Question 1

During a time of rising asset values,a bank can increase its returns by engaging in regulatory capital arbitrage.

Accepted Answer

A) True 
 B)False

Question 2

A bank initially has $250 million in assets and $200 million in liabilities.The banks net worth (capital)is _____________ million.If the bank's assets decline by 10% and its liabilities do not change,its capital decreases by ____________ .

Accepted Answer

A) $50;50% 
B) $50;100% 
C) $50;10% 
D) $450;10% 
A) $50;50% 
B) $50;100% 
C) $50;10% 
D) $450;10%

Question 3

Former Fed Chairman Alan Greenspan has argued that low ___________ interest rates,not ______________ interest rates,were the cause of the housing boom in the late 1990s and early 2000s.He also argued that the Fed has more control over _______________ rates than over ____________ rates.

Accepted Answer

A) long-term;short-term 
B) long-term;long-term 
C) short-term;short-term 
D) short-term;long-term 
A) long-term;short-term 
B) long-term;long-term 
C) short-term;short-term 
D) short-term;long-term

Question 4

When we say that the financial crisis can be viewed as a balance sheet problem,this is descriptive of

Accepted Answer

A) banks' assets being greater than their liabilities. 
B) banks possessing assets that are declining in value,resulting in banks approaching insolvency. 
C) banks having low leverage ratios. 
D) banks engaging in regulatory capital arbitrage. 
E) none of the above 
A) banks' assets being greater than their liabilities. 
B) banks possessing assets that are declining in value,resulting in banks approaching insolvency. 
C) banks having low leverage ratios. 
D) banks engaging in regulatory capital arbitrage. 
E) none of the above

Question 5

According to Alan Greenspan,the Taylor rule is ________________ when trying to figure out the causes of sharp increases in housing prices.His opinion is based,in part,on his assertion that the Taylor rule addresses ____________ inflation,not ____________ inflation.

Accepted Answer

A) inappropriate;product-price;asset-price 
B) inappropriate;asset-price;product-price 
C) appropriate;product-price;asset-price 
D) appropriate;asset-price;product-price 
A) inappropriate;product-price;asset-price 
B) inappropriate;asset-price;product-price 
C) appropriate;product-price;asset-price 
D) appropriate;asset-price;product-price

Question 6

Which of the following is an example of a participant in the financial sector?

Accepted Answer

A) commercial banks 
B) investment banks 
C) hedge funds 
D) brokerage firms 
E) all of the above 
A) commercial banks 
B) investment banks 
C) hedge funds 
D) brokerage firms 
E) all of the above

Question 7

According to John Taylor,during the period 2002-early 2006 the Fed set its federal funds rate target _____________ the rate that would have existed had the Fed set its target using the Taylor rule.

Accepted Answer

A) below 
B) above 
C) equal to 
D) sometimes below and sometimes above 
A) below 
B) above 
C) equal to 
D) sometimes below and sometimes above

Question 8

Suppose the Fed lowers its federal funds rate target.The Fed probably seeks to

Accepted Answer

A) lower the actual federal funds rate. 
B) raise the actual federal funds rate. 
C) leave unchanged the actual federal funds rate 
D) b or c 
E) a or c 
A) lower the actual federal funds rate. 
B) raise the actual federal funds rate. 
C) leave unchanged the actual federal funds rate 
D) b or c 
E) a or c

Question 9

Which of the following bank assets declined in value in the mid-2000s?

Accepted Answer

A) subprime loans 
B) mortgage-backed securities 
C) collateralized debt obligations 
D) nontraditional loans 
E) all of the above 
A) subprime loans 
B) mortgage-backed securities 
C) collateralized debt obligations 
D) nontraditional loans 
E) all of the above

Question 10

A bank with a leverage ratio of 6.5 to 1 has

Accepted Answer

A) $6.50 in assets for every $1 in liabilities. 
B) $6.50 in assets for every $1 in capital. 
C) $1 in assets for every $6.50 in capital. 
D) $1 in assets for every $6.50 in liabilities. 
A) $6.50 in assets for every $1 in liabilities. 
B) $6.50 in assets for every $1 in capital. 
C) $1 in assets for every $6.50 in capital. 
D) $1 in assets for every $6.50 in liabilities.

