Question 1

If a 10-year Treasury bond pays 1.5% and a 10-year corporate bond pays 6.0%, what is the interest rate spread on this particular corporate bond?

Accepted Answer

A)  4.0% 
B)  4.5% 
C)  7.5% 
D)  9.0% 
A)  4.0% 
B)  4.5% 
C)  7.5% 
D)  9.0%

Question 2

When the housing bubble burst, prices fell particularly severely in

Accepted Answer

A)  Georgia. 
B)  Nevada. 
C)  Pennsylvania. 
D)  West Virginia. 
A)  Georgia. 
B)  Nevada. 
C)  Pennsylvania. 
D)  West Virginia.

Question 3

In 2008, interest rates on Treasury securities fell even though most other interest rates were rising.

Accepted Answer

A) True 
 B)False

Question 4

In 2007, which U.S.firm showed the first indication of significant problems in the financial sector?

Accepted Answer

A)  AIG 
B)  Bear Stearns 
C)  J.P.Morgan Chase 
D)  Lehman Brothers 
A)  AIG 
B)  Bear Stearns 
C)  J.P.Morgan Chase 
D)  Lehman Brothers

Question 5

Subprime mortgages frequently featured small or zero down payments.

Accepted Answer

A) True 
 B)False

Question 6

In computing GDP, new home construction adds to

Accepted Answer

A)  consumption. 
B)  investment. 
C)  government spending. 
D)  net exports. 
A)  consumption. 
B)  investment. 
C)  government spending. 
D)  net exports.

Question 7

Leverage is essential to a bank's profitability but it also increases risk.

Accepted Answer

A) True 
 B)False

Question 8

If the reserve ratio was 10% for the bank with the balance sheet listed below, then this bank is being
$\begin{array}{c}
\begin{array}{lr}
\text { Assets }\
\text { Reserves } &\$ 2,500,000  \
\text { Loans Outstanding } & \$ 2,000,000  \
\hline \text { Total } & \$ 5,500,000\
\
\
\end{array}
\begin{array}{lll}
\text { Liabilities \& Net Worth }\

\text {Checking deposits}& \$ 5,000,000\
\
\text { Net Worth }\
\text {Stockholders' Equity}& \$ 500,000\
\hline \text { Total}& \$5,500,000 \
\end{array}
\end{array}$

Accepted Answer

A)  aggressive as indicated by a small amount of excess reserves. 
B)  aggressive as indicated by a large amount of excess reserves. 
C)  cautious as indicated by a small amount of excess reserves. 
D)  cautious as indicated by a large amount of excess reserves. 
A)  aggressive as indicated by a small amount of excess reserves. 
B)  aggressive as indicated by a large amount of excess reserves. 
C)  cautious as indicated by a small amount of excess reserves. 
D)  cautious as indicated by a large amount of excess reserves.

Question 9

Despite both monetary and fiscal policy actions, real GDP declined at an annualized rate of 6% during the last quarter of 2008 and the first quarter of 2009.

Accepted Answer

A) True 
 B)False

Question 10

The Federal Reserve helped J.P.Morgan purchased Bear Stearns by agreeing to purchase some unwanted Bear Stearns assets.

Accepted Answer

A) True 
 B)False

Question 11

The increased level of excess reserves that many banks held in 2008 made traditional monetary policy less effective.

Accepted Answer

A) True 
 B)False

Question 12

A bank would be considered insolvent when the value of its liabilities exceed its

Accepted Answer

A)  assets. 
B)  required reserves. 
C)  actual reserves. 
D)  net worth. 
A)  assets. 
B)  required reserves. 
C)  actual reserves. 
D)  net worth.

Question 13

Assuming that the reserve ratio is 10%, what amount of excess reserves are held by with the bank balance sheet listed below?
$\begin{array}{c}
\begin{array}{lr}
\text { Assets }\
\text { Reserves } &\$ 280,000  \
\text { Loans Outstanding } & \$ 2,920,000  \
\hline \text { Total } & \$ 3,200,000\
\
\
\end{array}
\begin{array}{lll}
\text { Liabilities \& Net Worth }\

\text {Checking deposits}& \$ 2,800,000\
\
\text { Net Worth }\
\text {Stockholders' Equity}& \$ 400,000\
\hline \text { Total}& \$3,200,000 \
\end{array}
\end{array}$

Accepted Answer

A)  zero 
B)  $240,000 
C)  $280,000 
D)  $320,000 
A)  zero 
B)  $240,000 
C)  $280,000 
D)  $320,000

Question 14

An increase in the price of a particular bond implies an increase in the interest rate for that bond.

