Question 1

The reforms introduced by Congress in the 1930s led to the era now referred to as the Great:

Accepted Answer

A)   Moderation.
B)   Crash.
C)   Depression.
D)   Recession.E) All of the above
F) B) and D)

Question 2

As the housing bubble collapsed, and the value of homes decreased, consumersâ€™ loss of wealth led to:

Accepted Answer

A)   decreased consumption, which increased prices, which increased the costs of production, leading to more job loss.
B)   decreased consumption, which further depressed prices, which reduced output further, leading to more job loss.
C)   increased consumption, which increased prices, which increased the costs of production, leading to more job loss.
D)   decreased consumption, which further depressed prices, which decreased the amount people had to spend, and increased savings.E) C) and D)
F) None of the above

Question 3

What event led to the end of the Great Moderation?

Accepted Answer

A)   The Great Depression
B)   The Great Crash
C)   Stagflation
D)   The Great RecessionE) All of the above
F) A) and C)

Question 4

Margin calls are more likely to happen when markets are:

Accepted Answer

A)   crashing.
B)   booming.
C)   stable.
D)   irrational.E) A) and C)
F) C) and D)

Question 5

The Federal Reserve Bank attempted to deal with the sluggish aggregate demand that followed the housing market crash and subsequent financial crisis through:

Accepted Answer

A)   contractionary monetary policy.
B)   expansionary fiscal policy.
C)   expansionary monetary policy.
D)   contractionary fiscal policy.E) A) and C)
F) B) and C)

Question 6

Leverage is thought to be:

Accepted Answer

A)   a dangerous tool, especially for big companies who do not understand its risk.
B)   the most widely used of hedging risk in markets.
C)   the single reason for the Great depression.
D)   a relatively riskless strategy used by companies to grow quickly.E) A) and B)
F) C) and D)

Question 7

The Great Depression was characterized by:

Accepted Answer

A)   unemployment exceeding 25 percent.
B)   the Roaring Twenties.
C)   accelerated economic growth.
D)   firms rapidly expanding their borrowing rates.E) B) and C)
F) A) and B)

Question 8

When the U.S. housing market crashed, it caused all of the following except:

Accepted Answer

A)   lenders to stop lending.
B)   banks to go bust due people not paying their mortgages.
C)   the U.S. economy to tip into the Great Recession.
D)   all sellers of real estate to profit when selling their house.E) C) and D)
F) B) and D)

Question 9

Banks that were so large in terms of assets or customers, or so historically important, that banking regulators allowed the bank to keep operating despite insolvency after the housing market crash were called:

Accepted Answer

A)   too small to fail.
B)   too large to succeed.
C)   too small to succeed.
D)   too large to fail.E) A) and B)
F) All of the above

Question 10

The combined efforts of the Fed and the Treasury in response to the financial crisis following the housing market crash caused:

Accepted Answer

A)   aggregate supply to shift right to its pre-crisis level.
B)   aggregate supply to shift left, but still far below its pre-crisis level.
C)   aggregate demand to shift right to its pre-crisis level.
D)   the opposite reaction, and aggregate supply shifted farther to the left.E) A) and D)
F) None of the above

Question 11

When the housing bubble occurred it can be attributed to all of the following except:

Accepted Answer

A)   people expected housing prices to continue to rise.
B)   it became easier to leverage more of a home's value, putting buyers more into debt.
C)   the seller of the mortgage had lost incentive to properly assess the risk.
D)   homeowners lack of confidence in the institutions who made the loan to them.E) None of the above
F) B) and C)

Question 12

The recency effect is:

Accepted Answer

A)   a basic human tendency to overvalue recent experience when trying to predict the future.
B)   a hotly debated concept among psychologists and economists.
C)   earning a profit by betting against what everyone else is doing.
D)   accounting for most recent profits or losses first on financial statements.E) A) and D)
F) A) and C)

Question 13

When the Fed injected newly made money into the economy by buying bonds, it:

Accepted Answer

A)   was practicing quantitative easing.
B)   was trying to avoid a deflationary period similar to Japan.
C)   inserted over $1 trillion of new money into the economy.
D)   All of these statements are true.E) B) and C)
F) A) and C)

