Question 1

During the Great Recession,the growth rate of Real GDP _________________ and the inflation rate ___________________.

Accepted Answer

A)  increased; declined 
B)  declined; increased 
C)  declined; also declined 
D)  increased; also increased 
A)  increased; declined 
B)  declined; increased 
C)  declined; also declined 
D)  increased; also increased

Question 2

Define the terms financial sector and real sector. Describe the processes by which a number of banks becoming insolvent (or approaching insolvency)can have an adverse impact on the real sector.

Accepted Answer

The financial sector consists of commerc

Question 3

Suppose the Fed lowers its federal funds rate target. The Fed probably seeks to

Accepted Answer

A)  lower the actual federal funds rate. 
B)  raise the actual federal funds rate. 
C)  leave unchanged the actual federal funds rate 
D)  b or c 
E)  a or c 
A)  lower the actual federal funds rate. 
B)  raise the actual federal funds rate. 
C)  leave unchanged the actual federal funds rate 
D)  b or c 
E)  a or c

Question 4

Bank B takes 15,000 mortgage loans,bundles them together,and then sells slices of the bundle. This is descriptive of

Accepted Answer

A)  creating a mortgage-backed security. 
B)  creating a mortgage-backed liability. 
C)  buying a collateralized debt obligation. 
D)  selling a simple loan. 
E)  none of the above 
A)  creating a mortgage-backed security. 
B)  creating a mortgage-backed liability. 
C)  buying a collateralized debt obligation. 
D)  selling a simple loan. 
E)  none of the above

Question 5

Describe the differences between traditional and nontraditional lending practices. Under which category do subprime loans belong?

Accepted Answer

In traditional lending,borrowers must pr

Question 6

Which of the following is more nearly consistent with a global savings glut?

Accepted Answer

A)  high interest rates and the global savings-World GDP ratio is low 
B)  low interest rates and the global savings-World GDP ratio is low 
C)  high interest rates and the global savings-World GDP ratio is high 
D)  low interest rates and the global savings-World GDP ratio is high 
E)  none of the above 
A)  high interest rates and the global savings-World GDP ratio is low 
B)  low interest rates and the global savings-World GDP ratio is low 
C)  high interest rates and the global savings-World GDP ratio is high 
D)  low interest rates and the global savings-World GDP ratio is high 
E)  none of the above

Question 7

When housing prices rise,homeowners gain equity in their homes.

Accepted Answer

A) True 
 B)False

Question 8

Suppose that a bank has $500 million in asset X,$400 million in asset Y,and $200 million in asset Z. Each asset has a different risk weight. The risk weight for asset X is 40%,the risk weight for asset Y is 70%,and asset Z has zero risk. The amount of risk-weighted assets for this bank is ____________ million. Assuming that the bank has to hold capital equal to 8% of its risk-weighted assets,the bank must hold _____________ million in capital.

Accepted Answer

A)  $480; $38.4 
B)  $1,100; $88 
C)  $1,100; $880 
D)  $340; $27.2 
A)  $480; $38.4 
B)  $1,100; $88 
C)  $1,100; $880 
D)  $340; $27.2

Question 9

What does the term run on the bank mean?

Accepted Answer

A)  People will rush in to deposit money in the bank. 
B)  People will rush to buy the bank's stock. 
C)  Depositers of the bank will rush in to close out their accounts at the bank. 
D)  Depositers of the bank will rush in to add money to the accounts they already have with the bank. 
E)  none of the above 
A)  People will rush in to deposit money in the bank. 
B)  People will rush to buy the bank's stock. 
C)  Depositers of the bank will rush in to close out their accounts at the bank. 
D)  Depositers of the bank will rush in to add money to the accounts they already have with the bank. 
E)  none of the above

Question 10

A subprime mortgage loan is a loan granted to persons who

Accepted Answer

A)  have unusually good credit ratings and who represent a very low risk of default on the debt repayment. 
B)  are borrowing funds to purchase a business, rather than a home. 
C)  might have low credit ratings or some other factors that lead lenders to believe that they could default on the debt repayment. 
D)  work for the government, rather than those who work in the private sector. 
A)  have unusually good credit ratings and who represent a very low risk of default on the debt repayment. 
B)  are borrowing funds to purchase a business, rather than a home. 
C)  might have low credit ratings or some other factors that lead lenders to believe that they could default on the debt repayment. 
D)  work for the government, rather than those who work in the private sector.

Question 11

A bank initially has $250 million in assets and $200 million in liabilities. The banks net worth (capital)is _____________ million. If the bank's assets decline by 10% and its liabilities do not change,its capital decreases by ____________ .

Accepted Answer

A)  $50; 50% 
B)  $50; 100% 
C)  $50; 10% 
D)  $450; 10% 
A)  $50; 50% 
B)  $50; 100% 
C)  $50; 10% 
D)  $450; 10%

Question 12

All other things being equal among the banks below,which bank is the least likely to become insolvent?

Accepted Answer

A)  Bank A with assets of $100 million and liabilities of $80 million. 
B)  Bank B with assets of $100 million and liabilities of $70 million. 
C)  Bank C with assets of $200 million and liabilities of $120 million. 
D)  Bank D with assets of $400 million and liabilities of $310 million. 
E)  Bank E with assets of $100 million and liabilities of $60 million. 
A)  Bank A with assets of $100 million and liabilities of $80 million. 
B)  Bank B with assets of $100 million and liabilities of $70 million. 
C)  Bank C with assets of $200 million and liabilities of $120 million. 
D)  Bank D with assets of $400 million and liabilities of $310 million. 
E)  Bank E with assets of $100 million and liabilities of $60 million.

