Question 1

Solvency is having:

Accepted Answer

A) assets that can be readily converted into cash. 
B) liabilities that can be readily converted into cash. 
C) sufficient assets to cover long-run liabilities. 
D) sufficient liabilities to cover long-run assets. 
A) assets that can be readily converted into cash. 
B) liabilities that can be readily converted into cash. 
C) sufficient assets to cover long-run liabilities. 
D) sufficient liabilities to cover long-run assets.

Question 2

The main difference between quantitative easing and credit easing is that:

Accepted Answer

A) quantitative easing changes the mix of the Fed's holdings, credit easing does not. 
B) credit easing changes the quality of the Fed's holdings, quantitative easing does not. 
C) credit easing shifts long-term interest rates down while quantitative easing shifts them up. 
D) There is no difference since both add credit to the economy. 
A) quantitative easing changes the mix of the Fed's holdings, credit easing does not. 
B) credit easing changes the quality of the Fed's holdings, quantitative easing does not. 
C) credit easing shifts long-term interest rates down while quantitative easing shifts them up. 
D) There is no difference since both add credit to the economy.

Question 3

Having a precommitment strategy gives the Fed the ability to alter the Fed funds rate when needed.

Accepted Answer

A) True 
 B)False

Question 4

The bursting of the stock market bubble was one of the contributing factors to the 2008 crisis.

Accepted Answer

A) True 
 B)False

Question 5

Buying financial assets from banks and other financial institutions in order to stimulate the economy is referred to as:

Accepted Answer

A) money easing. 
B) operation twist. 
C) quantitative easing. 
D) precommitment policy. 
A) money easing. 
B) operation twist. 
C) quantitative easing. 
D) precommitment policy.

Question 6

If housing prices are rising by 20 percent per year, you can borrow money at 5 percent per year, and you are sure housing prices will continue to rise in the future, you would be wise to:

Accepted Answer

A) not buy a house because it will leave you in debt. 
B) buy as many houses as you can. 
C) buy a house if you need a house. 
D) sell your house to get out of debt. 
A) not buy a house because it will leave you in debt. 
B) buy as many houses as you can. 
C) buy a house if you need a house. 
D) sell your house to get out of debt.

Question 7

If a firm or an industry is considered too big to fail, it is

Accepted Answer

A) unwise to regulate it because the regulation will slow growth. 
B) wise to regulate it because the regulation will make it smaller. 
C) wise to regulate it because of the moral hazard problem. 
D) unwise to regulate it because it is too big. 
A) unwise to regulate it because the regulation will slow growth. 
B) wise to regulate it because the regulation will make it smaller. 
C) wise to regulate it because of the moral hazard problem. 
D) unwise to regulate it because it is too big.

Question 8

If inflation increases, one would expect that the Fed would:

Accepted Answer

A) wind down unconventional policy more quickly. 
B) wind down unconventional policy more slowly. 
C) reintroduce unconventional policy. 
D) change unconventional policy to conventional policy. 
A) wind down unconventional policy more quickly. 
B) wind down unconventional policy more slowly. 
C) reintroduce unconventional policy. 
D) change unconventional policy to conventional policy.

Question 9

Suppose the people in my town hear a rumor that their local bank is in trouble and all rush to withdraw money from the bank. This is referred to as:

Accepted Answer

A) leverage. 
B) a moral hazard problem. 
C) a bad precedent problem. 
D) a bank run. 
A) leverage. 
B) a moral hazard problem. 
C) a bad precedent problem. 
D) a bank run.

Question 10

Leverage is best defined as:

Accepted Answer

A) the practice of buying an asset with borrowed money. 
B) using friends inside the banking industry to secure loans. 
C) the ability of people without income to secure mortgages. 
D) low interest rates at the beginning of the term of a loan that later rise. 
A) the practice of buying an asset with borrowed money. 
B) using friends inside the banking industry to secure loans. 
C) the ability of people without income to secure mortgages. 
D) low interest rates at the beginning of the term of a loan that later rise.

Question 11

Structural stagnationists believe expansionary monetary policy in the early 2000s:

Accepted Answer

A) was channeled into asset prices. 
B) created far too much inflation. 
C) required contractionary fiscal policy. 
D) was entirely ineffective in affecting the economy. 
A) was channeled into asset prices. 
B) created far too much inflation. 
C) required contractionary fiscal policy. 
D) was entirely ineffective in affecting the economy.