Question 11

When borrowers are unable to make their monthly mortgage payments,the value of mortgage-backed securities and collateralized debt obligations

Accepted Answer

A) falls,which pushes banks that own them closer to insolvency. 
B) rises,which pushes banks that own them closer to insolvency. 
C) falls;which pushes banks that own them towards greater solvency. 
D) rises,which pushes banks that own them towards greater solvency. 
A) falls,which pushes banks that own them closer to insolvency. 
B) rises,which pushes banks that own them closer to insolvency. 
C) falls;which pushes banks that own them towards greater solvency. 
D) rises,which pushes banks that own them towards greater solvency.

Question 12

The Community Reinvestment Act (CRA)was passed in 1977 to encourage financial institutions to_________________________.It was revised in 1995 to ____________ the percentage of mortgage loans going to low- and moderate-income borrowers.

Accepted Answer

A) lend to only the most qualified borrowers;increase 
B) meet the needs of borrowers in all segments of their communities;decrease 
C) meet the needs of borrowers in all segments of their communities;increase 
D) lend to only the most qualified borrowers;decrease 
A) lend to only the most qualified borrowers;increase 
B) meet the needs of borrowers in all segments of their communities;decrease 
C) meet the needs of borrowers in all segments of their communities;increase 
D) lend to only the most qualified borrowers;decrease

Question 13

In the early 2000s,the Fed's ____________ interest rate policy had several effects.Among these effects were a _______________ in mortgage interest rates and a(n)____________ in the size of loans taken out by mortgage borrowers.

Accepted Answer

A) high;decline;decrease 
B) low;decline;increase 
C) low;rise;increase 
D) high;rise;increase 
A) high;decline;decrease 
B) low;decline;increase 
C) low;rise;increase 
D) high;rise;increase

Question 14

Insolvency is a condition where a firm's

Accepted Answer

A) liabilities are greater than assets. 
B) assets are greater than liabilities. 
C) assets are equal to liabilities. 
D) liabilities are less than or equal to assets. 
A) liabilities are greater than assets. 
B) assets are greater than liabilities. 
C) assets are equal to liabilities. 
D) liabilities are less than or equal to assets.

Question 15

Rising savings rates in emerging countries in the period 2000-2008 are associated with both falling and rising mortgage interest rates in the United States.

Accepted Answer

A) True 
 B)False

Question 16

Define the terms financial sector and real sector.Describe the processes by which a number of banks becoming insolvent (or approaching insolvency)can have an adverse impact on the real sector.

Accepted Answer

The financial sector consists of commerc

Question 17

For a bank,more capital means more _____________,and it also means ___________ returns when asset values are rising.

Accepted Answer

A) risk;lower 
B) risk;higher 
C) safety;lower 
D) safety;higher 
A) risk;lower 
B) risk;higher 
C) safety;lower 
D) safety;higher

Question 18

According to economist Hyman Minsky,Keynesian economics considers _____________________ as determining economic system behavior.

Accepted Answer

A) ​both asset prices and output prices 
B) asset prices,but not output prices, 
C) ​output prices,but not asset prices, 
D) ​neither asset prices nor output prices 
A) ​both asset prices and output prices 
B) asset prices,but not output prices, 
C) ​output prices,but not asset prices, 
D) ​neither asset prices nor output prices

Question 19

International standards for risk-based capital requirements were introduced under the

Accepted Answer

A) Federal Reserve Act of 1913. 
B) 1988 Basel Accord 
C) Community Reinvestment Act of 1977. 
D) Federal Deposit Insurance Act of 2008. 
A) Federal Reserve Act of 1913. 
B) 1988 Basel Accord 
C) Community Reinvestment Act of 1977. 
D) Federal Deposit Insurance Act of 2008.

Question 20

A bank has $150 million in assets and $90 million in liabilities.The bank's net worth is _____________ million and the bank is ____________.

Accepted Answer

A) $105;insolvent 
B) $40;insolvent 
C) $60;solvent 
D) $60;solvent. 
A) $105;insolvent 
B) $40;insolvent 
C) $60;solvent 
D) $60;solvent.

Exam 18: The Financial Crisis of 2007-2009

During a time of rising asset values,a bank can increase its returns by engaging in regulatory capital arbitrage.

