Question 1

Describe the debt-deflation process.

Accepted Answer

As banks are forced to sell assets,the p...

Question 2

The first stage in the regulatory process is

Accepted Answer

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

Question 3

What are the primary reasons for and against a policy of "too big to fail."

Accepted Answer

The major argument in favor of such a po...

Question 4

What are the two most common reasons for a sovereign debt crisis?

Accepted Answer

Chronic government budget deficits that eventually result in the interest payments required on government bonds taking up an unsustainably large fraction of government spending,or a severe recession that increases government spending and reduces tax revenues,resulting in soaring budget deficits.

Question 5

Banks with which type of loans were most likely to fail during the early 1930s?

Accepted Answer

A)   mortgage loans
B)   agricultural loans
C)   commercial real estate loans
D)   international loans

Question 6

How does the relationship between housing prices and rental rates provide evidence for or against the existence of a housing bubble?

Accepted Answer

The fundamental value of a house should ...

Question 7

Banks have a maturity mismatch since

Accepted Answer

A)   they borrow long term, but lend short term.
B)   they borrow short term, but lend long term.
C)   some of their loans are short term while others are long term.
D)   some of their borrowings are short term while others are long term.

Question 8

What are the four explanations given as to why the Fed did not intervene to stabilize the banking system during the Great Depression?

Accepted Answer

First,no one was in charge.Second,the Fe...

Question 9

In what ways did the stock market crash of 1929 increase the severity of the downturn?

Accepted Answer

It reduced household wealth.It...

Question 10

Research by Reinhart and Rogoff indicate that most of the increase in national debt as a result of a financial crisis is due to

Accepted Answer

A)   government bail outs of financial institutions.
B)   increase spending on social welfare programs.
C)   government stimulus programs.
D)   sharp declines in tax revenues.

Question 11

Negotiable order of withdrawal accounts

Accepted Answer

A)   are available only to large depositors.
B)   are like checking accounts, but may not legally pay interest.
C)   first appeared in New England during the early 1970s.
D)   were declared illegal in the Depository Institution Deregulation and Monetary Control Act of 1980.

Question 12

In what year did the economy return to normal conditions following the Great Depression?

Accepted Answer

A)   1933
B)   1937
C)   1941
D)   1945

Question 13

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.

Question 14

NOW accounts were developed in order to

Accepted Answer

A)   circumvent Regulation Q.
B)   provide banks with a checkable deposit on which they did not have to pay interest.
C)   provide banks with a liquid, interest-earning asset.
D)   provide banks with a means of earning interest on the funds in their reserve accounts with the Fed.

Question 15

Who was the effectively in charge of the Fed during the early 1930s?

Accepted Answer

A)   Secretary of Treasury
B)   Head of the Federal Reserve bank of New York
C)   Comptroller of the Currency
D)   no one

Question 16

Negotiable certificates of deposit differ from demand deposits in that they

Accepted Answer

A)   are not subject to early withdrawal penalties.
B)   may be bought and sold in the secondary market.
C)   generally have lower interest rates.
D)   are not subject to state and local income taxes. B

Question 17

Most of the TARP funds were used to

Accepted Answer

A)   fund a stimulus package.
B)   pay for losses incurred by Fannie Mae and Freddie Mac.
C)   finance the operations of the Federal Reserve.
D)   make direct purchases of preferred stock in banks to increase their capital.

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.

Question 19

What other markets were affected by the decline in the housing market beginning in 2006? Briefly explain why.

Accepted Answer

Other markets affected include...

Question 20

Many economists believe

Accepted Answer

A)   the Fed could have reduced the severity of the Great Depression by raising interest rates.
B)   the Fed could have reduced the severity of the Great Depression by encouraging banks to make fewer loans to insolvent businesses.
C)   bank failures increased the severity of the Great Depression.
D)   the severity of the Great Depression and the policies of the Fed were unrelated. C

Exam 12: Financial Crises and Financial Regulation

Describe the debt-deflation process.

Correct Answer
verified
As banks are forced to sell assets,the p...
View Answer

The first stage in the regulatory process is

Correct Answer
verified

What are the primary reasons for and against a policy of "too big to fail."

