Question 1

If the value of a home falls below the amount owed on the mortgage for that property, the house is said to be ________.

Accepted Answer

A)  underwater. 
B)  collateralized. 
C)  swamped. 
D)  in short sale. 
A)  underwater. 
B)  collateralized. 
C)  swamped. 
D)  in short sale.

Question 2

The adverse consequences of debt deflation are most evident ________.

Accepted Answer

A)  in the expansion of credit to high-risk borrowers 
B)  on the balance sheets of nonfinancial businesses 
C)  in a sharp decline in the real interest rate 
D)  on the balance sheets of financial businesses 
A)  in the expansion of credit to high-risk borrowers 
B)  on the balance sheets of nonfinancial businesses 
C)  in a sharp decline in the real interest rate 
D)  on the balance sheets of financial businesses

Question 3

During the Great Depression, as real interest rates rose, good credit risks were less likely to seek loans. This process illustrates the phenomenon of ________.

Accepted Answer

A)  adverse selection. 
B)  moral hazard. 
C)  poor monetary policy. 
D)  debt deflation. 
A)  adverse selection. 
B)  moral hazard. 
C)  poor monetary policy. 
D)  debt deflation.

Question 4

When banks and other financial institutions become insolvent, ________.

Accepted Answer

A)  the problem of asymmetric information becomes more acute 
B)  it is easier to distinguish the good creditors and borrowers from the bad 
C)  surviving creditors will attract borrower-spenders by lowering the real interest rate 
D)  the resulting increase in short-run aggregate supply will discourage investment 
A)  the problem of asymmetric information becomes more acute 
B)  it is easier to distinguish the good creditors and borrowers from the bad 
C)  surviving creditors will attract borrower-spenders by lowering the real interest rate 
D)  the resulting increase in short-run aggregate supply will discourage investment

Question 5

How does macroprudential regulation relate to conventional measures to prevent fraud and promote transparency?

Accepted Answer

Conventional measures address the danger

Question 6

The expectations channel of monetary transmission takes the view that ________.

Accepted Answer

A)  decreasing the federal funds rate will lead to a reduction in the discount rate. 
B)  if economic agents believe that the price of an individual asset will rise in the future, they will buy that asset today, contributing to its eventual price increase. 
C)  if households expect an increase in prices in the future, they will engage in spending today. 
D)  households will increase their spending today if they believe that the monetary authorities are committed to maintaining low interest rates. 
A)  decreasing the federal funds rate will lead to a reduction in the discount rate. 
B)  if economic agents believe that the price of an individual asset will rise in the future, they will buy that asset today, contributing to its eventual price increase. 
C)  if households expect an increase in prices in the future, they will engage in spending today. 
D)  households will increase their spending today if they believe that the monetary authorities are committed to maintaining low interest rates.

Question 7

A rapid increase in the availability of credit to previously underserved borrowers is likely ________.

Accepted Answer

A)  to result from financial liberalization 
B)  to improve the allocation of capital 
C)  to confirm the merits of microcredit 
D)  to result from deleveraging 
A)  to result from financial liberalization 
B)  to improve the allocation of capital 
C)  to confirm the merits of microcredit 
D)  to result from deleveraging

Question 8

The Great Crash on the New York Stock Exchange occurred in ________.

Accepted Answer

A)  October 1929. 
B)  July 1776. 
C)  September 2001. 
D)  March 1933 
A)  October 1929. 
B)  July 1776. 
C)  September 2001. 
D)  March 1933

Question 9

From 1995-2007, the Irish economy________.

Accepted Answer

A)  suffered from severe unemployment, famine and labor migration. 
B)  witnessed a boom in the real economy, but suffered through a collapse in asset prices. 
C)  enjoyed one of the highest growth rates in the world. 
D)  suffered through a period of prolonged deflation. 
A)  suffered from severe unemployment, famine and labor migration. 
B)  witnessed a boom in the real economy, but suffered through a collapse in asset prices. 
C)  enjoyed one of the highest growth rates in the world. 
D)  suffered through a period of prolonged deflation.

Question 10

Following the collapse of its housing and stock markets around 1990, the Japanese government ________.

Accepted Answer

A)  effectively managed the crisis, limiting the damage to the Japanese economy. 
B)  took only limited action in response to the crisis. 
C)  was able to rely on private initiatives in quickly reversing the course of GDP in the 1990s. 
D)  fixed the value of the yen to the Euro and pursued an aggressive monetary policy. 
A)  effectively managed the crisis, limiting the damage to the Japanese economy. 
B)  took only limited action in response to the crisis. 
C)  was able to rely on private initiatives in quickly reversing the course of GDP in the 1990s. 
D)  fixed the value of the yen to the Euro and pursued an aggressive monetary policy.

Question 11

Assume that a firm has $100 million in real assets and $90 in real liabilities. If the price level rise by ten percent, the real value of its assets would ________.

Accepted Answer

A)  fall. 
B)  rise. 
C)  change, but more information must be provided to determine their exact movement. 
D)  remain unchanged. 
A)  fall. 
B)  rise. 
C)  change, but more information must be provided to determine their exact movement. 
D)  remain unchanged.