Question 12

If a financial asset is liquid, it is:

Accepted Answer

A) considered to be a safe asset with no chance of being deleveraged. 
B) an online asset and has no physical piece of paper associated with it. 
C) a highly desirable asset. 
D) an asset that can easily be converted into cash. 
A) considered to be a safe asset with no chance of being deleveraged. 
B) an online asset and has no physical piece of paper associated with it. 
C) a highly desirable asset. 
D) an asset that can easily be converted into cash.

Question 13

What are three unconventional monetary policies and how do they differ from conventional policies?

Accepted Answer

Three unconventional monetary policies a

Question 14

The purpose of the Dodd-Frank Wall Street Reform Act was to:

Accepted Answer

A) encourage banks to engage in more risk-taking. 
B) give banks the choice to report their holdings. 
C) force banks to limit their risk-taking. 
D) limit what stocks and mutual funds that investors could choose. 
A) encourage banks to engage in more risk-taking. 
B) give banks the choice to report their holdings. 
C) force banks to limit their risk-taking. 
D) limit what stocks and mutual funds that investors could choose.

Question 15

The efficient market hypothesis suggests that:

Accepted Answer

A) Congress is unable to pass effective laws. 
B) the Fed will be unable to pop an asset price bubble. 
C) asset price bubbles are a normal part of an economy. 
D) asset price bubbles won't occur. 
A) Congress is unable to pass effective laws. 
B) the Fed will be unable to pop an asset price bubble. 
C) asset price bubbles are a normal part of an economy. 
D) asset price bubbles won't occur.

Question 16

A financial bailout might make better sense on economic grounds than a bailout of the automotive industry because:

Accepted Answer

A) automobile companies are less deserving than financial companies. 
B) the automobile industry is smaller than the financial industry. 
C) the finance industry is necessary for other industries to function. 
D) the automobile industry brings problems on itself. 
A) automobile companies are less deserving than financial companies. 
B) the automobile industry is smaller than the financial industry. 
C) the finance industry is necessary for other industries to function. 
D) the automobile industry brings problems on itself.

Question 17

What is the Central Bank's primary role in a financial crisis?

Accepted Answer

The Central Bank's primary role in a fin

Question 18

In which two markets did an asset bubble form that led to a financial crisis in 2008?

Accepted Answer

A) Housing and mortgage-backed securities 
B) Housing and automobiles 
C) Mortgage-backed securities and tulips 
D) South Sea Company and tulips 
A) Housing and mortgage-backed securities 
B) Housing and automobiles 
C) Mortgage-backed securities and tulips 
D) South Sea Company and tulips

Question 19

Which type of expectations can lead to an asset price bubble?

Accepted Answer

A) Extrapolative 
B) Efficient 
C) Real 
D) Inverted 
A) Extrapolative 
B) Efficient 
C) Real 
D) Inverted

Question 20

What are extrapolative expectations?

Accepted Answer

Extrapolative expect

Exam 30: Financial Crises, Panics, and Unconventional Monetary Policy

Solvency is having:

The main difference between quantitative easing and credit easing is that:

Having a precommitment strategy gives the Fed the ability to alter the Fed funds rate when needed.

The bursting of the stock market bubble was one of the contributing factors to the 2008 crisis.

Buying financial assets from banks and other financial institutions in order to stimulate the economy is referred to as:

If housing prices are rising by 20 percent per year, you can borrow money at 5 percent per year, and you are sure housing prices will continue to rise in the future, you would be wise to:

If a firm or an industry is considered too big to fail, it is

If inflation increases, one would expect that the Fed would:

Suppose the people in my town hear a rumor that their local bank is in trouble and all rush to withdraw money from the bank. This is referred to as:

Leverage is best defined as:

Structural stagnationists believe expansionary monetary policy in the early 2000s:

If a financial asset is liquid, it is:

What are three unconventional monetary policies and how do they differ from conventional policies?

The purpose of the Dodd-Frank Wall Street Reform Act was to:

The efficient market hypothesis suggests that:

A financial bailout might make better sense on economic grounds than a bailout of the automotive industry because:

What is the Central Bank's primary role in a financial crisis?

In which two markets did an asset bubble form that led to a financial crisis in 2008?

Which type of expectations can lead to an asset price bubble?

What are extrapolative expectations?

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Market Failure Versus Government Failure

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

Economic Growth, Business Cycles, and Unemployment

Measuring and Describing the Aggregate Economy

The Keynesian Short-Run Policy Model: Demand-Side Policies

The Classical Long-Run Policy Model: Growth and Supply-Side Policies

The Financial Sector and the Economy

Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

Inflation, Deflation, and Macro Policy

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

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