Question 1

An accounting practice whereby a firm values assets at current market prices is called

Accepted Answer

A)  market fluctuations.
B)  mark-to-market.
C)  go-to-market.
D)  market swaps.E) A) and C)
F) B) and C) B

Question 2

Credit markets froze because interest rates were so low that banks thought it was not worth it to lend to each other.

Accepted Answer

A) True 
 B)False

Question 3

Suppose the budget deficit is rising 3 per cent per year and nominal GDP is rising 5 per cent per year.The debt created by these continuing deficits is

Accepted Answer

A)  sustainable, but the future burden on your children cannot be offset.
B)  sustainable, and the future burden on your children can be offset if you save for them.
C)  not sustainable, and the future burden on your children cannot be offset.
D)  not sustainable, but the future burden on your children can be offset if you save for them.E) A) and B)
F) A) and C) B

Question 4

Is it possible that deficits do not burden future generations?

Accepted Answer

Some programs, such as Social Security, ...

Question 5

The idea of a bank being 'too big to fail' means

Accepted Answer

A)  it has such a large asset base that its risk of failure is eliminated.
B)  banks become more risk seeking because they believe they will be rescued if they fail.
C)  a lack of competition in financial markets which increases risk aversion.
D)  a reduced likelihood of adverse selection in financial markets.E) A) and B)
F) A) and C)

Question 6

The higher a government budget deficit is the more likely

Accepted Answer

A)  the risk of default on sovereign debt.
B)  economic growth is to stall.
C)  It is that interest rates will remain stable over the long run.
D)  the economic cycle will be predictable over a period.
E)  it is that tax rates in the country will remain low.F) All of the above
G) D) and E)

Question 7

Asset bubbles can arise because markets ignore fundamentals, and base decisions on future expectations of themselves and others.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is not true with regard to government budget deficits?

Accepted Answer

A)  Budget deficits reduce capital investment, future productivity and, therefore, future incomes.
B)  Budget deficits place the burden of current spending on future taxpayers.
C)  Budget deficits should be scrutinized because they are the only way to transfer wealth across generations of taxpayers.
D)  Budget deficits reduce national saving.E) A) and B)
F) None of the above

Question 9

What theory states that problems in financial markets can amplify shocks to the real economy and create a feedback loop, which exacerbates economic problems?

Accepted Answer

A)  Financial causal theory.
B)  Financial simulation theory.
C)  Financial accelerator theory.
D)  All of the above.E) All of the above
F) None of the above

Question 10

The _____________ is that part of the economy associated with the buying and selling of assets on financial markets.

Accepted Answer

A)  flat economy
B)  shadow economy
C)  real economy
D)  financial economyE) A) and B)
F) A) and C) D

Question 11

During a severe downturn in the economy, a central bank would be most likely to

Accepted Answer

A)  increase its base lending rates.
B)  cut interest rates and increase liquidity in the markets.
C)  instruct markets to cut back lending to reduce inflation.
D)  manage its assets so that the exchange rate falls.E) C) and D)
F) B) and D)

Question 12

Why did a rise in interest rates cause such a problem in the sub-prime market?

Accepted Answer

People with poor credit histories were o...

Question 13

Securitization of assets became more popular because it enabled banks to generate additional reserve assets on its books, and thus allowed them to expand lending.

Accepted Answer

A) True 
 B)False

Question 14

Which is NOT a peripheral country within the eurozone?

Accepted Answer

A)  Ireland
B)  Germany
C)  Latvia
D)  PortugalE) A) and B)
F) A) and C)

Question 15

The main purpose of financial regulation is to

Accepted Answer

A)  penalize risk averse fund managers in financial institutions.
B)  ensure monetary policy is carried out in accordance with the Taylor Rule.
C)  create efficiency and equity in financial markets.
D)  monitor the remuneration packages of senior banking officials.E) C) and D)
F) All of the above

Question 16

The shadow banking system refers to financial intermediaries which act like banks but are outside the scope of regulation.

Accepted Answer

A) True 
 B)False

Question 17

The real economy refers to that part of the economy which is concerned with the production of

Accepted Answer

A)  stocks and bonds.
B)  Interest rates.
C)  goods and services.
D)  equity.E) A) and C)
F) None of the above

Question 18

Which increase does not apply to large structural deficits?

Accepted Answer

A)  The likelihood of default by governments.
B)  The costs of servicing the debt.
C)  Currency instability.
D)  All of the above.E) None of the above
F) A) and D)

Question 19

Suppose that the Spanish economy is experiencing a recession, while other countries in the eurozone are in long run macroeconomic equilibrium.What would happen to interest rates on long term government bonds issued by eurozone governments if the Spanish government were to increase its budget deficit dramatically to finance additional government spending? Explain your answer.

Accepted Answer

Interest rates on eurozone government bo...

