Question 1

Factors that lead to worsening conditions in financial system include ________.

Accepted Answer

A) increases in net worth 
B) unanticipated increases in the price level 
C) decreases in interest rates 
D) unanticipated declines in the price level 
A) increases in net worth 
B) unanticipated increases in the price level 
C) decreases in interest rates 
D) unanticipated declines in the price level

Question 2

A sharp decline in the stock market means that the ________ of corporations has fallen.

Accepted Answer

A) net worth 
B) interest rates 
C) liabilities 
D) payrolls 
A) net worth 
B) interest rates 
C) liabilities 
D) payrolls

Question 3

By 2012, the debt to GDP ratio for Greece had climbed to ________.

Accepted Answer

A) 60% 
B) 100% 
C) 160% 
D) 200% 
A) 60% 
B) 100% 
C) 160% 
D) 200%

Question 4

Describe the declining phase of the leverage cycle.

Accepted Answer

A reduction in lending, decrea

Question 5

When regulators examine the financial system's risk incurring activities it is engaging in ________ supervision.

Accepted Answer

A) microprudential 
B) macroprudential 
C) both microprudential and macroprudential 
D) neither microprudential nor macroprudential 
A) microprudential 
B) macroprudential 
C) both microprudential and macroprudential 
D) neither microprudential nor macroprudential

Question 6

As housing prices rose, many subprime borrowers were able to ________.

Accepted Answer

A) default on their mortgage 
B) reduce their loan-to-value ratio 
C) get piggyback mortgages 
D) walk away from their houses 
A) default on their mortgage 
B) reduce their loan-to-value ratio 
C) get piggyback mortgages 
D) walk away from their houses

Question 7

If uncertainty about banks' health causes depositors to begin to withdraw their funds from banks, the country experiences a(n)________.

Accepted Answer

A) banking crisis 
B) financial recovery 
C) reduction of the adverse selection and moral hazard problems 
D) increase in information available to investors 
A) banking crisis 
B) financial recovery 
C) reduction of the adverse selection and moral hazard problems 
D) increase in information available to investors

Question 8

The agency problem in the mortgage markets was due to the ________ business model.

Accepted Answer

A) originate-to-distribute 
B) business-as-usual 
C) securitization 
D) "pass-through" 
A) originate-to-distribute 
B) business-as-usual 
C) securitization 
D) "pass-through"

Question 9

What triggered the 2007-2008 financial crises ?

Accepted Answer

The crises was triggered by mi

Question 10

Increased complexity of structured products can ________.

Accepted Answer

A) destroy information and improve adverse selection problems 
B) increase information and worsen adverse selection problems 
C) make asymmetric information better in the financial system 
D) make asymmetric information worse in the financial system 
A) destroy information and improve adverse selection problems 
B) increase information and worsen adverse selection problems 
C) make asymmetric information better in the financial system 
D) make asymmetric information worse in the financial system

Question 11

Describe the rising phase of the leverage cycle.

Accepted Answer

A boom in lending, increased a

Question 12

When regulators examine a financial institution's risk incurring activities it is engaging in ________ supervision.

Accepted Answer

A) microprudential 
B) macroprudential 
C) both microprudential and macroprudential 
D) neither microprudential nor macroprudential 
A) microprudential 
B) macroprudential 
C) both microprudential and macroprudential 
D) neither microprudential nor macroprudential

Question 13

Most financial crises have started during periods of ________ either after the start of a recession or a stock market crash.

Accepted Answer

A) high uncertainty 
B) low interest rates 
C) low asset prices 
D) high financial regulation 
A) high uncertainty 
B) low interest rates 
C) low asset prices 
D) high financial regulation

Question 14

Factors that lead to worsening conditions in financial system include ________.

Accepted Answer

A) increases in net worth 
B) stock market increases 
C) decreases in interest rates 
D) stock market declines 
A) increases in net worth 
B) stock market increases 
C) decreases in interest rates 
D) stock market declines

Question 15

A financial crisis occurs when an increase in asymmetric information from a disruption in the financial system ________.