Question 14

Stock markets in England were started in the late:

Accepted Answer

A)   Seventeenth century.
B)   Sixteenth century.
C)   Eighteenth century.
D)   Nineteenth century.E) C) and D)
F) None of the above

Question 15

A rapidly falling stock price would most likely trigger all of the following except:

Accepted Answer

A)   a flood of margin calls.
B)   massive sales of the stock.
C)   the price to be pushed down even more.
D)   a massive amount of purchases.E) A) and D)
F) B) and C)

Question 16

By 2006, 20 percent of the mortgage market consisted of:

Accepted Answer

A)   subprime loans, while 80 percent were still regular prime mortgages.
B)   prime loans, and an overwhelming 80 percent had become subprime mortgages.
C)   securitized loans, and the rest were backed by the government.
D)   individual mortgage loans, and an overwhelming 80 percent had become securitized loans.E) All of the above
F) A) and B)

Question 17

In 2008, several banks had a:

Accepted Answer

A)   solvency problem, and the Fed kept them all from going bankrupt.
B)   confidence problem, and would not lend enough to keep from going bankrupt.
C)   solvency problem, and eventually went bankrupt as a result.
D)   reserve problem, and did not have enough funds on hand to lend to keep from going bankrupt.E) None of the above
F) A) and D)

Question 18

The "housing bubble" discussed in the text book refers to:

Accepted Answer

A)   housing prices rising much more quickly than the rest of prices in the economy.
B)   housing prices within a certain area of the U.S. rising disproportionately with the rest of houses in the economy.
C)   an unexplained increase in the demand for houses which caused the prices of houses to rise.
D)   a supply shock to the housing market, which caused housing prices to increase.E) None of the above
F) B) and C)

Question 19

As the Fed responded to the financial crisis that followed the collapse of the housing market, certain banks were deemed too:

Accepted Answer

A)   large to fail, as their failure would carry the risk of causing a domino effect in the highly integrated financial system.
B)   large to stay afloat, as they would be too costly to save.
C)   small to fail, as they were easy to save.
D)   large to fail, and were consequently purchased by the government.E) C) and D)
F) None of the above

Question 20

In 2008, the Fed responded to the financial crisis by:

Accepted Answer

A)   offering nearly unlimited short-term financing to any bank that suddenly found itself short on cash.
B)   increasing the interest rates to encourage people to save, so banks would have more money on hand to lend.
C)   doing nothing, and allowing the automatic stabilizers to bring the economy back to its long run equilibrium.
D)   reducing money supply.E) None of the above
F) B) and C)

Exam 17: Financial Crisis

Leverage is thought to be:

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As the Fed responded to the financial crisis that followed the collapse of the housing market, certain banks were deemed too:

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What event led to the end of the Great Moderation?

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In 2008, the Fed responded to the financial crisis by:

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When the U.S. housing market crashed, it caused all of the following except:

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As the housing bubble collapsed, and the value of homes decreased, consumersâ€™ loss of wealth led to:

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When the housing bubble occurred it can be attributed to all of the following except:

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By 2006, 20 percent of the mortgage market consisted of:

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Stock markets in England were started in the late:

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When the Fed injected newly made money into the economy by buying bonds, it:

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Margin calls are more likely to happen when markets are:

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A rapidly falling stock price would most likely trigger all of the following except:

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The Great Depression was characterized by:

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Banks that were so large in terms of assets or customers, or so historically important, that banking regulators allowed the bank to keep operating despite insolvency after the housing market crash were called:

Correct AnswerverifiedShow Answer

The "housing bubble" discussed in the text book refers to:

Correct AnswerverifiedShow Answer

The combined efforts of the Fed and the Treasury in response to the financial crisis following the housing market crash caused:

Correct AnswerverifiedShow Answer

The Federal Reserve Bank attempted to deal with the sluggish aggregate demand that followed the housing market crash and subsequent financial crisis through:

Correct AnswerverifiedShow Answer

In 2008, several banks had a:

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The recency effect is:

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The reforms introduced by Congress in the 1930s led to the era now referred to as the Great:

Correct AnswerverifiedShow Answer

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