Question 1

A bank with a leverage ratio of 6.5 to 1 has

Accepted Answer

A)  $6.50 in assets for every $1 in liabilities. 
B)  $6.50 in assets for every $1 in capital. 
C)  $1 in assets for every $6.50 in capital. 
D)  $1 in assets for every $6.50 in liabilities. 
A)  $6.50 in assets for every $1 in liabilities. 
B)  $6.50 in assets for every $1 in capital. 
C)  $1 in assets for every $6.50 in capital. 
D)  $1 in assets for every $6.50 in liabilities.

Question 2

According to economist John Taylor,the Fed set its federal funds rate target too high during the period 2002-early 2006,which contributed to the financial crisis of 2007-2009.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following bank assets declined in value in the mid-2000s?

Accepted Answer

A)  subprime loans 
B)  mortgage-backed securities 
C)  collateralized debt obligations 
D)  nontraditional loans 
E)  all of the above 
A)  subprime loans 
B)  mortgage-backed securities 
C)  collateralized debt obligations 
D)  nontraditional loans 
E)  all of the above

Question 4

Rising savings rates in emerging countries in the period 2000-2008 are associated with both falling and rising mortgage interest rates in the United States.

Accepted Answer

A) True 
 B)False

Question 5

A bank has $200 million in assets and $230 million in liabilities. The bank's net worth is _____________ million and the bank is ____________.

Accepted Answer

A)  -$215; insolvent 
B)  -$30; insolvent 
C)  $15; solvent 
D)  $30; solvent 
A)  -$215; insolvent 
B)  -$30; insolvent 
C)  $15; solvent 
D)  $30; solvent

Question 6

Describe three of the ways that the U.S.federal government responded to the financial crisis of 2007-2009 and to the resulting problems in the real sector of the economy. Be sure to include in your answer the government's specific intent in each of these actions.

Accepted Answer

The federal government responses can gen

Question 7

According to Alan Greenspan,the type of inflation that the Taylor Rule is best at addressing is

Accepted Answer

A)  asset-price inflation 
B)  product-price inflation 
C)  both asset-price and product-price inflation 
D)  demand-induced-one-shot inflation 
E)  supply-induced one-shot inflation 
A)  asset-price inflation 
B)  product-price inflation 
C)  both asset-price and product-price inflation 
D)  demand-induced-one-shot inflation 
E)  supply-induced one-shot inflation

Question 8

The Federal National Mortgage Association (FNMA),also known as Fannie Mae,was established in ________to ____________ demand in the housing market.

Accepted Answer

A)  1970; increase 
B)  1938; increase 
C)  1938; decrease 
D)  1970; decrease 
A)  1970; increase 
B)  1938; increase 
C)  1938; decrease 
D)  1970; decrease

Question 9

When we say that the financial crisis can be viewed as a balance sheet problem,this is descriptive of

Accepted Answer

A)  banks' assets being greater than their liabilities. 
B)  banks possessing assets that are declining in value, resulting in banks approaching insolvency. 
C)  banks having low leverage ratios. 
D)  banks engaging in regulatory capital arbitrage. 
E)  none of the above 
A)  banks' assets being greater than their liabilities. 
B)  banks possessing assets that are declining in value, resulting in banks approaching insolvency. 
C)  banks having low leverage ratios. 
D)  banks engaging in regulatory capital arbitrage. 
E)  none of the above

Question 10

__________________ capital specifies the amount of capital financial institutions should hold based on the riskiness of their assets.

Accepted Answer

A)  Regulatory 
B)  Securitization-based 
C)  Risk-based 
D)  Leverage-based 
A)  Regulatory 
B)  Securitization-based 
C)  Risk-based 
D)  Leverage-based

Question 11

Describe how,according to some economists, the Fed's actions and the"global savings glut" both contributed to rising U.S.housing prices in the early 2000s.

Accepted Answer

There are some economists who argue that

Question 12

Collateralized debt obligations are

Accepted Answer

A)  like mortgage-backed securities except that the slices are equal. 
B)  like mortgage-backed securities except that the slices are unequal. 
C)  an asset for persons who buy them. 
D)  b and c 
E)  a and c 
A)  like mortgage-backed securities except that the slices are equal. 
B)  like mortgage-backed securities except that the slices are unequal. 
C)  an asset for persons who buy them. 
D)  b and c 
E)  a and c

Question 13

A bank has $390 million in assets and $330 million in liabilities. The bank's net worth is _____________ million and its leverage ratio is __________________.