Correct Answer
verified
The major argument in favor of such a po...
View Answer

What are the two most common reasons for a sovereign debt crisis?

Banks with which type of loans were most likely to fail during the early 1930s?

Correct Answer
verified

How does the relationship between housing prices and rental rates provide evidence for or against the existence of a housing bubble?

Correct Answer
verified
The fundamental value of a house should ...
View Answer

Banks have a maturity mismatch since

Correct Answer
verified

What are the four explanations given as to why the Fed did not intervene to stabilize the banking system during the Great Depression?

Correct Answer
verified
First,no one was in charge.Second,the Fe...
View Answer

In what ways did the stock market crash of 1929 increase the severity of the downturn?

Correct Answer
verified
It reduced household wealth.It...
View Answer

Research by Reinhart and Rogoff indicate that most of the increase in national debt as a result of a financial crisis is due to

Correct Answer
verified

Negotiable order of withdrawal accounts

Correct Answer
verified

In what year did the economy return to normal conditions following the Great Depression?

Correct Answer
verified

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

Correct Answer
verified

NOW accounts were developed in order to

Correct Answer
verified

Who was the effectively in charge of the Fed during the early 1930s?

Correct Answer
verified

Negotiable certificates of deposit differ from demand deposits in that they

Correct Answer
verified
B

Most of the TARP funds were used to

Correct Answer
verified

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

Correct Answer
verified

What other markets were affected by the decline in the housing market beginning in 2006? Briefly explain why.

Correct Answer
verified
Other markets affected include...
View Answer

Many economists believe

Correct Answer
verified
C

Exam 12: Financial Crises and Financial Regulation

Describe the debt-deflation process.

Correct AnswerverifiedAs banks are forced to sell assets,the p...View AnswerShow Answer

The first stage in the regulatory process is

Correct AnswerverifiedShow Answer

What are the primary reasons for and against a policy of "too big to fail."

Correct AnswerverifiedThe major argument in favor of such a po...View AnswerShow Answer

What are the two most common reasons for a sovereign debt crisis?

Banks with which type of loans were most likely to fail during the early 1930s?

Correct AnswerverifiedShow Answer

How does the relationship between housing prices and rental rates provide evidence for or against the existence of a housing bubble?

Correct AnswerverifiedThe fundamental value of a house should ...View AnswerShow Answer

Banks have a maturity mismatch since

Correct AnswerverifiedShow Answer

What are the four explanations given as to why the Fed did not intervene to stabilize the banking system during the Great Depression?

Correct AnswerverifiedFirst,no one was in charge.Second,the Fe...View AnswerShow Answer

In what ways did the stock market crash of 1929 increase the severity of the downturn?

Correct AnswerverifiedIt reduced household wealth.It...View AnswerShow Answer

Research by Reinhart and Rogoff indicate that most of the increase in national debt as a result of a financial crisis is due to

Correct AnswerverifiedShow Answer

Negotiable order of withdrawal accounts

Correct AnswerverifiedShow Answer

In what year did the economy return to normal conditions following the Great Depression?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

NOW accounts were developed in order to

Correct AnswerverifiedShow Answer

Who was the effectively in charge of the Fed during the early 1930s?

Correct AnswerverifiedShow Answer

Negotiable certificates of deposit differ from demand deposits in that they

Correct AnswerverifiedB

Most of the TARP funds were used to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What other markets were affected by the decline in the housing market beginning in 2006? Briefly explain why.

Correct AnswerverifiedOther markets affected include...View AnswerShow Answer

Many economists believe

Correct AnswerverifiedC

Correct Answer
verified
As banks are forced to sell assets,the p...
View Answer

Correct Answer
verified

Correct Answer
verified
The major argument in favor of such a po...
View Answer

Correct Answer
verified

Correct Answer
verified
The fundamental value of a house should ...
View Answer

Correct Answer
verified

Correct Answer
verified
First,no one was in charge.Second,the Fe...
View Answer

Correct Answer
verified
It reduced household wealth.It...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Other markets affected include...
View Answer

Correct Answer
verified
C