Question 1

The Diamond-Dybvig model provides a rationale for the phenomenon of

Accepted Answer

A) undercapitalized banks. 
B) deflation. 
C) banks making overly risky loans. 
D) banks carrying too many illiquid assets. 
E) bank runs. 
A) undercapitalized banks. 
B) deflation. 
C) banks making overly risky loans. 
D) banks carrying too many illiquid assets. 
E) bank runs. E

Question 2

Which asset is most liquid?

Accepted Answer

A) a stock 
B) a government bond 
C) a bank deposit 
D) a house 
E) currency 
A) a stock 
B) a government bond 
C) a bank deposit 
D) a house 
E) currency E

Question 3

In a bank run in the Diamond-Dybvig model, it is in any depositor's interest to request withdrawal of his or her deposit because

Accepted Answer

A) government intervention assures that this is optimal behaviour. 
B) the bank suspends withdrawal. 
C) this avoids the possibility of consuming zero. 
D) this avoids the possibility of having one unit of consumption. 
E) there are plenty of liquid assets to go around. 
A) government intervention assures that this is optimal behaviour. 
B) the bank suspends withdrawal. 
C) this avoids the possibility of consuming zero. 
D) this avoids the possibility of having one unit of consumption. 
E) there are plenty of liquid assets to go around. C

Question 4

The argument that deposit insurance can prevent the failure of an otherwise sound bank is based on the idea that

Accepted Answer

A) potential deposits need not be concerned about account overdrafts. 
B) the existence of deposit insurance may prevent self-fulfilling panics. 
C) deposit insurance restores confidence in the stock market. 
D) bank examinations by the Canada Deposit Insurance Corporation (CDI
C) weed out badly managed banks. 
E) deposit insurance restores confidence in the bond market. 
A) potential deposits need not be concerned about account overdrafts. 
B) the existence of deposit insurance may prevent self-fulfilling panics. 
C) deposit insurance restores confidence in the stock market. 
D) bank examinations by the Canada Deposit Insurance Corporation (CDI
C) weed out badly managed banks. 
E) deposit insurance restores confidence in the bond market.

Question 5

An asset's liquidity depends upon

Accepted Answer

A) how long it takes to sell the asset at market value and the costs of selling the asset. 
B) the fraction of its value that can be obtained if it is sold immediately and the absolute size of its value. 
C) the value of the asset at time of sale and the costs of selling the asset. 
D) the absolute size of its value and how long it takes to sell the asset at market value. 
E) the costs of selling the asset and the fraction of its value that can be obtained if it is sold immediately. 
A) how long it takes to sell the asset at market value and the costs of selling the asset. 
B) the fraction of its value that can be obtained if it is sold immediately and the absolute size of its value. 
C) the value of the asset at time of sale and the costs of selling the asset. 
D) the absolute size of its value and how long it takes to sell the asset at market value. 
E) the costs of selling the asset and the fraction of its value that can be obtained if it is sold immediately.

Question 6

Bank runs

Accepted Answer

A) were eliminated by the CDIC. 
B) are a problem only in the Diamond-Dybvig model, not in any real economy. 
C) were a persistent problem in Canada during the Great Depression. 
D) were never a problem in Canada. 
E) were never a problem in the United States. 
A) were eliminated by the CDIC. 
B) are a problem only in the Diamond-Dybvig model, not in any real economy. 
C) were a persistent problem in Canada during the Great Depression. 
D) were never a problem in Canada. 
E) were never a problem in the United States.

Question 7

In Canada, the Canada Deposit Insurance Corporation (CDIC)insures the value of chartered bank deposits up to

Accepted Answer

A) $50,000. 
B) $100,000. 
C) $1,000,000. 
D) $500,000. 
E) $2,000,000. 
A) $50,000. 
B) $100,000. 
C) $1,000,000. 
D) $500,000. 
E) $2,000,000.

Question 8

In a bank run, the equilibrium deposit contract in the Diamond-Dybvig model

Accepted Answer

A) makes both early consumers and late consumers worse off. 
B) makes early consumers no better off and makes late consumers worse off. 
C) makes early consumers worse off and makes late consumers better off. 
D) makes both early and late consumers better off. 
E) provides an illiquidity transformation service to consumers. 
A) makes both early consumers and late consumers worse off. 
B) makes early consumers no better off and makes late consumers worse off. 
C) makes early consumers worse off and makes late consumers better off. 
D) makes both early and late consumers better off. 
E) provides an illiquidity transformation service to consumers.

