Question 1

Quantitative easing involves all of the following except:

Accepted Answer

A) higher long-term interest rates. 
B) higher asset prices. 
C) Lower long-term interest rates. 
D) Purchasing longer-term bonds. 
A) higher long-term interest rates. 
B) higher asset prices. 
C) Lower long-term interest rates. 
D) Purchasing longer-term bonds.

Question 2

The graph below shows what happens when the Fed implements:

Accepted Answer

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

Question 3

What is the moral hazard problem?

Accepted Answer

The moral hazard problem is a

Question 4

Quantitative easing refers to:

Accepted Answer

A) a gradual reduction in interest rates by the Federal Reserve. 
B) looser restrictions on banks' investments in derivatives. 
C) a gradual reduction in marginal tax rates. 
D) nonstandard monetary policy designed to extend credit in the economy. 
A) a gradual reduction in interest rates by the Federal Reserve. 
B) looser restrictions on banks' investments in derivatives. 
C) a gradual reduction in marginal tax rates. 
D) nonstandard monetary policy designed to extend credit in the economy.

Question 5

I invest $100 in a stock and borrow 90 percent of the $100 at 10 percent. The stock price rises by 20 percent. The rate of return on my investment is:

Accepted Answer

A) 10 percent. 
B) 90 percent. 
C) 110 percent. 
D) 100 percent. 
A) 10 percent. 
B) 90 percent. 
C) 110 percent. 
D) 100 percent.

Question 6

Leveraging can encourage herding behavior.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following would have the impact shown in the accompanying graph?

Accepted Answer

A) Operation twist 
B) Money easing 
C) Quantitative easing 
D) Precommitment policy 
A) Operation twist 
B) Money easing 
C) Quantitative easing 
D) Precommitment policy

Question 8

To offset the moral hazard problem created by the FDIC, the government:

Accepted Answer

A) created securities to spread the risks. 
B) created the Federal Reserve Bank. 
C) separated banks from other financial institutions. 
D) required individuals to pay a portion of the insurance costs. 
A) created securities to spread the risks. 
B) created the Federal Reserve Bank. 
C) separated banks from other financial institutions. 
D) required individuals to pay a portion of the insurance costs.

Question 9

A policy buying a wide range of financial assets from banks and other financial institutions in order to stimulate the economy is called:

Accepted Answer

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

Question 10

Initially, policy makers were not concerned about the financial crisis because:

Accepted Answer

A) conventional economic theory was telling them they did not have to worry about such an event occurring. 
B) no other comparable crisis had happened before in history. 
C) fiscal policy would kick in to stabilize the economy. 
D) banks and other financial institutions had convinced policy makers that they would take care of any type of crisis. 
A) conventional economic theory was telling them they did not have to worry about such an event occurring. 
B) no other comparable crisis had happened before in history. 
C) fiscal policy would kick in to stabilize the economy. 
D) banks and other financial institutions had convinced policy makers that they would take care of any type of crisis.

Question 11

What are the three general principles that most economists share about dealing with a financial crisis?

Accepted Answer

Three general principles about

Question 12

Government regulations that deal with financial crises tend to become less effective over time.

Accepted Answer

A) True 
 B)False

Question 13

What role do economists' view on special interests play in economists' views on regulation?

Accepted Answer

Even if one can determine what regulatio

Question 14

The recent regulation that was designed to limit risk-taking by banks by requiring them to report their holdings is called the:

Accepted Answer

A) Glass-Steagall Act. 
B) Dodd-Frank Wall Street Reform and Consumer Protection Act. 
C) Troubled Asset Relief Program. 
D) Federal Deposit Insurance Act. 
A) Glass-Steagall Act. 
B) Dodd-Frank Wall Street Reform and Consumer Protection Act. 
C) Troubled Asset Relief Program. 
D) Federal Deposit Insurance Act.

Question 15

Moral hazard is a problem that arises when:

Accepted Answer

A) people are required to bear the negative consequences of their actions. 
B) people don't have to bear the negative consequences of their actions. 
C) people benefit from the negative actions of others. 
D) government discourages companies from taking risks. 
A) people are required to bear the negative consequences of their actions. 
B) people don't have to bear the negative consequences of their actions. 
C) people benefit from the negative actions of others. 
D) government discourages companies from taking risks.

Question 16

Extrapolative expectations are expectations that:

Accepted Answer

A) are consistent with trending expectations. 
B) a trend will reverse. 
C) are consistent with economists' expectations. 
D) a trend will continue. 
A) are consistent with trending expectations. 
B) a trend will reverse. 
C) are consistent with economists' expectations. 
D) a trend will continue.

Question 17

When the Fed loaned to banks using banks' long-run assets such as mortgages as collateral, it was:

Accepted Answer

A) loosening its regulations of bank. 
B) providing banks with liquidity. 
C) giving banks assets. 
D) conducting standard monetary policy. 
A) loosening its regulations of bank. 
B) providing banks with liquidity. 
C) giving banks assets. 
D) conducting standard monetary policy.

Question 18

The central bank unwound unconventional policy slowly because:

Accepted Answer

A) the policy had become conventional. 
B) the economy remained in a recession. 
C) the Fed was concerned doing so quickly would lead to a sudden fall in asset prices. 
D) the Fed was unclear how it could unwind the policy. 
A) the policy had become conventional. 
B) the economy remained in a recession. 
C) the Fed was concerned doing so quickly would lead to a sudden fall in asset prices. 
D) the Fed was unclear how it could unwind the policy.

Question 19

Define each of the following: the moral hazard problem,the law of diminishing control,and the bad precedent problem.

Accepted Answer

The moral hazard problem arises when peo

Question 20

The two main causes of an asset price bubble are:

Accepted Answer

A) herding and leverage. 
B) herding and budget deficits. 
C) budget surpluses and leverage. 
D) herding and budget surpluses. 
A) herding and leverage. 
B) herding and budget deficits. 
C) budget surpluses and leverage. 
D) herding and budget surpluses.

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

Quantitative easing involves all of the following except:

The graph below shows what happens when the Fed implements:

What is the moral hazard problem?

Quantitative easing refers to:

I invest $100 in a stock and borrow 90 percent of the $100 at 10 percent. The stock price rises by 20 percent. The rate of return on my investment is:

Leveraging can encourage herding behavior.

Which of the following would have the impact shown in the accompanying graph?

To offset the moral hazard problem created by the FDIC, the government:

A policy buying a wide range of financial assets from banks and other financial institutions in order to stimulate the economy is called:

Initially, policy makers were not concerned about the financial crisis because:

What are the three general principles that most economists share about dealing with a financial crisis?

Government regulations that deal with financial crises tend to become less effective over time.

What role do economists' view on special interests play in economists' views on regulation?

The recent regulation that was designed to limit risk-taking by banks by requiring them to report their holdings is called the:

Moral hazard is a problem that arises when:

Extrapolative expectations are expectations that:

When the Fed loaned to banks using banks' long-run assets such as mortgages as collateral, it was:

The central bank unwound unconventional policy slowly because:

Define each of the following: the moral hazard problem,the law of diminishing control,and the bad precedent problem.

The two main causes of an asset price bubble are:

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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