A bank initially has $250 million in assets and $200 million in liabilities.The banks net worth (capital)is _____________ million.If the bank's assets decline by 10% and its liabilities do not change,its capital decreases by ____________ .

Former Fed Chairman Alan Greenspan has argued that low ___________ interest rates,not ______________ interest rates,were the cause of the housing boom in the late 1990s and early 2000s.He also argued that the Fed has more control over _______________ rates than over ____________ rates.

When we say that the financial crisis can be viewed as a balance sheet problem,this is descriptive of

According to Alan Greenspan,the Taylor rule is ________________ when trying to figure out the causes of sharp increases in housing prices.His opinion is based,in part,on his assertion that the Taylor rule addresses ____________ inflation,not ____________ inflation.

Which of the following is an example of a participant in the financial sector?

According to John Taylor,during the period 2002-early 2006 the Fed set its federal funds rate target _____________ the rate that would have existed had the Fed set its target using the Taylor rule.

Suppose the Fed lowers its federal funds rate target.The Fed probably seeks to

Which of the following bank assets declined in value in the mid-2000s?

A bank with a leverage ratio of 6.5 to 1 has

When borrowers are unable to make their monthly mortgage payments,the value of mortgage-backed securities and collateralized debt obligations

The Community Reinvestment Act (CRA)was passed in 1977 to encourage financial institutions to_________________________.It was revised in 1995 to ____________ the percentage of mortgage loans going to low- and moderate-income borrowers.

In the early 2000s,the Fed's ____________ interest rate policy had several effects.Among these effects were a _______________ in mortgage interest rates and a(n)____________ in the size of loans taken out by mortgage borrowers.

Insolvency is a condition where a firm's

Rising savings rates in emerging countries in the period 2000-2008 are associated with both falling and rising mortgage interest rates in the United States.

Define the terms financial sector and real sector.Describe the processes by which a number of banks becoming insolvent (or approaching insolvency)can have an adverse impact on the real sector.

For a bank,more capital means more _____________,and it also means ___________ returns when asset values are rising.

According to economist Hyman Minsky,Keynesian economics considers _____________________ as determining economic system behavior.

International standards for risk-based capital requirements were introduced under the

A bank has $150 million in assets and $90 million in liabilities.The bank's net worth is _____________ million and the bank is ____________.

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, controlled, and Relative

Supply,demand,and Price: Applications

Macroeconomic Measurements, part I: Prices and Unemployment

Macroeconomic Measurements, part II: GDP and Real GDP

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self-Regulating Economy

Keynesian Macroeconomics and Economic Instability: a Critique of the Self-Regulating Economy

Fiscal Policy and the Federal Budget

Money,banking,and the Financial System

The Federal Reserve System

Money and the Economy

Monetary Policy

Expectations Theory and the Economy

Economic Growth: Resources, technology, ideas, and Institutions

Debates in Macroeconomics Over the Role and Effects of Government

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

Globalization and International Impacts on the Economy

The Economic Case for and Against Government: Five Topics Considered

Stocks, bonds, futures, and Options

Filters

A bank initially has $250 million in assets and $200 million in liabilities.The banks net worth (capital)is _ million.If the bank's assets decline by 10% and its liabilities do not change,its capital decreases by .

Former Fed Chairman Alan Greenspan has argued that low ___ interest rates,not interest rates,were the cause of the housing boom in the late 1990s and early 2000s.He also argued that the Fed has more control over _ rates than over ____ rates.

According to Alan Greenspan,the Taylor rule is ____ when trying to figure out the causes of sharp increases in housing prices.His opinion is based,in part,on his assertion that the Taylor rule addresses inflation,not inflation.

The Community Reinvestment Act (CRA)was passed in 1977 to encourage financial institutions to_____________.It was revised in 1995 to the percentage of mortgage loans going to low- and moderate-income borrowers.

In the early 2000s,the Fed's ____ interest rate policy had several effects.Among these effects were a _ in mortgage interest rates and a(n)______ in the size of loans taken out by mortgage borrowers.

For a bank,more capital means more ___,and it also means _ returns when asset values are rising.

A bank has $150 million in assets and $90 million in liabilities.The bank's net worth is _ million and the bank is .