Question 9

One characteristic of a financial intermediary is that

Accepted Answer

A) it acts as a broker in the sale of stocks and bonds. 
B) it cannot processes information. 
C) it is a lending institution only. 
D) it intermediates between workers and firms. 
E) it transforms assets. 
A) it acts as a broker in the sale of stocks and bonds. 
B) it cannot processes information. 
C) it is a lending institution only. 
D) it intermediates between workers and firms. 
E) it transforms assets.

Question 10

In the Diamond-Dybvig model, the bank's deposit contract has the following important features

Accepted Answer

A) it gives more consumption to early consumers than later consumers. 
B) it implies that late consumers want to pose as early consumers. 
C) it allows a bank depositor to withdraw currency. 
D) it implies a bank run is prevented. 
E) it insures depositors against the event that they consume early. 
A) it gives more consumption to early consumers than later consumers. 
B) it implies that late consumers want to pose as early consumers. 
C) it allows a bank depositor to withdraw currency. 
D) it implies a bank run is prevented. 
E) it insures depositors against the event that they consume early.

Question 11

The Diamond-Dybvig model

Accepted Answer

A) shows why illiquid assets are useful. 
B) illustrates the role of moral hazard in banking. 
C) shows how monetary policy can prevent banking crises. 
D) shows that Keynesian fiscal policy is effective. 
E) demonstrates how the banking system can be unstable. 
A) shows why illiquid assets are useful. 
B) illustrates the role of moral hazard in banking. 
C) shows how monetary policy can prevent banking crises. 
D) shows that Keynesian fiscal policy is effective. 
E) demonstrates how the banking system can be unstable.

Question 12

What is the role of deposit insurance, and what problems can result when deposit insurance systems are
introduced? Discuss.

Accepted Answer

If bank deposits are insured, as they ar

Question 13

A bank

Accepted Answer

A) cannot be regulated. 
B) is essentially the same as an insurance company. 
C) has assets with maturity that is different from that of its liabilities. 
D) performs no useful social function. 
E) is not a financial intermediary. 
A) cannot be regulated. 
B) is essentially the same as an insurance company. 
C) has assets with maturity that is different from that of its liabilities. 
D) performs no useful social function. 
E) is not a financial intermediary.

Question 14

Examples of financial intermediaries include

Accepted Answer

A) mutual funds. 
B) stock exchanges. 
C) financial markets. 
D) insurance companies. 
E) credit markets. 
A) mutual funds. 
B) stock exchanges. 
C) financial markets. 
D) insurance companies. 
E) credit markets.

Question 15

A stock in Microsoft is

Accepted Answer

A) more risky than a government security. 
B) more liquid than government-supplied currency. 
C) an asset with a lower rate of return, on average, than a government of Canada Treasury bill. 
D) less liquid than a house. 
E) never sold. 
A) more risky than a government security. 
B) more liquid than government-supplied currency. 
C) an asset with a lower rate of return, on average, than a government of Canada Treasury bill. 
D) less liquid than a house. 
E) never sold.

Question 16

The maturity of a 30-year bond that makes coupon payments is

Accepted Answer

A) uncertain. 
B) somewhat more than 30 years. 
C) exactly 30 years. 
D) somewhat less than 30 years. 
E) up to the discretion of the issuer. 
A) uncertain. 
B) somewhat more than 30 years. 
C) exactly 30 years. 
D) somewhat less than 30 years. 
E) up to the discretion of the issuer.

Question 17

The Diamond-Dybvig model does NOT

Accepted Answer

A) provide an account of bank runs in Canada. 
B) provide an account of bank runs in the 19th century United States. 
C) show why a run can occur on an otherwise sound bank. 
D) explain asset transformation. 
E) explain why a financial intermediary is diversified. 
A) provide an account of bank runs in Canada. 
B) provide an account of bank runs in the 19th century United States. 
C) show why a run can occur on an otherwise sound bank. 
D) explain asset transformation. 
E) explain why a financial intermediary is diversified.

Question 18

Which asset is least liquid?

