial crisis of 2008-2009, blame for this mistake lies with:

Accepted Answer

A)  mortgage brokers. 
B)  investment banks. 
C)  rating agencies. 
D)  government policymakers. 
A)  mortgage brokers. 
B)  investment banks. 
C)  rating agencies. 
D)  government policymakers.

Question 9

A bank with assets worth less than liabilities is said to be _____, while a bank without adequate funds immediately available to make promised payments is said to be _____.

Accepted Answer

A)  inflated; inverted 
B)  inverted; inflated 
C)  insolvent; illiquid 
D)  illiquid; insolvent 
A)  inflated; inverted 
B)  inverted; inflated 
C)  insolvent; illiquid 
D)  illiquid; insolvent

Question 10

Institutions that stand between savers and investors, helping to direct financial resources to their best use are called:

Accepted Answer

A)  financial markets. 
B)  financial intermediaries. 
C)  financial regulators. 
D)  financial capitalists. 
A)  financial markets. 
B)  financial intermediaries. 
C)  financial regulators. 
D)  financial capitalists.

Question 11

Debt financing is obtaining funds for a business by:

Accepted Answer

A)  borrowing. 
B)  issuing ownership shares. 
C)  seigniorage. 
D)  government subsidy 
A)  borrowing. 
B)  issuing ownership shares. 
C)  seigniorage. 
D)  government subsidy

Question 12

The phrase _____ describes a firm so central to that financial system that policymakers will not allow it to enter bankruptcy.

Accepted Answer

A)  "no bank left behind" 
B)  "too big to fail" 
C)  "don't fail, don't bail" 
D)  "laissez-faire bank" 
A)  "no bank left behind" 
B)  "too big to fail" 
C)  "don't fail, don't bail" 
D)  "laissez-faire bank"

Question 13

To the extent that failure to appreciate the implications of the decline in house prices on the financial system contributed to the financial crisis of 2008-2009, blame for this mistake lies with:

Accepted Answer

A)  mortgage brokers. 
B)  investment banks. 
C)  homebuyers. 
D)  regulators. 
A)  mortgage brokers. 
B)  investment banks. 
C)  homebuyers. 
D)  regulators.

Question 14

Subprime borrowers are borrowers:

Accepted Answer

A)  who obtain loans at interest rates below the prime rate. 
B)  most likely to make their loan payments on time. 
C)  with risky credit profiles. 
D)  who borrow to purchase smaller homes. 
A)  who obtain loans at interest rates below the prime rate. 
B)  most likely to make their loan payments on time. 
C)  with risky credit profiles. 
D)  who borrow to purchase smaller homes.

Question 15

Proponents of restricting the size of financial institutions believe this policy will _____, while opponents believe this policy will _____.

Accepted Answer

A)  allow firms to take advantage of economies of scale; increase the volatility of the financial system. 
B)  reduce the number of financial institutions; give institutions the incentive to take excessive risks. 
C)  eliminate the need for deposit insurance; encourage imprudent risk taking 
D)  make the financial system more stable; lead to higher costs 
A)  allow firms to take advantage of economies of scale; increase the volatility of the financial system. 
B)  reduce the number of financial institutions; give institutions the incentive to take excessive risks. 
C)  eliminate the need for deposit insurance; encourage imprudent risk taking 
D)  make the financial system more stable; lead to higher costs

Question 16

Obtaining funds for a business by issuing ownership shares, such as through the stock market, is called _____ finance.

Accepted Answer

A)  money 
B)  liability 
C)  debt 
D)  equity 
A)  money 
B)  liability 
C)  debt 
D)  equity

Question 17

During the 2008-2009 period, the conventional monetary policy response was to _____ the target federal funds rate, while the conventional fiscal policy response was to _____ taxes and to _____ government spending.

Accepted Answer

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

Question 18

There are systematic risks and idiosyncratic risks. Which risks can be mitigated by whom and how?

Accepted Answer

Systematic risks affect the complete eco

Question 19

When the central bank acts as a lender of last resort, it:

Accepted Answer

A)  requires the borrower to put up collateral. 
B)  is able to confiscate some of the borrower's assets. 
C)  requires voting rights on the borrower's board of directors. 
D)  takes over ownership of the borrower. 
A)  requires the borrower to put up collateral. 
B)  is able to confiscate some of the borrower's assets. 
C)  requires voting rights on the borrower's board of directors. 
D)  takes over ownership of the borrower.

Question 20

The TED spread is the difference between the interest rate paid on _____ and the interest rate paid on _____.