Question 20

The output gap refers to

Accepted Answer

A)  the difference between current output and trend output.
B)  the size of a structural deficit.
C)  the difference between economic growth and the level of inflation.
D)  the difference between the natural rate of unemployment and the claimant count.E) A) and C)
F) A) and D)

Exam 19: The Financial Crisis and Sovereign Debt

An accounting practice whereby a firm values assets at current market prices is called

Correct Answer
verified
B

Credit markets froze because interest rates were so low that banks thought it was not worth it to lend to each other.

Correct Answer
verified

Suppose the budget deficit is rising 3 per cent per year and nominal GDP is rising 5 per cent per year.The debt created by these continuing deficits is

Correct Answer
verified
B

Is it possible that deficits do not burden future generations?

Correct Answer
verified
Some programs, such as Social Security, ...
View Answer

The idea of a bank being 'too big to fail' means

Correct Answer
verified

The higher a government budget deficit is the more likely

Correct Answer
verified

Asset bubbles can arise because markets ignore fundamentals, and base decisions on future expectations of themselves and others.

Correct Answer
verified

Which of the following is not true with regard to government budget deficits?

Correct Answer
verified

What theory states that problems in financial markets can amplify shocks to the real economy and create a feedback loop, which exacerbates economic problems?

Correct Answer
verified

The _____________ is that part of the economy associated with the buying and selling of assets on financial markets.

Correct Answer
verified
D

During a severe downturn in the economy, a central bank would be most likely to

Correct Answer
verified

Why did a rise in interest rates cause such a problem in the sub-prime market?

Correct Answer
verified
People with poor credit histories were o...
View Answer

Securitization of assets became more popular because it enabled banks to generate additional reserve assets on its books, and thus allowed them to expand lending.

Correct Answer
verified

Which is NOT a peripheral country within the eurozone?

Correct Answer
verified

The main purpose of financial regulation is to

Correct Answer
verified

The shadow banking system refers to financial intermediaries which act like banks but are outside the scope of regulation.

Correct Answer
verified

The real economy refers to that part of the economy which is concerned with the production of

Correct Answer
verified

Which increase does not apply to large structural deficits?

Correct Answer
verified

Correct Answer
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Interest rates on eurozone government bo...
View Answer

The output gap refers to

Correct Answer
verified

Exam 19: The Financial Crisis and Sovereign Debt

An accounting practice whereby a firm values assets at current market prices is called

Correct AnswerverifiedB

Credit markets froze because interest rates were so low that banks thought it was not worth it to lend to each other.

Correct AnswerverifiedShow Answer

Suppose the budget deficit is rising 3 per cent per year and nominal GDP is rising 5 per cent per year.The debt created by these continuing deficits is

Correct AnswerverifiedB

Is it possible that deficits do not burden future generations?

Correct AnswerverifiedSome programs, such as Social Security, ...View AnswerShow Answer

The idea of a bank being 'too big to fail' means

Correct AnswerverifiedShow Answer

The higher a government budget deficit is the more likely

Correct AnswerverifiedShow Answer

Asset bubbles can arise because markets ignore fundamentals, and base decisions on future expectations of themselves and others.

Correct AnswerverifiedShow Answer

Which of the following is not true with regard to government budget deficits?

Correct AnswerverifiedShow Answer

What theory states that problems in financial markets can amplify shocks to the real economy and create a feedback loop, which exacerbates economic problems?

Correct AnswerverifiedShow Answer

The _____________ is that part of the economy associated with the buying and selling of assets on financial markets.

Correct AnswerverifiedD

During a severe downturn in the economy, a central bank would be most likely to

Correct AnswerverifiedShow Answer

Why did a rise in interest rates cause such a problem in the sub-prime market?

Correct AnswerverifiedPeople with poor credit histories were o...View AnswerShow Answer

Securitization of assets became more popular because it enabled banks to generate additional reserve assets on its books, and thus allowed them to expand lending.

Correct AnswerverifiedShow Answer

Which is NOT a peripheral country within the eurozone?

Correct AnswerverifiedShow Answer

The main purpose of financial regulation is to

Correct AnswerverifiedShow Answer

The shadow banking system refers to financial intermediaries which act like banks but are outside the scope of regulation.

Correct AnswerverifiedShow Answer

The real economy refers to that part of the economy which is concerned with the production of

Correct AnswerverifiedShow Answer

Which increase does not apply to large structural deficits?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedInterest rates on eurozone government bo...View AnswerShow Answer

The output gap refers to

Correct AnswerverifiedShow Answer

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B

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B

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Some programs, such as Social Security, ...
View Answer

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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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D

Correct Answer
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Correct Answer
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People with poor credit histories were o...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Interest rates on eurozone government bo...
View Answer

Correct Answer
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