Accepted Answer

A) a chequing deposit 
B) a savings deposit 
C) a government bond 
D) a factory 
E) currency 
A) a chequing deposit 
B) a savings deposit 
C) a government bond 
D) a factory 
E) currency

Question 19

The founding of the Canada Deposit Insurance Corporation (CDIC)was much later than deposit insurance arrangements in other countries because

Accepted Answer

A) Canadian banks are relatively large and well diversified geographically. 
B) Canada had a weak reactive government. 
C) Canadian banks are so much smaller. 
D) Canada's banking system started so much later. 
E) Canada did not experience the episodes of widespread bank failure and banking panics. 
A) Canadian banks are relatively large and well diversified geographically. 
B) Canada had a weak reactive government. 
C) Canadian banks are so much smaller. 
D) Canada's banking system started so much later. 
E) Canada did not experience the episodes of widespread bank failure and banking panics.

Question 20

For assessing whether and how much of an asset to hold, the important consideration is the asset's amount of

Accepted Answer

A) relative risk. 
B) rate of return risk. 
C) nondiversifiable risk. 
D) diversifiable risk. 
E) absolute risk. 
A) relative risk. 
B) rate of return risk. 
C) nondiversifiable risk. 
D) diversifiable risk. 
E) absolute risk.

The Diamond-Dybvig model provides a rationale for the phenomenon of

Which asset is most liquid?

In a bank run in the Diamond-Dybvig model, it is in any depositor's interest to request withdrawal of his or her deposit because

The argument that deposit insurance can prevent the failure of an otherwise sound bank is based on the idea that

An asset's liquidity depends upon

Bank runs

In Canada, the Canada Deposit Insurance Corporation (CDIC)insures the value of chartered bank deposits up to

In a bank run, the equilibrium deposit contract in the Diamond-Dybvig model

One characteristic of a financial intermediary is that

In the Diamond-Dybvig model, the bank's deposit contract has the following important features

The Diamond-Dybvig model

What is the role of deposit insurance, and what problems can result when deposit insurance systems are introduced? Discuss.

A bank

Examples of financial intermediaries include

A stock in Microsoft is

The maturity of a 30-year bond that makes coupon payments is

The Diamond-Dybvig model does NOT

Which asset is least liquid?

The founding of the Canada Deposit Insurance Corporation (CDIC)was much later than deposit insurance arrangements in other countries because

For assessing whether and how much of an asset to hold, the important consideration is the asset's amount of

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behavior: the Workleisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity Among Countries and Endogenous Growth

A Two-Period Model: the Consumptionsavings Decision and Credit Markets

Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

A Real Intertemporal Model With Investment

Money, Banking, Prices, and Monetary Policy

Business Cycle Models With Flexible Prices and Wages

New Keynesian Economics: Sticky Prices

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money in the Open Economy

Filters

Exam 18: Money, Inflation, and Banking: a Deeper Look

The Diamond-Dybvig model provides a rationale for the phenomenon of

Which asset is most liquid?

In a bank run in the Diamond-Dybvig model, it is in any depositor's interest to request withdrawal of his or her deposit because

The argument that deposit insurance can prevent the failure of an otherwise sound bank is based on the idea that

An asset's liquidity depends upon

Bank runs

In Canada, the Canada Deposit Insurance Corporation (CDIC)insures the value of chartered bank deposits up to

In a bank run, the equilibrium deposit contract in the Diamond-Dybvig model

One characteristic of a financial intermediary is that

In the Diamond-Dybvig model, the bank's deposit contract has the following important features

The Diamond-Dybvig model

What is the role of deposit insurance, and what problems can result when deposit insurance systems are introduced? Discuss.

A bank

Examples of financial intermediaries include

A stock in Microsoft is

The maturity of a 30-year bond that makes coupon payments is

The Diamond-Dybvig model does NOT

Which asset is least liquid?

The founding of the Canada Deposit Insurance Corporation (CDIC)was much later than deposit insurance arrangements in other countries because

For assessing whether and how much of an asset to hold, the important consideration is the asset's amount of

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behavior: the Workleisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity Among Countries and Endogenous Growth

A Two-Period Model: the Consumptionsavings Decision and Credit Markets

Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

A Real Intertemporal Model With Investment

Money, Banking, Prices, and Monetary Policy

Business Cycle Models With Flexible Prices and Wages

New Keynesian Economics: Sticky Prices

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money in the Open Economy

Filters