Question 13

The downside to a bank having a high leverage ratio is that a decline in asset value magnifies losses.

Accepted Answer

A) True 
 B)False

Question 14

A bank is solvent as long as its liabilities are greater than its assets.

Accepted Answer

A) True 
 B)False

Question 15

In February 2009,Congress passed (and President Obama signed)a $787 billion fiscal stimulus bill in an attempt to improve the economy.

Accepted Answer

A) True 
 B)False

Question 16

The Community Reinvestment Act (CRA)was passed in 1977 to encourage financial institutions to_________________________. It was revised in 1995 to ____________ the percentage of mortgage loans going to low- and moderate-income borrowers.

Accepted Answer

A)  lend to only the most qualified borrowers; increase 
B)  meet the needs of borrowers in all segments of their communities; decrease 
C)  meet the needs of borrowers in all segments of their communities; increase 
D)  lend to only the most qualified borrowers; decrease 
A)  lend to only the most qualified borrowers; increase 
B)  meet the needs of borrowers in all segments of their communities; decrease 
C)  meet the needs of borrowers in all segments of their communities; increase 
D)  lend to only the most qualified borrowers; decrease

Question 17

During the early 2000s the Fed's __________ federal funds rate targets led to a ___________ in mortgage interest rates.

Accepted Answer

A)  low; rise 
B)  high; rise. 
C)  low; rise.. 
D)  low; decline 
A)  low; rise 
B)  high; rise. 
C)  low; rise.. 
D)  low; decline

Question 18

As a bank approaches insolvency,it is likely to

Accepted Answer

A)  decrease its lending activities. 
B)  increase its lending activities. 
C)  find that its capital is declining. 
D)  try to increase its liabilities 
E)  a and c 
A)  decrease its lending activities. 
B)  increase its lending activities. 
C)  find that its capital is declining. 
D)  try to increase its liabilities 
E)  a and c

Question 19

A bank initially has $190 million in assets and $150 million in liabilities. The banks net worth (capital)is _____________ million. If the bank's assets increase by 10% and its liabilities do not change,its capital increases by ____________ .

Accepted Answer

A)  $340; 10% 
B)  $40; 47.5% 
C)  $40; 10% 
D)  $40; 32.2% 
A)  $340; 10% 
B)  $40; 47.5% 
C)  $40; 10% 
D)  $40; 32.2%

Question 20

The Taylor rule is a recommendation of how

Accepted Answer

A)  banks should determine worthy loan recipients. 
B)  the Fed should set the required reserve ratio. 
C)  the Fed should set the federal funds rate target. 
D)  banks should securitize their debt. 
A)  banks should determine worthy loan recipients. 
B)  the Fed should set the required reserve ratio. 
C)  the Fed should set the federal funds rate target. 
D)  banks should securitize their debt.

Exam 18: The Financial Crisis of 2007-2009

During the Great Recession,the growth rate of Real GDP _________________ and the inflation rate ___________________.

Define the terms financial sector and real sector. Describe the processes by which a number of banks becoming insolvent (or approaching insolvency)can have an adverse impact on the real sector.

Suppose the Fed lowers its federal funds rate target. The Fed probably seeks to

Bank B takes 15,000 mortgage loans,bundles them together,and then sells slices of the bundle. This is descriptive of

Describe the differences between traditional and nontraditional lending practices. Under which category do subprime loans belong?

Which of the following is more nearly consistent with a global savings glut?

When housing prices rise,homeowners gain equity in their homes.

What does the term run on the bank mean?

A subprime mortgage loan is a loan granted to persons who

A bank initially has $250 million in assets and $200 million in liabilities. The banks net worth (capital)is _____________ million. If the bank's assets decline by 10% and its liabilities do not change,its capital decreases by ____________ .

All other things being equal among the banks below,which bank is the least likely to become insolvent?

The downside to a bank having a high leverage ratio is that a decline in asset value magnifies losses.

A bank is solvent as long as its liabilities are greater than its assets.

In February 2009,Congress passed (and President Obama signed)a $787 billion fiscal stimulus bill in an attempt to improve the economy.

The Community Reinvestment Act (CRA)was passed in 1977 to encourage financial institutions to_________________________. It was revised in 1995 to ____________ the percentage of mortgage loans going to low- and moderate-income borrowers.

During the early 2000s the Fed's __________ federal funds rate targets led to a ___________ in mortgage interest rates.

As a bank approaches insolvency,it is likely to

A bank initially has $190 million in assets and $150 million in liabilities. The banks net worth (capital)is _____________ million. If the bank's assets increase by 10% and its liabilities do not change,its capital increases by ____________ .

The Taylor rule is a recommendation of how

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

During the Great Recession,the growth rate of Real GDP _ and the inflation rate ___.

A bank initially has $250 million in assets and $200 million in liabilities. The banks net worth (capital)is _ million. If the bank's assets decline by 10% and its liabilities do not change,its capital decreases by .

The Community Reinvestment Act (CRA)was passed in 1977 to encourage financial institutions to_____________. It was revised in 1995 to the percentage of mortgage loans going to low- and moderate-income borrowers.

During the early 2000s the Fed's federal funds rate targets led to a _ in mortgage interest rates.

A bank initially has $190 million in assets and $150 million in liabilities. The banks net worth (capital)is _ million. If the bank's assets increase by 10% and its liabilities do not change,its capital increases by .