Accepted Answer

A)  $360; 1.08 to 1 
B)  $60; 0.15 to 1 
C)  $40; 3.75 to 1 
D)  $60; 6.5 to 1 
A)  $360; 1.08 to 1 
B)  $60; 0.15 to 1 
C)  $40; 3.75 to 1 
D)  $60; 6.5 to 1

Question 14

According to Alan Greenspan,the Taylor rule is ________________ when trying to figure out the causes of sharp increases in housing prices. His opinion is based,in part,on his assertion that the Taylor rule addresses ____________ inflation,not ____________ inflation.

Accepted Answer

A)  inappropriate; product-price; asset-price 
B)  inappropriate; asset-price; product-price 
C)  appropriate; product-price; asset-price 
D)  appropriate; asset-price; product-price 
A)  inappropriate; product-price; asset-price 
B)  inappropriate; asset-price; product-price 
C)  appropriate; product-price; asset-price 
D)  appropriate; asset-price; product-price

Question 15

A bank has $200 million in assets and $150 million in liabilities. The banks net worth is _____________ million and its leverage ratio is __________________.

Accepted Answer

A)  $350; 0.56 to 1 
B)  $175; 1.14 to 1 
C)  $50; 4 to 1 
D)  $25; 8 to 1 
A)  $350; 0.56 to 1 
B)  $175; 1.14 to 1 
C)  $50; 4 to 1 
D)  $25; 8 to 1

Question 16

With collateralized debt obligations (CDOs)buyers are purchasing _________ slices,and buyers of mortgage-backed securities (MBSs)purchase ___________ slices.

Accepted Answer

A)  unequal; equal 
B)  equal; equal 
C)  unequal; unequal 
D)  equal; unequal 
A)  unequal; equal 
B)  equal; equal 
C)  unequal; unequal 
D)  equal; unequal

Question 17

If M = $1,200 billion and V = 4,then total spending is _______________billion. Then velocity falls to 2 and M rises to $2,000 billion,so that total spending is now _______________ billion,and GDP has _________________.

Accepted Answer

A)  $4,800; $4,000; declined 
B)  $300; $1,000; risen 
C)  $4,800; $4,000; risen 
D)  $1,204; $2,002; risen 
A)  $4,800; $4,000; declined 
B)  $300; $1,000; risen 
C)  $4,800; $4,000; risen 
D)  $1,204; $2,002; risen

Question 18

When the money supply increases at the same time that velocity is decreasing,total spending will

Accepted Answer

A)  always rise. 
B)  always decline. 
C)  fall if the decrease in velocity is relatively less than the increase in the money supply. 
D)  fall if the decrease in velocity is relatively greater than the increase in the money supply. 
A)  always rise. 
B)  always decline. 
C)  fall if the decrease in velocity is relatively less than the increase in the money supply. 
D)  fall if the decrease in velocity is relatively greater than the increase in the money supply.

Question 19

In the early 2000s,Fannie Mae and Freddie Mac came under political pressure to buy nontraditional loans.

Accepted Answer

A) True 
 B)False

Question 20

In the early 2000s,the Fed's ____________ interest rate policy had several effects. Among these effects were a _______________ in mortgage interest rates and a(n)____________ in the size of loans taken out by mortgage borrowers.

Accepted Answer

A)  high; decline; decrease 
B)  low; decline; increase 
C)  low; rise; increase 
D)  high; rise; increase 
A)  high; decline; decrease 
B)  low; decline; increase 
C)  low; rise; increase 
D)  high; rise; increase

Exam 18: The Financial Crisis of 2007-2009

A bank with a leverage ratio of 6.5 to 1 has

According to economist John Taylor,the Fed set its federal funds rate target too high during the period 2002-early 2006,which contributed to the financial crisis of 2007-2009.

Which of the following bank assets declined in value in the mid-2000s?

