Question 1

Fiscal policy involves the manipulation of ________.

Accepted Answer

A)  U.S. interest rates. 
B)  wages and prices. 
C)  federal government spending and tax revenues. 
D)  the supply of money. 
A)  U.S. interest rates. 
B)  wages and prices. 
C)  federal government spending and tax revenues. 
D)  the supply of money.

Question 2

Most likely, the stock market crash in 1929 was triggered by ________.

Accepted Answer

A)  an autonomous tightening of monetary policy 
B)  an unexpected increase in tax rates 
C)  the rise of fascist political parties in Europe 
D)  a decline in consumer spending 
A)  an autonomous tightening of monetary policy 
B)  an unexpected increase in tax rates 
C)  the rise of fascist political parties in Europe 
D)  a decline in consumer spending

Question 3

The main objective of financial liberalization is ________.

Accepted Answer

A)  to encourage financial innovation 
B)  to improve the allocation of financial capital 
C)  to discourage volatility in financial markets 
D)  to reduce the likelihood of a credit boom 
A)  to encourage financial innovation 
B)  to improve the allocation of financial capital 
C)  to discourage volatility in financial markets 
D)  to reduce the likelihood of a credit boom

Question 4

________ refers to a decrease in the willingness of banks to lend, while an impairment of the ability of nonfinancial firms to borrow is a consequence of ________.

Accepted Answer

A)  Adverse selection; moral hazard 
B)  Deleveraging; debt deflation 
C)  Fire sales; a bank panic 
D)  The shadow banking system; agency theory 
A)  Adverse selection; moral hazard 
B)  Deleveraging; debt deflation 
C)  Fire sales; a bank panic 
D)  The shadow banking system; agency theory

Question 5

The Economic Recovery Act of 2008 included a temporary increase in the federal deposit insurance ceiling from $100,000 to $250,000. The likely objective was to ________.

Accepted Answer

A)  boost bank profitability 
B)  increase the money supply 
C)  discourage withdrawals from banks 
D)  bail out the Federal Deposit Insurance Corporation (FDI
C)  
A)  boost bank profitability 
B)  increase the money supply 
C)  discourage withdrawals from banks 
D)  bail out the Federal Deposit Insurance Corporation (FDI
C)

Question 6

The most severe financial crisis in U.S history occurred in the years ________.

Accepted Answer

A)  2006-2008. 
B)  1997-98. 
C)  1929-33. 
D)  1873-93. 
A)  2006-2008. 
B)  1997-98. 
C)  1929-33. 
D)  1873-93.

Question 7

How did international policy coordination contribute to the avoidance of an economic depression in 2008 - 2010?

Accepted Answer

The shadow banking system had become an

Question 8

U.S. financial crises begin in a period of________.

Accepted Answer

A)  rising incomes. 
B)  adverse selection. 
C)  rising uncertainty. 
D)  moral hazard. 
A)  rising incomes. 
B)  adverse selection. 
C)  rising uncertainty. 
D)  moral hazard.

Question 9

Which of the following best illustrates the adverse selection problem?

Accepted Answer

A)  a professional football team that consistently drafts poor players. 
B)  an economic agent who engages in risky behavior once a loan is received. 
C)  an individual who hides a pre-existing condition from a health insurer. 
D)  an individual who experiences a lost of income by not working while attending college. 
A)  a professional football team that consistently drafts poor players. 
B)  an economic agent who engages in risky behavior once a loan is received. 
C)  an individual who hides a pre-existing condition from a health insurer. 
D)  an individual who experiences a lost of income by not working while attending college.

Question 10

The credit spread refers to ________.

Accepted Answer

A)  the extent to which financial instruments are distributed among households at different income levels in a given society. 
B)  the difference between the London Inter-Bank Offered Rate (LIBOR) and the fed funds rate. 
C)  the price elasticity of household debt. 
D)  the interest-rate differential between risky bonds and U.S. Treasury bonds 
A)  the extent to which financial instruments are distributed among households at different income levels in a given society. 
B)  the difference between the London Inter-Bank Offered Rate (LIBOR) and the fed funds rate. 
C)  the price elasticity of household debt. 
D)  the interest-rate differential between risky bonds and U.S. Treasury bonds

Question 11

According to agency theory, a financial crisis results from ________ that disrupts the flow of funds from lender-savers to borrower-spenders.

Accepted Answer

A)  an increase in asymmetric information 
B)  a macroeconomic shock 
C)  the existence of asymmetric information 
D)  a decrease in saving 
A)  an increase in asymmetric information 
B)  a macroeconomic shock 
C)  the existence of asymmetric information 
D)  a decrease in saving

Question 12

Assume that a firm has $100 million in real assets and $90 in real liabilities. The value of its net worth would be ________.

Accepted Answer

A)  a negative $10 million. 
B)  $190 million. 
C)  $4190 billion. 
D)  $10 million. 
A)  a negative $10 million. 
B)  $190 million. 
C)  $4190 billion. 
D)  $10 million.

Question 13

Which of the following is among the possible reasons that the 2007-2009 financial crisis did not result in an economic depression?

Accepted Answer

A)  new lending programs by the central bank 
B)  privatization of Fannie Mae and Freddie Mac 
C)  a substantial increase in exports to China 
D)  rapid foreclosure of "underwater" properties 
A)  new lending programs by the central bank 
B)  privatization of Fannie Mae and Freddie Mac 
C)  a substantial increase in exports to China 
D)  rapid foreclosure of "underwater" properties

Question 14

Hedge funds, investment banks, and other non-depository financial firms are known as ________.