Accepted Answer

A) True 
 B)False

Question 15

If a 10-year Treasury bond pays 3.1% and a 10-year corporate bond pays 7.4%, what is the interest rate spread on this particular corporate bond?

Accepted Answer

A)  4.3% 
B)  7.4% 
C)  10.5% 
D)  22.9% 
A)  4.3% 
B)  7.4% 
C)  10.5% 
D)  22.9%

Question 16

What is the leverage implied by the bank balance sheet listed below?
$\begin{array}{c}
\begin{array}{lr}
\text { Assets }\
\text { Reserves } & \$ 280,000 \
\text { Loans Outstanding } & \$ 2,920,000 \
\hline \text { Total } & \$ 3,200,000\
\
\
\end{array}
\begin{array}{lll}
\text { Liabilities \& Net Worth }\

\text {Checking deposits}& \$ 2,800,000\
\
\text { Net Worth }\
\text {Stockholders' Equity}& \$ 400,000 \
\hline \text { Total}& \$ 3,200,000 \
\end{array}
\end{array}$

Accepted Answer

A)  2-to-1 
B)  7-to-1 
C)  8-to-1 
D)  10-to-1 
A)  2-to-1 
B)  7-to-1 
C)  8-to-1 
D)  10-to-1

Question 17

The first signs of major financial problems associated with the financial sector and real estate investment appeared in 2009.

Accepted Answer

A) True 
 B)False

Question 18

During the 2000 to 2006 time period, housing prices increased but only to a limited degree.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following are not valid arguments against the effectiveness of the fiscal stimulus bill?

Accepted Answer

A)  Employment continued to fall into early 2010. 
B)  Without stimulus recessions come to an end naturally. 
C)  State and local government spending increased. 
D)  Monetary policy played a large role in stimulating the economy. 
A)  Employment continued to fall into early 2010. 
B)  Without stimulus recessions come to an end naturally. 
C)  State and local government spending increased. 
D)  Monetary policy played a large role in stimulating the economy.

Question 20

During the financial crisis associated with the Great Recession, the interest rate spread between Treasury bills and bank-to-bank lending increased substantially.

Accepted Answer

A) True 
 B)False

Exam 31: The Financial Crisis and the Great Recession

If a 10-year Treasury bond pays 1.5% and a 10-year corporate bond pays 6.0%, what is the interest rate spread on this particular corporate bond?

When the housing bubble burst, prices fell particularly severely in

In 2008, interest rates on Treasury securities fell even though most other interest rates were rising.

In 2007, which U.S.firm showed the first indication of significant problems in the financial sector?

Subprime mortgages frequently featured small or zero down payments.

In computing GDP, new home construction adds to

Leverage is essential to a bank's profitability but it also increases risk.

If the reserve ratio was 10% for the bank with the balance sheet listed below, then this bank is being Assets Reserves \ 2,500,000 Loans Outstanding \ 2,000,000 Total \ 5,500,000 Liabilities \& Net Worth Checking deposits \ 5,000,000 Net Worth Stockholders' Equity \ 500,000 Total \5 ,500,000

Despite both monetary and fiscal policy actions, real GDP declined at an annualized rate of 6% during the last quarter of 2008 and the first quarter of 2009.

The Federal Reserve helped J.P.Morgan purchased Bear Stearns by agreeing to purchase some unwanted Bear Stearns assets.

The increased level of excess reserves that many banks held in 2008 made traditional monetary policy less effective.

A bank would be considered insolvent when the value of its liabilities exceed its

An increase in the price of a particular bond implies an increase in the interest rate for that bond.

If a 10-year Treasury bond pays 3.1% and a 10-year corporate bond pays 7.4%, what is the interest rate spread on this particular corporate bond?

What is the leverage implied by the bank balance sheet listed below? Assets Reserves \ 280,000 Loans Outstanding \ 2,920,000 Total \ 3,200,000 Liabilities \& Net Worth Checking deposits \ 2,800,000 Net Worth Stockholders' Equity \ 400,000 Total \ 3,200,000

The first signs of major financial problems associated with the financial sector and real estate investment appeared in 2009.

During the 2000 to 2006 time period, housing prices increased but only to a limited degree.

Which of the following are not valid arguments against the effectiveness of the fiscal stimulus bill?

During the financial crisis associated with the Great Recession, the interest rate spread between Treasury bills and bank-to-bank lending increased substantially.

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

Filters