Question 1

The purpose of the Financial Services Oversight Council, which was created by the Dodd-Frank Act, is to:

Accepted Answer

A)  replace the existing regulatory agencies with one agency to enforce all financial regulations. 
B)  oversee private credit rating agencies. 
C)  determine appropriate levels of executive compensation for firms in the financial system. 
D)  coordinate activities of the various regulatory agencies. 
A)  replace the existing regulatory agencies with one agency to enforce all financial regulations. 
B)  oversee private credit rating agencies. 
C)  determine appropriate levels of executive compensation for firms in the financial system. 
D)  coordinate activities of the various regulatory agencies.

Question 2

Suppose Bank A has a leverage ratio of 20 and Bank B has a leverage ratio of 10. Explain the meaning of these ratios and what would happen to each of these banks if the value of their assets fell by 6 percent.

Accepted Answer

The leverage ratio gives the value of as

Question 3

Conventional monetary and fiscal policies used in a recession are aimed at:

Accepted Answer

A)  increasing aggregate supply. 
B)  increasing aggregate demand. 
C)  decreasing aggregate supply. 
D)  decreasing aggregate demand 
A)  increasing aggregate supply. 
B)  increasing aggregate demand. 
C)  decreasing aggregate supply. 
D)  decreasing aggregate demand

Question 4

Every government in the world tries to avoid financial crisis. Similarly, every economist is also trying to find a foolproof way to remove the word "financial crisis" from the dictionary. What makes financial crisis so undesirable? Explain.

Accepted Answer

A financial crisis is the peoples' lack

Question 5

Conventional monetary policy was limited during the 2008-2009 financial crisis because the central bank could not:

Accepted Answer

A)  purchase enough bonds through open market operations. 
B)  print a sufficient quantity of money. 
C)  reduce the target interest rate below zero. 
D)  adjust the discount rate quickly enough. 
A)  purchase enough bonds through open market operations. 
B)  print a sufficient quantity of money. 
C)  reduce the target interest rate below zero. 
D)  adjust the discount rate quickly enough.

Question 6

Ownership claims by shareholders in a firm are called:

Accepted Answer

A)  stocks. 
B)  bonds. 
C)  leverage. 
D)  debt. 
A)  stocks. 
B)  bonds. 
C)  leverage. 
D)  debt.

Question 7

Use the aggregate demand-aggregate supply model to graphically illustrate the impact of a financial crisis on output and prices in an economy in the short run. Explain the factors that cause changes from the initial equilibrium to the new short-run equilibrium.

Accepted Answer

@#IMG-DLM& The credit crunch brought about by the

Question 8

The mortgage defaults during the 2008-2009 financial crisis severely reduced the capital positions of:

Accepted Answer

A)  major investment banks. 
B)  government-sponsored enterprises involved in the mortgage market. 
C)  a large insurance company (AIG). 
D)  all of the above. 
A)  major investment banks. 
B)  government-sponsored enterprises involved in the mortgage market. 
C)  a large insurance company (AIG). 
D)  all of the above.

Question 9

"A fire-sale can make illiquid institutions insolvent." Explain how.

Accepted Answer

In a crisis, when there is a fall in the

Question 10

The risk that imperfectly monitored agents will act in dishonest or otherwise inappropriate ways is called:

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 11

Adverse selection concerns hidden knowledge about _____, while moral hazard concerns hidden knowledge about _____.

Accepted Answer

A)  systematic risk; idiosyncratic risk 
B)  attributes; actions 
C)  equity finance; debt finance 
D)  financial markets; financial intermediaries 
A)  systematic risk; idiosyncratic risk 
B)  attributes; actions 
C)  equity finance; debt finance 
D)  financial markets; financial intermediaries

Question 12

Which of the following is an example of adverse selection?

Accepted Answer

A)  The careful driver buys extra insurance protection when renting a car. 
B)  The sickest people buy health insurance. 
C)  The person with health insurance rides a motorcycle without wearing a helmet. 
D)  The person with life insurance exercises daily and eats healthy foods. 
A)  The careful driver buys extra insurance protection when renting a car. 
B)  The sickest people buy health insurance. 
C)  The person with health insurance rides a motorcycle without wearing a helmet. 
D)  The person with life insurance exercises daily and eats healthy foods.

Question 13

a.  What is the difference between an illiquid bank and an insolvent bank?

b. Would the Federal Reserve’s lender of last resort function be the most appropriate remedy for an illiquid or an insolvent bank? Explain.

c. Would the FDIC's resolution authority be the most appropriate remedy for an illiquid or an insolvent bank? Explain

Accepted Answer

a. An illiquid bank is a solvent bank th

Question 14

An illiquid bank can become insolvent when it:

Accepted Answer

A)  refuses to make promised payments. 
B)  sells additional stock to obtain funds. 
C)  sells assets at fire-sale prices to meet liquidity demands. 
D)  can extend the due dates of its liabilities. 
A)  refuses to make promised payments. 
B)  sells additional stock to obtain funds. 
C)  sells assets at fire-sale prices to meet liquidity demands. 
D)  can extend the due dates of its liabilities.

Question 15

During the 2008-2009 financial crisis, the Federal Reserve served as a lender of last resort by providing liquidity to:

Accepted Answer

A)  both banks and shadow banks with reliable collateral. 
B)  any insolvent domestic borrower in the economy. 
C)  state and local governments. 
D)  households that were underwater on their mortgages. 
A)  both banks and shadow banks with reliable collateral. 
B)  any insolvent domestic borrower in the economy. 
C)  state and local governments. 
D)  households that were underwater on their mortgages.

Question 16

Which of the following is an example of moral hazard?

