Question 1

Which of the following did NOT significantly exacerbate the banking crisis of the early 1930s?

Accepted Answer

A) the Fed's decision not to make loans to insolvent banks 
B) the large number of small, poorly diversified banks 
C) the large number of rural banks that held agricultural loans during a time of falling commodity prices 
D) the large amount of fraud carried out by bank managers 
A) the Fed's decision not to make loans to insolvent banks 
B) the large number of small, poorly diversified banks 
C) the large number of rural banks that held agricultural loans during a time of falling commodity prices 
D) the large amount of fraud carried out by bank managers

Question 2

Why was the Fed reluctant to rescue insolvent banks?

Accepted Answer

A) It thought it may lead to moral hazard. 
B) It thought it may lead to adverse selection. 
C) It thought they were still liquid. 
D) It did not think they were insolvent. 
A) It thought it may lead to moral hazard. 
B) It thought it may lead to adverse selection. 
C) It thought they were still liquid. 
D) It did not think they were insolvent.

Question 3

What are two ways that governments can prevent banking panics?

Accepted Answer

First, a central bank can act

Question 4

A bank panic occurs when

Accepted Answer

A) a bank is worried that its loans will not be repaid. 
B) an individual bank cannot meet its reserve requirements. 
C) a bank lacks sufficient funds with which to make loans. 
D) the situation in which many banks experience a bank run simultaneously. 
A) a bank is worried that its loans will not be repaid. 
B) an individual bank cannot meet its reserve requirements. 
C) a bank lacks sufficient funds with which to make loans. 
D) the situation in which many banks experience a bank run simultaneously.

Question 5

What was the purpose of the stress test administered by the Treasury in 2009?

Accepted Answer

A) Evaluate potential losses of Fannie Mae and Freddie Mac. 
B) Assess the viability of AIG. 
C) Gauge how well the largest financial firms would fare if the recession deepened. 
D) Evaluate the solvency of the major investment banks. 
A) Evaluate potential losses of Fannie Mae and Freddie Mac. 
B) Assess the viability of AIG. 
C) Gauge how well the largest financial firms would fare if the recession deepened. 
D) Evaluate the solvency of the major investment banks.

Question 6

The first stage in the regulatory process is

Accepted Answer

A) a crisis. 
B) response by the financial system. 
C) regulation. 
D) regulatory response. 
A) a crisis. 
B) response by the financial system. 
C) regulation. 
D) regulatory response.

Question 7

The fourth stage in the regulatory process is

Accepted Answer

A) a crisis. 
B) response by the financial system. 
C) regulation. 
D) regulatory response. 
A) a crisis. 
B) response by the financial system. 
C) regulation. 
D) regulatory response.

Question 8

Which of the following banned most proprietary trading by commercial banks?

Accepted Answer

A) Consumer financial Protection Bureau 
B) Regulation Q 
C) Greenspan rule 
D) Volcker rule 
A) Consumer financial Protection Bureau 
B) Regulation Q 
C) Greenspan rule 
D) Volcker rule

Question 9

Regulation Q

Accepted Answer

A) prohibited interstate banking. 
B) placed ceilings on allowable interest rates on time and savings deposits. 
C) required all banks to hold reserves against demand deposits. 
D) broadened the basis on which the Fed could make discount loans. 
A) prohibited interstate banking. 
B) placed ceilings on allowable interest rates on time and savings deposits. 
C) required all banks to hold reserves against demand deposits. 
D) broadened the basis on which the Fed could make discount loans.

Question 10

Which of the following is NOT an accurate description of the recession that accompanied the financial crisis of 2007-2009?

Accepted Answer

A) GDP declined by more than twice the rate of the average recession. 
B) Inflation rose at nearly twice the rate as the average recession. 
C) It lasted just under twice as long as the typical recession. 
D) Peak unemployment was about one-third higher than usual. 
A) GDP declined by more than twice the rate of the average recession. 
B) Inflation rose at nearly twice the rate as the average recession. 
C) It lasted just under twice as long as the typical recession. 
D) Peak unemployment was about one-third higher than usual.

Question 11

The creation of a lender of last resort in the United States

Accepted Answer

A) occurred in response to banking panics. 
B) was mandated in the U.S. Constitution. 
C) occurred in response to the S&L crisis of the 1980s. 
D) has been recommended by the Treasury in its report of late 1992. 
A) occurred in response to banking panics. 
B) was mandated in the U.S. Constitution. 
C) occurred in response to the S&L crisis of the 1980s. 
D) has been recommended by the Treasury in its report of late 1992.

Question 12

The era of bank panics in the United States was effectively ended by

Accepted Answer

A) establishing the Fed as lender of last resort. 
B) implementing the gold standard. 
C) abandoning the gold standard. 
D) introducing deposit insurance. 
A) establishing the Fed as lender of last resort. 
B) implementing the gold standard. 
C) abandoning the gold standard. 
D) introducing deposit insurance.

Question 13

Which of the following led to a "bank jog" in Greece?