Accepted Answer

A) causes severe adverse selection and moral hazard problems that make financial markets incapable of channelling funds efficiently 
B) allows for a more efficient use of funds 
C) increases economic activity 
D) reduces uncertainty in the economy and increases market efficiency 
A) causes severe adverse selection and moral hazard problems that make financial markets incapable of channelling funds efficiently 
B) allows for a more efficient use of funds 
C) increases economic activity 
D) reduces uncertainty in the economy and increases market efficiency

Question 16

Credit rating agencies were subject to conflicts of interest in the subprime mortgage market because ________.

Accepted Answer

A) banks were earning large fees by underwriting the mortgage-backed securities 
B) they had little incentives to make sure that the mortgage was a good credit risk 
C) they had weak incentives to make sure that the holders of the securities would be paid back 
D) they were earning fees from rating the mortgage-backed securities and from advising clients on how to structure the securities to get the highest ratings 
A) banks were earning large fees by underwriting the mortgage-backed securities 
B) they had little incentives to make sure that the mortgage was a good credit risk 
C) they had weak incentives to make sure that the holders of the securities would be paid back 
D) they were earning fees from rating the mortgage-backed securities and from advising clients on how to structure the securities to get the highest ratings

Question 17

A sharp stock market decline increases moral hazard incentives ________.

Accepted Answer

A) since borrowing firms have less to lose if their investments fail 
B) because it is immoral to profit from someone's loss 
C) since lenders are more willing to make loans 
D) reducing uncertainty in the economy and increasing market efficiency 
A) since borrowing firms have less to lose if their investments fail 
B) because it is immoral to profit from someone's loss 
C) since lenders are more willing to make loans 
D) reducing uncertainty in the economy and increasing market efficiency

Question 18

A major shift in the US system of financial regulation in the aftermath to the financial crisis is ________.

Accepted Answer

A) an easing of monetary policy 
B) a tightening of monetary policy 
C) a shift from microprudential supervision to macroprudential supervision 
D) a shift from macroprudential supervision to microprudential supervision 
A) an easing of monetary policy 
B) a tightening of monetary policy 
C) a shift from microprudential supervision to macroprudential supervision 
D) a shift from macroprudential supervision to microprudential supervision

Question 19

What is debt deflation?

Accepted Answer

Debt deflation occurs when a d

Question 20

A(n)________ is an increase in prices of assets above their fundamental economic values.

Accepted Answer

A) decrease in moral hazard 
B) asset-price bubble 
C) decline in lending 
D) liability war 
A) decrease in moral hazard 
B) asset-price bubble 
C) decline in lending 
D) liability war

Exam 9: Financial Crises

Factors that lead to worsening conditions in financial system include ________.

A sharp decline in the stock market means that the ________ of corporations has fallen.

By 2012, the debt to GDP ratio for Greece had climbed to ________.

Describe the declining phase of the leverage cycle.

When regulators examine the financial system's risk incurring activities it is engaging in ________ supervision.

As housing prices rose, many subprime borrowers were able to ________.

If uncertainty about banks' health causes depositors to begin to withdraw their funds from banks, the country experiences a(n)________.

The agency problem in the mortgage markets was due to the ________ business model.

What triggered the 2007-2008 financial crises ?

Increased complexity of structured products can ________.

Describe the rising phase of the leverage cycle.

When regulators examine a financial institution's risk incurring activities it is engaging in ________ supervision.

Most financial crises have started during periods of ________ either after the start of a recession or a stock market crash.

Factors that lead to worsening conditions in financial system include ________.

A financial crisis occurs when an increase in asymmetric information from a disruption in the financial system ________.

Credit rating agencies were subject to conflicts of interest in the subprime mortgage market because ________.

A sharp stock market decline increases moral hazard incentives ________.

A major shift in the US system of financial regulation in the aftermath to the financial crisis is ________.

What is debt deflation?

A(n)________ is an increase in prices of assets above their fundamental economic values.

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behaviour of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Banking and the Management of Financial Institutions

Risk Management With Financial Derivatives

Central Banks and the Bank of Canada

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, Inflation, and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Financial Crises in Emerging Markets

The ISLM Model

Non-Bank Finance

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