Accepted Answer

A)  The healthiest people buy life insurance. 
B)  The sickest people buy health insurance. 
C)  The person with health insurance rides a motorcycle without wearing a helmet. 
D)  The person with life insurance exercises daily and eats healthy foods. 
A)  The healthiest people buy life insurance. 
B)  The sickest people buy health insurance. 
C)  The person with health insurance rides a motorcycle without wearing a helmet. 
D)  The person with life insurance exercises daily and eats healthy foods.

Question 17

A document representing an interest-bearing debt of the issuer, usually a corporation or government, is called:

Accepted Answer

A)  equity. 
B)  stock. 
C)  a bond. 
D)  capital. 
A)  equity. 
B)  stock. 
C)  a bond. 
D)  capital.

Question 18

Prior to the financial crisis of 2008-2009, financial regulation in the United States consisted of a _____ system of regulators, which the Dodd-Frank Act sought to improve upon by _____ the number of regulatory bodies.

Accepted Answer

A)  coordinated; increasing 
B)  coordinated; decreasing 
C)  fragmented; increasing 
D)  fragmented; decreasing 
A)  coordinated; increasing 
B)  coordinated; decreasing 
C)  fragmented; increasing 
D)  fragmented; decreasing

Question 19

The TED spread is an indicator of :

Accepted Answer

A)  expected defaults in the mortgage market. 
B)  expected inflation. 
C)  worries about the solvency of the banking system. 
D)  the ease or tightness of monetary policy. 
A)  expected defaults in the mortgage market. 
B)  expected inflation. 
C)  worries about the solvency of the banking system. 
D)  the ease or tightness of monetary policy.

Question 20

What are the problems which hinder any direct transaction between the lender and borrower? What role do banks play in mitigating those issues?

Accepted Answer

The problems are moral hazard and advers

The purpose of the Financial Services Oversight Council, which was created by the Dodd-Frank Act, is to:

Suppose Bank A has a leverage ratio of 20 and Bank B has a leverage ratio of 10. Explain the meaning of these ratios and what would happen to each of these banks if the value of their assets fell by 6 percent.

Conventional monetary and fiscal policies used in a recession are aimed at:

Every government in the world tries to avoid financial crisis. Similarly, every economist is also trying to find a foolproof way to remove the word "financial crisis" from the dictionary. What makes financial crisis so undesirable? Explain.

Conventional monetary policy was limited during the 2008-2009 financial crisis because the central bank could not:

Ownership claims by shareholders in a firm are called:

Use the aggregate demand-aggregate supply model to graphically illustrate the impact of a financial crisis on output and prices in an economy in the short run. Explain the factors that cause changes from the initial equilibrium to the new short-run equilibrium.

The mortgage defaults during the 2008-2009 financial crisis severely reduced the capital positions of:

"A fire-sale can make illiquid institutions insolvent." Explain how.

The risk that imperfectly monitored agents will act in dishonest or otherwise inappropriate ways is called:

Adverse selection concerns hidden knowledge about _, while moral hazard concerns hidden knowledge about _.

Which of the following is an example of adverse selection?

An illiquid bank can become insolvent when it:

During the 2008-2009 financial crisis, the Federal Reserve served as a lender of last resort by providing liquidity to:

Which of the following is an example of moral hazard?

A document representing an interest-bearing debt of the issuer, usually a corporation or government, is called:

Prior to the financial crisis of 2008-2009, financial regulation in the United States consisted of a _ system of regulators, which the Dodd-Frank Act sought to improve upon by _ the number of regulatory bodies.

The TED spread is an indicator of :

What are the problems which hinder any direct transaction between the lender and borrower? What role do banks play in mitigating those issues?

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

The purpose of the Financial Services Oversight Council, which was created by the Dodd-Frank Act, is to:

Suppose Bank A has a leverage ratio of 20 and Bank B has a leverage ratio of 10. Explain the meaning of these ratios and what would happen to each of these banks if the value of their assets fell by 6 percent.

Conventional monetary and fiscal policies used in a recession are aimed at:

Every government in the world tries to avoid financial crisis. Similarly, every economist is also trying to find a foolproof way to remove the word "financial crisis" from the dictionary. What makes financial crisis so undesirable? Explain.

Conventional monetary policy was limited during the 2008-2009 financial crisis because the central bank could not:

Ownership claims by shareholders in a firm are called:

Use the aggregate demand-aggregate supply model to graphically illustrate the impact of a financial crisis on output and prices in an economy in the short run. Explain the factors that cause changes from the initial equilibrium to the new short-run equilibrium.

The mortgage defaults during the 2008-2009 financial crisis severely reduced the capital positions of:

"A fire-sale can make illiquid institutions insolvent." Explain how.

The risk that imperfectly monitored agents will act in dishonest or otherwise inappropriate ways is called:

Adverse selection concerns hidden knowledge about _____, while moral hazard concerns hidden knowledge about _____.

Which of the following is an example of adverse selection?

An illiquid bank can become insolvent when it:

During the 2008-2009 financial crisis, the Federal Reserve served as a lender of last resort by providing liquidity to:

Which of the following is an example of moral hazard?

A document representing an interest-bearing debt of the issuer, usually a corporation or government, is called:

Prior to the financial crisis of 2008-2009, financial regulation in the United States consisted of a _____ system of regulators, which the Dodd-Frank Act sought to improve upon by _____ the number of regulatory bodies.

The TED spread is an indicator of :

What are the problems which hinder any direct transaction between the lender and borrower? What role do banks play in mitigating those issues?

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

Adverse selection concerns hidden knowledge about _, while moral hazard concerns hidden knowledge about _.

Prior to the financial crisis of 2008-2009, financial regulation in the United States consisted of a _ system of regulators, which the Dodd-Frank Act sought to improve upon by _ the number of regulatory bodies.