Question 1

Discuss some of the financial innovations in mortgage markets that led to the U.S. financial crisis in 2007.

Accepted Answer

not answered

Question 2

In Stage Two of an financial crisis in an emerging economy, speculators engage in massive ________ of a currency if it is fixed against the U.S. dollar.

Accepted Answer

A) sales 
B) purchases 
C) either A or B can be correct 
D) neither A nor B is correct A

Question 3

Argentina's 2001-2002 financial crisis was precipitated by

Accepted Answer

A) a weak and poorly supervised banking system. 
B) a lending boom that fueled a stock market bubble. 
C) difficulty financing a large budget deficit. 
D) a decline in interest rates. C

Question 4

Adverse selection and moral hazard problems increased in magnitude during the early years of the Great Depression as

Accepted Answer

A) stock prices declined to 10 percent of their levels in 1929. 
B) banks failed. 
C) the aggregate price level declined. 
D) a result of all of the above. 
E) a result of A and B of the above.

Question 5

Bank failures have been a feature of all U.S. financial crises from 1800 to 1944.

Accepted Answer

A) True 
 B)False

Question 6

In an emerging market economy, there are typically two paths to a financial crisis: financial liberalization/globalization and ________.

Accepted Answer

A) asset pricing bubbles 
B) severe fiscal imbalances 
C) a global financial crisis 
D) none of the above

Question 7

The impact of the 2007-2009 financial crisis was widespread, including

Accepted Answer

A) the first major bank failure in the UK in over 100 years. 
B) the failure of Bear Stearns, the fifth-largest U.S. investment bank. 
C) the bailout of Fannie Mae and Freddie Mac by the U.S. Treasury. 
D) all of the above. 
E) only B and C of the above.

Question 8

Discuss why some view the Fed as a culprit in the U.S. housing bubble during the 2000s.

Accepted Answer

The answer of Discuss why some view the Fed as...

Question 9

Stage Three of a financial crisis in an advanced economy features

Accepted Answer

A) a general increase in inflation. 
B) debt deflation. 
C) an increase in general price levels. 
D) a full-fledged financial crisis.

Question 10

Factors that lead to worsening conditions in financial markets include

Accepted Answer

A) declining interest rates. 
B) anticipated increases in the price level. 
C) bank panics. 
D) only A and C of the above. 
E) only B and C of the above.

Question 11

The process of deleveraging refers to

Accepted Answer

A) cutbacks in lending by financial institutions. 
B) a reduction in debt owed by banks. 
C) both A and B. 
D) none of the above.

Question 12

In an emerging market economy, a country typically faces a ________ fiscal policy before a crisis initiates.

Accepted Answer

A) solid 
B) poor 
C) weakening 
D) uncertain

Question 13

In an emerging market economy, a lending boom and crash are inevitable outcomes of financial liberalization and globalization.

Accepted Answer

A) True 
 B)False

Question 14

Prior to the financial crisis in Mexico in 1994, Mexico ran a budget deficit of around ________ of GDP.

Accepted Answer

A) 120% 
B) 40% 
C) 15% 
D) 1%

Question 15

In addition to having a direct effect on increasing adverse selection problems, increases in interest rates also promote financial crises by ________ firms' and households' interest payments, thereby ________ their cash flow.

Accepted Answer

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

Question 16

In an emerging market economy, a lending boom and crash are not inevitable outcomes of financial liberalization and globalization. Discuss when a boom and crash will occur, and how it can be avoided.

Accepted Answer

The answer of In an emerging market economy, a lending...

Question 17

Stock market declines preceded a full-blown financial crisis

Accepted Answer

A) in the United States in 1987. 
B) in the United States in 2000. 
C) in Indonesia in 1997. 
D) in all of the above. 
E) in none of the above.

Question 18

What is a credit default swap?

Accepted Answer

A) a swap agreement where two parties swap credit payments 
B) an agreement to swap interest payments when one party defaults 
C) a type of insurance against bond defaults 
D) a swap between credit rating agencies

Question 19

Which of the following led to the U.S. financial crisis of 2007-2009?

Accepted Answer

A) financial innovation in mortgage markets 
B) agency problems in mortgage markets 
C) an increase in moral hazard at credit rating agencies 
D) all of the above 
E) only A and B of the above

Question 20

In an emerging market economy, bank regulators typically provide ________ supervision.

Accepted Answer

A) overbearing 
B) adequate 
C) weak 
D) expert

Exam 8: Why Do Financial Crises Occur and Why Are They so Damaging to the Economy