Accepted Answer

A)  the shadow banking system 
B)  repurchasers 
C)  subprime lenders 
D)  CDOs 
A)  the shadow banking system 
B)  repurchasers 
C)  subprime lenders 
D)  CDOs

Question 15

Prior to World War II, in the United States, financial crises occurred every ________ years or so.

Accepted Answer

A)  twenty 
B)  seven 
C)  fifty 
D)  three 
A)  twenty 
B)  seven 
C)  fifty 
D)  three

Question 16

Describe the role of uncertainty at the beginning of and in the unfolding of a financial crisis.

Accepted Answer

Regardless of the initial spark, an adve

Question 17

Central bank lending to bail out troubled firms is known as ________, while allowing troubled firms to conceal the true value of their assets is called ________.

Accepted Answer

A)  crony capitalism; larceny 
B)  liquidity provision; regulatory forbearance 
C)  securitization; nonconventional monetary policy 
D)  subprime lending; regulatory arbitrage 
A)  crony capitalism; larceny 
B)  liquidity provision; regulatory forbearance 
C)  securitization; nonconventional monetary policy 
D)  subprime lending; regulatory arbitrage

Question 18

The current chairman of the Board of Governors of the Federal Reserve System is ________.

Accepted Answer

A)  Alan Greenspan. 
B)  Barack Obama. 
C)  Ben Bernanke. 
D)  Nancy Pelosi. 
A)  Alan Greenspan. 
B)  Barack Obama. 
C)  Ben Bernanke. 
D)  Nancy Pelosi.

Question 19

The key reason that the bursting of the tech-stock bubble of the late 1990s had a mild impact on the macroeconomy is ________.

Accepted Answer

A)  rapid intervention by the central bank averted economic catastrophe 
B)  the increase in tech-stock prices was driven by the economic fundamental of technological progress 
C)  the technology sector is a rather small portion of the aggregate economy 
D)  financial institutions were not heavily invested in tech stocks 
A)  rapid intervention by the central bank averted economic catastrophe 
B)  the increase in tech-stock prices was driven by the economic fundamental of technological progress 
C)  the technology sector is a rather small portion of the aggregate economy 
D)  financial institutions were not heavily invested in tech stocks

Question 20

Channeling funds to individuals with productive investment opportunities is the function of ________.

Accepted Answer

A)  the financial sector. 
B)  state and local governments. 
C)  the central bank. 
D)  state, local and federal governments. 
A)  the financial sector. 
B)  state and local governments. 
C)  the central bank. 
D)  state, local and federal governments.

Exam 15: Financial Crises and the Economy

Fiscal policy involves the manipulation of ________.

Most likely, the stock market crash in 1929 was triggered by ________.

The main objective of financial liberalization is ________.

________ refers to a decrease in the willingness of banks to lend, while an impairment of the ability of nonfinancial firms to borrow is a consequence of ________.

The Economic Recovery Act of 2008 included a temporary increase in the federal deposit insurance ceiling from $100,000 to $250,000. The likely objective was to ________.

The most severe financial crisis in U.S history occurred in the years ________.

How did international policy coordination contribute to the avoidance of an economic depression in 2008 - 2010?

U.S. financial crises begin in a period of________.

Which of the following best illustrates the adverse selection problem?

The credit spread refers to ________.

According to agency theory, a financial crisis results from ________ that disrupts the flow of funds from lender-savers to borrower-spenders.

Assume that a firm has $100 million in real assets and $90 in real liabilities. The value of its net worth would be ________.

Which of the following is among the possible reasons that the 2007-2009 financial crisis did not result in an economic depression?

Hedge funds, investment banks, and other non-depository financial firms are known as ________.

Prior to World War II, in the United States, financial crises occurred every ________ years or so.

Describe the role of uncertainty at the beginning of and in the unfolding of a financial crisis.

Central bank lending to bail out troubled firms is known as ________, while allowing troubled firms to conceal the true value of their assets is called ________.

The current chairman of the Board of Governors of the Federal Reserve System is ________.

The key reason that the bursting of the tech-stock bubble of the late 1990s had a mild impact on the macroeconomy is ________.

Channeling funds to individuals with productive investment opportunities is the function of ________.

The Policy and Practice of Macroeconomics

Measuring Macroeconomic Data

Aggregate Production and Productivity

Saving and Investment in Closed and Open Economies

Money and Inflation

The Sources of Growth and the Solow Model

Drivers of Growth: Technology, Policy, and Institutions

Business Cycles: an Introduction

The Is Curve

Monetary Policy and Aggregate Demand

Aggregate Supply and the Phillips Curve

The Aggregate Demand and Supply Model

Macroeconomic Policy and Aggregate Demand and Supply Analysis

The Financial System and Economic Growth

Fiscal Policy and the Government Budget

Exchange Rates and International Economic Policy

Consumption and Saving

Investment

The Labor Market, Employment, and Unemployment

The Role of Expectations in Macroeconomic Policy

Modern Business Cycle Theory

Filters

refers to a decrease in the willingness of banks to lend, while an impairment of the ability of nonfinancial firms to borrow is a consequence of .

Central bank lending to bail out troubled firms is known as , while allowing troubled firms to conceal the true value of their assets is called .