Question 1

How does pre-commitment policy work?

Accepted Answer

A pre-commitment policy works by giving

Question 2

Deposit insurance is:

Accepted Answer

A) private insurance by depositors to guarantee against a bank run that would affect deposits. 
B) government insurance that promised to reimburse individuals for loss in the value of deposits. 
C) a regulation that limits how much an individual can deposit at a single bank to avoid bank runs. 
D) a Federal Reserve Bank regulation that covered deposits by individuals against losses. 
A) private insurance by depositors to guarantee against a bank run that would affect deposits. 
B) government insurance that promised to reimburse individuals for loss in the value of deposits. 
C) a regulation that limits how much an individual can deposit at a single bank to avoid bank runs. 
D) a Federal Reserve Bank regulation that covered deposits by individuals against losses.

Question 3

Purchasing long-term government bonds from private financial corporations for the purpose of changing the quality of assets held by the Fed is called:

Accepted Answer

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

Question 4

I buy 100 shares of stock at $2 a share, with $100 of my own money. I borrow another $100 at 10 percent interest. The share price stays constant at $2. My rate of return is approximately:

Accepted Answer

A) 2 percent. 
B) 0 percent. 
C) −5 percent. 
D) −10 percent. 
A) 2 percent. 
B) 0 percent. 
C) −5 percent. 
D) −10 percent.

Question 5

What is the law of diminishing control?

Accepted Answer

The law of diminishing control

Question 6

The FDIC is an example of:

Accepted Answer

A) the Glass-Steagall Act 
B) a Federal Reserve Bank tool. 
C) risk premium. 
D) deposit insurance. 
A) the Glass-Steagall Act 
B) a Federal Reserve Bank tool. 
C) risk premium. 
D) deposit insurance.

Question 7

Why does leverage often become the means by which bubbles are inflated?

Accepted Answer

As asset prices rise,and positive expect

Question 8

An important role of central banks during a financial crisis is:

Accepted Answer

A) passing new bank regulations. 
B) acting as the lender of last resort. 
C) closing banks. 
D) eliminating bank reserves. 
A) passing new bank regulations. 
B) acting as the lender of last resort. 
C) closing banks. 
D) eliminating bank reserves.

Question 9

What is leverage and how can it lead to a financial meltdown?

Accepted Answer

Leverage is borrowing to make financial

Question 10

Structural stagnationists believe:

Accepted Answer

A) the efficient market hypothesis is operational at all times. 
B) people can be irrational at times. 
C) people are generally irrational. 
D) the efficient market hypothesis is never operational. 
A) the efficient market hypothesis is operational at all times. 
B) people can be irrational at times. 
C) people are generally irrational. 
D) the efficient market hypothesis is never operational.

Question 11

The Fed sells short-term debt and uses the proceeds to buy long-term debt. This represents:

Accepted Answer

A) precommitment policies. 
B) standard monetary policy. 
C) quantitative easing. 
D) operation twist. 
A) precommitment policies. 
B) standard monetary policy. 
C) quantitative easing. 
D) operation twist.

Question 12

One of the roles of the Fed is to be the lender of last resort.

Accepted Answer

A) True 
 B)False

Question 13

A problem with a precommitment policy is that it:

Accepted Answer

A) determines the Fed's response for a period of time. 
B) binds the hands of the Fed from responding to unexpected events. 
C) will cause the Fed to lose credibility. 
D) locks the Fed into contractionary policy. 
A) determines the Fed's response for a period of time. 
B) binds the hands of the Fed from responding to unexpected events. 
C) will cause the Fed to lose credibility. 
D) locks the Fed into contractionary policy.

Question 14

Which of the following did not contribute to the law of diminishing control?

Accepted Answer

A) New financial institutions and instruments 
B) Political pressure to reduce regulations 
C) New monetary policy tools 
D) Regulations covered fewer financial instruments 
A) New financial institutions and instruments 
B) Political pressure to reduce regulations 
C) New monetary policy tools 
D) Regulations covered fewer financial instruments

Question 15

Asset price bubbles are not sustainable because:

Accepted Answer

A) people realize that leverage really doesn't work mathematically. 
B) invariably the government steps in to burst the asset price bubble. 
C) investors eventually run out of assets with which to purchase the good. 
D) they do not reflect an increase in the real productive value of the asset. 
A) people realize that leverage really doesn't work mathematically. 
B) invariably the government steps in to burst the asset price bubble. 
C) investors eventually run out of assets with which to purchase the good. 
D) they do not reflect an increase in the real productive value of the asset.

Question 16

When the Fed is changing the quality of the assets it holds, this is called:

Accepted Answer

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

Question 17

The Glass-Steagall Act was set up to:

Accepted Answer

A) regulate financial institutions after the Savings and Loan Crisis the 1980s. 
B) give the federal government the sole responsibility in carrying out fiscal policy to regulate the economy. 
C) establish banking regulations and deposit insurance as a result of the 1930s crisis. 
D) regulate the derivatives market as a result of the 2008 crisis. 
A) regulate financial institutions after the Savings and Loan Crisis the 1980s. 
B) give the federal government the sole responsibility in carrying out fiscal policy to regulate the economy. 
C) establish banking regulations and deposit insurance as a result of the 1930s crisis. 
D) regulate the derivatives market as a result of the 2008 crisis.

Question 18

The aim of unconventional monetary policy tools is to:

Accepted Answer

A) stimulate the economy in coordination with fiscal policy. 
B) slow down liquidity and increase interest rates. 
C) boost liquidity and reduce interest rates when credit channels are clogged. 
D) increase the value of the dollar. 
A) stimulate the economy in coordination with fiscal policy. 
B) slow down liquidity and increase interest rates. 
C) boost liquidity and reduce interest rates when credit channels are clogged. 
D) increase the value of the dollar.

Question 19

Liquidity is:

Accepted Answer

A) having assets that can be readily converted into cash. 
B) having 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) having assets that can be readily converted into cash. 
B) having 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 20

Why did the bursting of bubbles in 2007 lead to financial meltdowns,rather than just mild recessions?

Accepted Answer

There are many reasons,but one very impo

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

How does pre-commitment policy work?

Deposit insurance is:

Purchasing long-term government bonds from private financial corporations for the purpose of changing the quality of assets held by the Fed is called:

I buy 100 shares of stock at $2 a share, with $100 of my own money. I borrow another $100 at 10 percent interest. The share price stays constant at $2. My rate of return is approximately:

What is the law of diminishing control?

The FDIC is an example of:

Why does leverage often become the means by which bubbles are inflated?

An important role of central banks during a financial crisis is:

What is leverage and how can it lead to a financial meltdown?

Structural stagnationists believe:

The Fed sells short-term debt and uses the proceeds to buy long-term debt. This represents:

One of the roles of the Fed is to be the lender of last resort.

A problem with a precommitment policy is that it:

Which of the following did not contribute to the law of diminishing control?

Asset price bubbles are not sustainable because:

When the Fed is changing the quality of the assets it holds, this is called:

The Glass-Steagall Act was set up to:

The aim of unconventional monetary policy tools is to:

Liquidity is:

Why did the bursting of bubbles in 2007 lead to financial meltdowns,rather than just mild recessions?

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

Macro Policy in Developing Countries

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