Question 1

If the reserve ratio was 10 percent for the bank with the balance sheet listed below, then this bank is being

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 2

An interest rate spread is the difference between an interest rate on a risky asset and the corresponding interest rate on a risk-free treasury security.

Accepted Answer

A) True 
 B)False

Question 3

Spending on newly constructed homes is part of the investment component of GDP.

Accepted Answer

A) True 
 B)False

Question 4

Did President Obama's $787 billion fiscal stimulus package of early 2009 work? Name several facts in support of the proposition that it did. Also, list the arguments of the skeptics.

Accepted Answer

Facts supporting the proposition that Pr

Question 5

What is the leverage implied by the bank balance sheet listed below?

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 6

The Federal Reserve stepped in to help

Accepted Answer

A)  Bear Stearns but not Lehman Brothers. 
B)  Lehman Brothers but not Bear Stearns. 
C)  both Bear Stearns and Lehman Brothers. 
D)  neither Bear Stearns nor Lehman Brothers. 
A)  Bear Stearns but not Lehman Brothers. 
B)  Lehman Brothers but not Bear Stearns. 
C)  both Bear Stearns and Lehman Brothers. 
D)  neither Bear Stearns nor Lehman Brothers.

Question 7

The central idea behind the Troubled Asset Relief Program was for the Treasury to sell mortgage-backed securities to interested investors, wait for prices to increase, and then buy these securities back for a profit.

Accepted Answer

A) True 
 B)False

Question 8

Why did observers at first believe that the damage from the impending subprime mortgage crisis would be too small to cause a recession?

Accepted Answer

For two reasons, observers at first thou

Question 9

As a result of the Great Recession, job growth did not resume until

Accepted Answer

A)  September 2008. 
B)  March 2009. 
C)  September 2009. 
D)  March 2010. 
A)  September 2008. 
B)  March 2009. 
C)  September 2009. 
D)  March 2010.

Question 10

A bank is said to be recapitalized when some investor, private or government, provides new equity capital in return for partial ownership.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

In 2008, the Fed utilized expansionary monetary policy, which was made

Accepted Answer

A)  more effective as banks held more excess reserves. 
B)  less effective as banks held more excess reserves. 
C)  more effective as banks held less excess reserves. 
D)  less effective as banks held less excess reserves. 
A)  more effective as banks held more excess reserves. 
B)  less effective as banks held more excess reserves. 
C)  more effective as banks held less excess reserves. 
D)  less effective as banks held less excess reserves.

Question 13

Because the U.S. economy failed to snap back from a mild recession in 2001, the Fed pushed the federal funds rate down to 1 percent. What effect did this have on the economy?

Accepted Answer

When the Fed reduced the federal funds r

Question 14

Which of the following elements of GDP were affected by the financial crisis and the lack of available credit?

Accepted Answer

A)  Consumption and business investment only 
B)  Consumption and government spending only 
C)  Consumption, business investment, and government spending only 
D)  Consumption, business investment, government spending, and imports/exports 
A)  Consumption and business investment only 
B)  Consumption and government spending only 
C)  Consumption, business investment, and government spending only 
D)  Consumption, business investment, government spending, and imports/exports

Question 15

The 2009 fiscal stimulus bill represented approximately

Accepted Answer

A)  5.5 percent of GDP and was designed to close the expansionary gap. 
B)  5.5 percent of GDP and was designed to close the recessionary gap. 
C)  7.8 percent of GDP and was designed to close the expansionary gap. 
D)  7.8 percent of GDP and was designed to close the recessionary gap. 
A)  5.5 percent of GDP and was designed to close the expansionary gap. 
B)  5.5 percent of GDP and was designed to close the recessionary gap. 
C)  7.8 percent of GDP and was designed to close the expansionary gap. 
D)  7.8 percent of GDP and was designed to close the recessionary gap.

Question 16

Suppose that a five-year Treasury bond pays 2.5 percent and a five-year corporate bond pays 8.5 percent, then what is the interest rate spread on this particular corporate bond?

Accepted Answer

A)  5 percent 
B)  6 percent 
C)  7.5 percent 
D)  9.0 percent 
A)  5 percent 
B)  6 percent 
C)  7.5 percent 
D)  9.0 percent

Question 17

Much of the TARP money was used to recapitalize banks.

Accepted Answer

A) True 
 B)False

Question 18

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 19

Subprime mortgages were granted with low or negligible down payments to the borrowers of questionable credit standing who could barely afford their monthly payments.

Accepted Answer

A) True 
 B)False

Question 20

As a result of Lehman's collapse, real GDP first began to fall in

Accepted Answer

A)  the fourth quarter of 2007. 
B)  the second quarter of 2008. 
C)  the third quarter of 2008. 
D)  the first quarter of 2009. 
A)  the fourth quarter of 2007. 
B)  the second quarter of 2008. 
C)  the third quarter of 2008. 
D)  the first quarter of 2009.

Exam 30: The Financial Crisis and the Great Recession

If the reserve ratio was 10 percent for the bank with the balance sheet listed below, then this bank is being

An interest rate spread is the difference between an interest rate on a risky asset and the corresponding interest rate on a risk-free treasury security.

Spending on newly constructed homes is part of the investment component of GDP.

Did President Obama's $787 billion fiscal stimulus package of early 2009 work? Name several facts in support of the proposition that it did. Also, list the arguments of the skeptics.

What is the leverage implied by the bank balance sheet listed below?

The Federal Reserve stepped in to help

The central idea behind the Troubled Asset Relief Program was for the Treasury to sell mortgage-backed securities to interested investors, wait for prices to increase, and then buy these securities back for a profit.

Why did observers at first believe that the damage from the impending subprime mortgage crisis would be too small to cause a recession?

As a result of the Great Recession, job growth did not resume until

A bank is said to be recapitalized when some investor, private or government, provides new equity capital in return for partial ownership.

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

In 2008, the Fed utilized expansionary monetary policy, which was made

Because the U.S. economy failed to snap back from a mild recession in 2001, the Fed pushed the federal funds rate down to 1 percent. What effect did this have on the economy?

Which of the following elements of GDP were affected by the financial crisis and the lack of available credit?

The 2009 fiscal stimulus bill represented approximately

Suppose that a five-year Treasury bond pays 2.5 percent and a five-year corporate bond pays 8.5 percent, then what is the interest rate spread on this particular corporate bond?

Much of the TARP money was used to recapitalize banks.

When the housing bubble burst, prices fell particularly severely in

Subprime mortgages were granted with low or negligible down payments to the borrowers of questionable credit standing who could barely afford their monthly payments.

As a result of Lehman's collapse, real GDP first began to fall in

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

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

Contemporary Issues in the Us Economy

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