Accepted Answer

A) high unemployment 
B) high inflation 
C) speculation that Greece would abandon the euro 
D) the default of several Greek banks 
A) high unemployment 
B) high inflation 
C) speculation that Greece would abandon the euro 
D) the default of several Greek banks

Question 14

What does it mean for a money market mutual fund to "break the buck"?

Accepted Answer

A) The value of its share declines below $1. 
B) It incurs losses on its investments. 
C) It increases its fees to more than 1% of net asset value. 
D) It is unable to meet the demand for withdrawals by investors. 
A) The value of its share declines below $1. 
B) It incurs losses on its investments. 
C) It increases its fees to more than 1% of net asset value. 
D) It is unable to meet the demand for withdrawals by investors.

Question 15

The Franklin National Bank Crisis had its greatest impact on the market for

Accepted Answer

A) commercial paper. 
B) commodity futures. 
C) negotiable certificates of deposit. 
D) Eurodollars. 
A) commercial paper. 
B) commodity futures. 
C) negotiable certificates of deposit. 
D) Eurodollars.

Question 16

Which investment caused the Reserve Primary Fund to incur heavy losses?

Accepted Answer

A) mortgage-backed securities 
B) real estate investment trusts 
C) commercial paper issued by Bear Stearns 
D) commercial paper issued by Lehman Brothers 
A) mortgage-backed securities 
B) real estate investment trusts 
C) commercial paper issued by Bear Stearns 
D) commercial paper issued by Lehman Brothers

Question 17

When did Regulation Q finally disappear?

Accepted Answer

A) 1934 
B) 1945 
C) 1986 
D) 2000 
A) 1934 
B) 1945 
C) 1986 
D) 2000

Question 18

Which of the following occurred following the failure of the Bank of the United States in 1930?

Accepted Answer

A) Interest rates on low-grade corporate bonds rose relative to high-rated corporate bonds. 
B) Other banks in New York City suffered liquidity problems. 
C) A bank panic ensued within days. 
D) The stock market crashed. 
A) Interest rates on low-grade corporate bonds rose relative to high-rated corporate bonds. 
B) Other banks in New York City suffered liquidity problems. 
C) A bank panic ensued within days. 
D) The stock market crashed.

Question 19

The usual response of the banking system to new government regulations is

Accepted Answer

A) evasion through whatever means are necessary. 
B) strict compliance. 
C) an attempt to circumvent the regulations through financial innovation. 
D) bankruptcy. 
A) evasion through whatever means are necessary. 
B) strict compliance. 
C) an attempt to circumvent the regulations through financial innovation. 
D) bankruptcy.

Question 20

How does deflation affect those with debt?

Accepted Answer

A decline in the price level m

Which of the following did NOT significantly exacerbate the banking crisis of the early 1930s?

Why was the Fed reluctant to rescue insolvent banks?

What are two ways that governments can prevent banking panics?

A bank panic occurs when

What was the purpose of the stress test administered by the Treasury in 2009?

The first stage in the regulatory process is

The fourth stage in the regulatory process is

Which of the following banned most proprietary trading by commercial banks?

Regulation Q

Which of the following is NOT an accurate description of the recession that accompanied the financial crisis of 2007-2009?

The creation of a lender of last resort in the United States

The era of bank panics in the United States was effectively ended by

Which of the following led to a "bank jog" in Greece?

What does it mean for a money market mutual fund to "break the buck"?

The Franklin National Bank Crisis had its greatest impact on the market for

Which investment caused the Reserve Primary Fund to incur heavy losses?

When did Regulation Q finally disappear?

Which of the following occurred following the failure of the Bank of the United States in 1930?

The usual response of the banking system to new government regulations is

How does deflation affect those with debt?

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, Information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, Asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: The Aggregate Demand and Aggregate Supply Model

Monetary Theory II: The IS-MP Model

Filters

Exam 12: Financial Crises and Financial Regulation

Which of the following did NOT significantly exacerbate the banking crisis of the early 1930s?

Why was the Fed reluctant to rescue insolvent banks?

What are two ways that governments can prevent banking panics?

A bank panic occurs when

What was the purpose of the stress test administered by the Treasury in 2009?

The first stage in the regulatory process is

The fourth stage in the regulatory process is

Which of the following banned most proprietary trading by commercial banks?

Regulation Q

Which of the following is NOT an accurate description of the recession that accompanied the financial crisis of 2007-2009?

The creation of a lender of last resort in the United States

The era of bank panics in the United States was effectively ended by

Which of the following led to a "bank jog" in Greece?

What does it mean for a money market mutual fund to "break the buck"?

The Franklin National Bank Crisis had its greatest impact on the market for

Which investment caused the Reserve Primary Fund to incur heavy losses?

When did Regulation Q finally disappear?

Which of the following occurred following the failure of the Bank of the United States in 1930?

The usual response of the banking system to new government regulations is

How does deflation affect those with debt?

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, Information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, Asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: The Aggregate Demand and Aggregate Supply Model

Monetary Theory II: The IS-MP Model

Filters