Question 1

The Diamond-Dybvig bank provides a useful social service because

Accepted Answer

A) it is well-diversified. 
B) it is immune from bank runs. 
C) it holds liquid assets. 
D) it is forced to do so by the government. 
E) it participates in interbank markets. 
A) it is well-diversified. 
B) it is immune from bank runs. 
C) it holds liquid assets. 
D) it is forced to do so by the government. 
E) it participates in interbank markets.

Question 2

The Diamond-Dybvig model provides an account of

Accepted Answer

A) lack of diversification. 
B) bank runs. 
C) the role for deposit insurance. 
D) the lender of last resort. 
E) the role for a central bank. 
A) lack of diversification. 
B) bank runs. 
C) the role for deposit insurance. 
D) the lender of last resort. 
E) the role for a central bank.

Question 3

In the Diamond-Dybvig model a bank run occurs because

Accepted Answer

A) early consumers all choose to withdraw their deposits in period 2. 
B) early consumers all choose to withdraw their deposits in period 1. 
C) late consumers all choose to withdraw their deposits in period 1. 
D) early and late consumers choose not to deposit in the bank. 
E) late consumers all choose to withdraw their deposits in period 2. 
A) early consumers all choose to withdraw their deposits in period 2. 
B) early consumers all choose to withdraw their deposits in period 1. 
C) late consumers all choose to withdraw their deposits in period 1. 
D) early and late consumers choose not to deposit in the bank. 
E) late consumers all choose to withdraw their deposits in period 2.

Question 4

A consumer is said to be risk-averse when the consumer

Accepted Answer

A) purchases assets with a zero nominal interest rate. 
B) prefers to hold assets with more non-diversified risk. 
C) prefers to not purchase a portfolio of assets. 
D) purchases assets with maturities of less than one year. 
E) prefers to hold assets with less non-diversified risk. 
A) purchases assets with a zero nominal interest rate. 
B) prefers to hold assets with more non-diversified risk. 
C) prefers to not purchase a portfolio of assets. 
D) purchases assets with maturities of less than one year. 
E) prefers to hold assets with less non-diversified risk.

Question 5

In the Diamond-Dybvig model

Accepted Answer

A) consumers are not risk averse. 
B) the production technology yields more consumption goods in period 1 if interrupted, than if it is not interrupted an pays off in period 2. 
C) a bank insures the consumer against the need for liquidity in period 1. 
D) the production technology can be interrupted so as to give a return in period 0. 
E) consumers can do as well on their own as they do with banks. 
A) consumers are not risk averse. 
B) the production technology yields more consumption goods in period 1 if interrupted, than if it is not interrupted an pays off in period 2. 
C) a bank insures the consumer against the need for liquidity in period 1. 
D) the production technology can be interrupted so as to give a return in period 0. 
E) consumers can do as well on their own as they do with banks.

Question 6

Banks in the Diamond-Dybvig model can offer depositors increased liquidity because

Accepted Answer

A) the bank only holds a small amount of illiquid assets. 
B) both individual depositors' liquidity needs and average depositor liquidity needs are predictable. 
C) neither individual depositors' liquidity needs nor average depositor liquidity needs are predictable. 
D) while individual depositors' liquidity needs are unpredictable, average depositor liquidity needs are predictable. 
E) while individual depositors' liquidity needs are predictable, average depositor liquidity needs are unpredictable. 
A) the bank only holds a small amount of illiquid assets. 
B) both individual depositors' liquidity needs and average depositor liquidity needs are predictable. 
C) neither individual depositors' liquidity needs nor average depositor liquidity needs are predictable. 
D) while individual depositors' liquidity needs are unpredictable, average depositor liquidity needs are predictable. 
E) while individual depositors' liquidity needs are predictable, average depositor liquidity needs are unpredictable.

Question 7

A depository institution can make highly illiquid and long-maturity loans with funds obtained by issuing transaction deposits because

Accepted Answer

A) depositors, taken as a group, behave in a predictable manner. 
B) most transaction depositors have very transaction patterns. 
C) depository institutions have a large pool of assets to draw from. 
D) depository institutions tend to be owned by individuals with a high tolerance of risk. 
E) depository institutions are skilled at evaluating credit risks. 
A) depositors, taken as a group, behave in a predictable manner. 
B) most transaction depositors have very transaction patterns. 
C) depository institutions have a large pool of assets to draw from. 
D) depository institutions tend to be owned by individuals with a high tolerance of risk. 
E) depository institutions are skilled at evaluating credit risks.

Question 8

In the Diamond-Dybvig model, a bank run occurs when

Accepted Answer

A) depositors see other depositors running on other banks. 
B) depositors think the central bank cannot be trusted. 
C) the banks suspends payments. 
D) depositors think that everyone else will request withdrawal. 
E) depositors think the bank managers have absconded with the bank's assets. 
A) depositors see other depositors running on other banks. 
B) depositors think the central bank cannot be trusted. 
C) the banks suspends payments. 
D) depositors think that everyone else will request withdrawal. 
E) depositors think the bank managers have absconded with the bank's assets.

Question 9

Moral hazard is a problem in providing deposit insurance because insured banks are

Accepted Answer

A) encouraged to take on more risk. 
B) overly cautious due to extra regulations adopted by the Canada Deposit Insurance Corporation. 
C) more likely to offer interest rates on loans that are greater than market interest rates. 
D) more likely to provide bank managers with lavish perquisites. 
E) more likely to make bookkeeping errors. 
A) encouraged to take on more risk. 
B) overly cautious due to extra regulations adopted by the Canada Deposit Insurance Corporation. 
C) more likely to offer interest rates on loans that are greater than market interest rates. 
D) more likely to provide bank managers with lavish perquisites. 
E) more likely to make bookkeeping errors.

Question 10

The phenomenon in which an insured individual takes less care in preventing the event against which he or she is insured is an example of

Accepted Answer

A) foolish behaviour. 
B) double coincidence of wants. 
C) moral hazard. 
D) adverse selection. 
E) nondiversifiable risk. 
A) foolish behaviour. 
B) double coincidence of wants. 
C) moral hazard. 
D) adverse selection. 
E) nondiversifiable risk.

The Diamond-Dybvig bank provides a useful social service because

The Diamond-Dybvig model provides an account of

In the Diamond-Dybvig model a bank run occurs because

A consumer is said to be risk-averse when the consumer

In the Diamond-Dybvig model

Banks in the Diamond-Dybvig model can offer depositors increased liquidity because

A depository institution can make highly illiquid and long-maturity loans with funds obtained by issuing transaction deposits because

In the Diamond-Dybvig model, a bank run occurs when

Moral hazard is a problem in providing deposit insurance because insured banks are

The phenomenon in which an insured individual takes less care in preventing the event against which he or she is insured is an example 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 bank provides a useful social service because

The Diamond-Dybvig model provides an account of

In the Diamond-Dybvig model a bank run occurs because

A consumer is said to be risk-averse when the consumer

In the Diamond-Dybvig model

Banks in the Diamond-Dybvig model can offer depositors increased liquidity because

A depository institution can make highly illiquid and long-maturity loans with funds obtained by issuing transaction deposits because

In the Diamond-Dybvig model, a bank run occurs when

Moral hazard is a problem in providing deposit insurance because insured banks are

The phenomenon in which an insured individual takes less care in preventing the event against which he or she is insured is an example 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