Accepted Answer

A)  three-month U.S. certificates of deposit; three-month eurodollar loans 
B)  overnight interbank loans in London; overnight interbank loans in the United States 
C)  four-week Treasury bills; overnight federal funds 
D)  three-month eurodollar interbank loans; three-month Treasury bills 
A)  three-month U.S. certificates of deposit; three-month eurodollar loans 
B)  overnight interbank loans in London; overnight interbank loans in the United States 
C)  four-week Treasury bills; overnight federal funds 
D)  three-month eurodollar interbank loans; three-month Treasury bills

Banks help mitigate the problem of moral hazard in lending by:

A bond (or debt instrument) is a(n):

In the event that a bank converted previously issued CoCo bonds (contingent convertible debt), then holders of the bonds would change from _____ of the bank.

In the credit crunch during the 2008-2009 recession, banks tightened lending standards:

A major disruption in the financial system that impedes the economy's ability to intermediate between those who want to save and those who want to borrow and invest is called a:

A well-functioning financial system does all of the following except:

A key obstacle facing regulators who want to prevent financial institutions from taking excessive risks is the difficulty in:

To the extent that the undervaluation of the riskiness of mortgage-backed securities contributed to the financial crisis of 2008-2009, blame for this mistake lies with:

A bank with assets worth less than liabilities is said to be _, while a bank without adequate funds immediately available to make promised payments is said to be _.

Institutions that stand between savers and investors, helping to direct financial resources to their best use are called:

Debt financing is obtaining funds for a business by:

The phrase _____ describes a firm so central to that financial system that policymakers will not allow it to enter bankruptcy.

To the extent that failure to appreciate the implications of the decline in house prices on the financial system contributed to the financial crisis of 2008-2009, blame for this mistake lies with:

Subprime borrowers are borrowers:

Proponents of restricting the size of financial institutions believe this policy will _, while opponents believe this policy will _.

Obtaining funds for a business by issuing ownership shares, such as through the stock market, is called _____ finance.

During the 2008-2009 period, the conventional monetary policy response was to ___ the target federal funds rate, while the conventional fiscal policy response was to _ taxes and to ___ government spending.

There are systematic risks and idiosyncratic risks. Which risks can be mitigated by whom and how?

When the central bank acts as a lender of last resort, it:

The TED spread is the difference between the interest rate paid on _ and the interest rate paid on _.

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

Banks help mitigate the problem of moral hazard in lending by:

A bond (or debt instrument) is a(n):

In the event that a bank converted previously issued CoCo bonds (contingent convertible debt), then holders of the bonds would change from _____ of the bank.

In the credit crunch during the 2008-2009 recession, banks tightened lending standards:

A major disruption in the financial system that impedes the economy's ability to intermediate between those who want to save and those who want to borrow and invest is called a:

A well-functioning financial system does all of the following except:

A key obstacle facing regulators who want to prevent financial institutions from taking excessive risks is the difficulty in:

To the extent that the undervaluation of the riskiness of mortgage-backed securities contributed to the financial crisis of 2008-2009, blame for this mistake lies with:

A bank with assets worth less than liabilities is said to be _____, while a bank without adequate funds immediately available to make promised payments is said to be _____.

Institutions that stand between savers and investors, helping to direct financial resources to their best use are called:

Debt financing is obtaining funds for a business by:

The phrase _____ describes a firm so central to that financial system that policymakers will not allow it to enter bankruptcy.

To the extent that failure to appreciate the implications of the decline in house prices on the financial system contributed to the financial crisis of 2008-2009, blame for this mistake lies with:

Subprime borrowers are borrowers:

Proponents of restricting the size of financial institutions believe this policy will _____, while opponents believe this policy will _____.

Obtaining funds for a business by issuing ownership shares, such as through the stock market, is called _____ finance.

During the 2008-2009 period, the conventional monetary policy response was to _____ the target federal funds rate, while the conventional fiscal policy response was to _____ taxes and to _____ government spending.

There are systematic risks and idiosyncratic risks. Which risks can be mitigated by whom and how?

When the central bank acts as a lender of last resort, it:

The TED spread is the difference between the interest rate paid on _____ and the interest rate paid on _____.

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

A bank with assets worth less than liabilities is said to be _, while a bank without adequate funds immediately available to make promised payments is said to be _.

Proponents of restricting the size of financial institutions believe this policy will _, while opponents believe this policy will _.

During the 2008-2009 period, the conventional monetary policy response was to ___ the target federal funds rate, while the conventional fiscal policy response was to _ taxes and to ___ government spending.

The TED spread is the difference between the interest rate paid on _ and the interest rate paid on _.