Question 12

The failure of a major financial company is often a trigger for a financial crisis. The main reason for trouble at a single firm to become a crisis for the entire economy is that ________.

Accepted Answer

A)  the central bank will suspend operations until the failed firm is restructured 
B)  it is unclear whether the firm's collapse will remain an isolated event 
C)  customers of the failed company will organize a boycott to protest their losses 
D)  employees and owners of the failed company reduce their spending, with adverse effects on other businesses 
A)  the central bank will suspend operations until the failed firm is restructured 
B)  it is unclear whether the firm's collapse will remain an isolated event 
C)  customers of the failed company will organize a boycott to protest their losses 
D)  employees and owners of the failed company reduce their spending, with adverse effects on other businesses

Question 13

A prominent aspect of the recent Great Recession, but not of the Great Depression of the 1930s, is ________.

Accepted Answer

A)  bank panics 
B)  mortgage defaults 
C)  an increase in the credit spread 
D)  nonconventional monetary policy 
A)  bank panics 
B)  mortgage defaults 
C)  an increase in the credit spread 
D)  nonconventional monetary policy

Question 14

The decline in net worth that can result from an unanticipated decline in the price level is known as ________.

Accepted Answer

A)  a credit boom. 
B)  deleveraging. 
C)  a debt deflation. 
D)  federal funds rationing. 
A)  a credit boom. 
B)  deleveraging. 
C)  a debt deflation. 
D)  federal funds rationing.

Question 15

A likely consequence of deposit insurance, ceteris paribus, is ________.

Accepted Answer

A)  an increase in risk-taking by banks 
B)  a bank panic 
C)  a credit boom 
D)  a reduction in the severity of adverse selection 
A)  an increase in risk-taking by banks 
B)  a bank panic 
C)  a credit boom 
D)  a reduction in the severity of adverse selection

Question 16

Instruments which provide payments to holders of bonds in the event of default are known as ________.

Accepted Answer

A)  collateralized bond obligations. 
B)  tertiary payment devices. 
C)  credit default swaps. 
D)  mortgage-backed securities. 
A)  collateralized bond obligations. 
B)  tertiary payment devices. 
C)  credit default swaps. 
D)  mortgage-backed securities.

Question 17

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)  the declaration of a bank holiday by the nation's President 
B)  international policy coordination 
C)  strict reliance on conventional monetary policy 
D)  government spending restraint 
A)  the declaration of a bank holiday by the nation's President 
B)  international policy coordination 
C)  strict reliance on conventional monetary policy 
D)  government spending restraint

Question 18

An individual firm is insolvent when ________.

Accepted Answer

A)  its assets exceed the value of its liabilities. 
B)  its average costs per unit are greater than its marginal cost. 
C)  its average costs per unit are less than its marginal cost. 
D)  its liabilities exceed the value of its assets. 
A)  its assets exceed the value of its liabilities. 
B)  its average costs per unit are greater than its marginal cost. 
C)  its average costs per unit are less than its marginal cost. 
D)  its liabilities exceed the value of its assets.

Question 19

What is the argument against the use of autonomous tightening of monetary policy in response to a credit-driven asset-price bubble?

Accepted Answer

Though a bubble may have begun with an a

Question 20

What are the effects of a financial crisis on short-run aggregate supply? How might long-run aggregate supply be affected?

Accepted Answer

A financial crisis affects short-run agg

Exam 15: Financial Crises and the Economy

If the value of a home falls below the amount owed on the mortgage for that property, the house is said to be ________.

The adverse consequences of debt deflation are most evident ________.

During the Great Depression, as real interest rates rose, good credit risks were less likely to seek loans. This process illustrates the phenomenon of ________.

When banks and other financial institutions become insolvent, ________.

How does macroprudential regulation relate to conventional measures to prevent fraud and promote transparency?

The expectations channel of monetary transmission takes the view that ________.

A rapid increase in the availability of credit to previously underserved borrowers is likely ________.

The Great Crash on the New York Stock Exchange occurred in ________.

From 1995-2007, the Irish economy________.

Following the collapse of its housing and stock markets around 1990, the Japanese government ________.

Assume that a firm has $100 million in real assets and $90 in real liabilities. If the price level rise by ten percent, the real value of its assets would ________.

The failure of a major financial company is often a trigger for a financial crisis. The main reason for trouble at a single firm to become a crisis for the entire economy is that ________.

A prominent aspect of the recent Great Recession, but not of the Great Depression of the 1930s, is ________.

The decline in net worth that can result from an unanticipated decline in the price level is known as ________.

A likely consequence of deposit insurance, ceteris paribus, is ________.

Instruments which provide payments to holders of bonds in the event of default are known as ________.

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

An individual firm is insolvent when ________.

What is the argument against the use of autonomous tightening of monetary policy in response to a credit-driven asset-price bubble?

What are the effects of a financial crisis on short-run aggregate supply? How might long-run aggregate supply be affected?

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