Rising savings rates in emerging countries in the period 2000-2008 are associated with both falling and rising mortgage interest rates in the United States.

A bank has $200 million in assets and $230 million in liabilities. The bank's net worth is _____________ million and the bank is ____________.

Describe three of the ways that the U.S.federal government responded to the financial crisis of 2007-2009 and to the resulting problems in the real sector of the economy. Be sure to include in your answer the government's specific intent in each of these actions.

According to Alan Greenspan,the type of inflation that the Taylor Rule is best at addressing is

The Federal National Mortgage Association (FNMA),also known as Fannie Mae,was established in ________to ____________ demand in the housing market.

When we say that the financial crisis can be viewed as a balance sheet problem,this is descriptive of

__________________ capital specifies the amount of capital financial institutions should hold based on the riskiness of their assets.

Describe how,according to some economists, the Fed's actions and the"global savings glut" both contributed to rising U.S.housing prices in the early 2000s.

Collateralized debt obligations are

A bank has $390 million in assets and $330 million in liabilities. The bank's net worth is _____________ million and its leverage ratio is __________________.

According to Alan Greenspan,the Taylor rule is ________________ when trying to figure out the causes of sharp increases in housing prices. His opinion is based,in part,on his assertion that the Taylor rule addresses ____________ inflation,not ____________ inflation.

A bank has $200 million in assets and $150 million in liabilities. The banks net worth is _____________ million and its leverage ratio is __________________.

With collateralized debt obligations (CDOs)buyers are purchasing _________ slices,and buyers of mortgage-backed securities (MBSs)purchase ___________ slices.

If M = $1,200 billion and V = 4,then total spending is _______________billion. Then velocity falls to 2 and M rises to $2,000 billion,so that total spending is now _______________ billion,and GDP has _________________.

When the money supply increases at the same time that velocity is decreasing,total spending will

In the early 2000s,Fannie Mae and Freddie Mac came under political pressure to buy nontraditional loans.

In the early 2000s,the Fed's ____________ interest rate policy had several effects. Among these effects were a _______________ in mortgage interest rates and a(n)____________ in the size of loans taken out by mortgage borrowers.

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, Controlled, and Relative

Supply, Demand, and Price: Applications

Macroeconomic Measurements: Prices and Unemployment

Macroeconomic Measurements: GDP and Real GDP

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self Regulating Economy

Keynesian Macroeconomics and Economic Instability: A Critique of the Self-Regulating Economy

Fiscal Policy and the Federal Budget

Money, Banking,and the Financial System

The Federal Reserve System

Money and the Economy

Monetary Policy

Expectations Theory and the Economy

Economic Growth: Resources, Technology, Ideas, and Institutions

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition, Oligopoly, and Game Theory

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages,Unions,and Labor

The Distribution of Income and Poverty

Interest, Rent, and Profit

Market Failure: Externalities, Public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

Globalization and International Impacts on the Economy

The Economic Case For and Against Government: Five Topics Considered

Stocks, Bonds, Futures, and Options

Agriculture: Problems, Policies, and Unintended Effects

Filters

A bank has $200 million in assets and $230 million in liabilities. The bank's net worth is _ million and the bank is .

The Federal National Mortgage Association (FNMA),also known as Fannie Mae,was established in to ____ demand in the housing market.

A bank has $390 million in assets and $330 million in liabilities. The bank's net worth is _ million and its leverage ratio is ______.

According to Alan Greenspan,the Taylor rule is ____ when trying to figure out the causes of sharp increases in housing prices. His opinion is based,in part,on his assertion that the Taylor rule addresses inflation,not inflation.

A bank has $200 million in assets and $150 million in liabilities. The banks net worth is _ million and its leverage ratio is ______.

With collateralized debt obligations (CDOs)buyers are purchasing _ slices,and buyers of mortgage-backed securities (MBSs)purchase ___ slices.

If M = $1,200 billion and V = 4,then total spending is _______billion. Then velocity falls to 2 and M rises to $2,000 billion,so that total spending is now _ billion,and GDP has ___________.

In the early 2000s,the Fed's ____ interest rate policy had several effects. Among these effects were a _ in mortgage interest rates and a(n)______ in the size of loans taken out by mortgage borrowers.