Question 1

Financial crises

Accepted Answer

A)  cause failures of financial intermediaries and leave only securities markets to channel funds from savers to borrowers.
B)  are a recent phenomenon that occur only in developing countries.
C)  invariably lead to debt deflation.
D)  all of the above.
E)  none of the above.F) A) and E)
G) C) and D)

Question 2

Most financial crises in the United States have begun with

Accepted Answer

A)  a steep stock market decline.
B)  an increase in uncertainty resulting from the failure of a major firm.
C)  a steep decline in interest rates.
D)  all of the above.
E)  only A and B of the above.F) B) and E)
G) A) and E)

Question 3

Why was the shadow banking system important during the 2007-2009 U.S. financial crisis?

Accepted Answer

The shadow banking system played a cruci...

Question 4

In an emerging market economy, a country often faces severe fiscal imbalances before a financial crisis initiates.

Accepted Answer

A) True 
 B)False

Question 5

Contrast the stages of a financial crisis between an advanced economy and an emerging market economy.

Accepted Answer

A financial crisis in an advanced econom...

Question 6

Which of the following factors led up to the Mexican financial crisis of 1994?

Accepted Answer

A)  speculative attacks on the peso and a rise in actual and expected inflation
B)  a rise in domestic interest rates and a deterioration in bank balance sheets
C)  a rise in foreign interest rates and domestic stock market declines
D)  all of the above
E)  only B and C of the aboveF) A) and B)
G) A) and E)

Question 7

The failure of Ohio Life Insurance and Trust in 1857 did not signal the start of a recession due to prompt actions by the Fed.

Accepted Answer

A) True 
 B)False

Question 8

Debt deflation refers to the decline in debt values as creditors agree to lower interest rates as an alternative to defaults.

Accepted Answer

A) True 
 B)False

Question 9

During the 1800s, many U.S. financial crises were precipitated by an increase in ________, often originating in London.

Accepted Answer

A)  interest rates
B)  housing prices
C)  gasoline prices
D)  heating oil pricesE) A) and B)
F) B) and C)

Question 10

Describe the sequence of events in a financial crisis in an emerging market economy and explain why they can cause economic activity to decline.

Accepted Answer

The sequence of events in a financial cr...

Question 11

When asset prices fall following a boom,

Accepted Answer

A)  moral hazard may increase in companies that have lost net worth in the bust.
B)  financial institutions may see the assets on their balance sheets deteriorate, leading to deleveraging.
C)  both A and B are correct.
D)  none of the above are correct.E) A) and B)
F) A) and C)

Question 12

Because asset markets are relatively small in an emerging market, they play less of a prominent role in a financial crisis in those economies.

Accepted Answer

A) True 
 B)False

Question 13

In an emerging market economy, a financial crisis generally begins with

Accepted Answer

A)  mismanagement of financial liberalization or innovation.
B)  asset pricing booms and busts.
C)  an increase in uncertainty caused by failure of financial institutions.
D)  all of the above.E) All of the above
F) C) and D)

Question 14

Financial crises

Accepted Answer

A)  are major disruptions in financial markets that are characterized by sharp declines in asset prices and the failures of many financial and nonfinancial firms.
B)  occur when adverse selection and moral hazard problems in financial markets become more significant.
C)  frequently lead to sharp contractions in economic activity.
D)  are all of the above.
E)  are only A and B of the above.F) D) and E)
G) A) and B)

Question 15

Approximately how large was the U.S. subprime mortgage market in 2007?

Accepted Answer

A)  $100 million
B)  $100 billion
C)  $500 billion
D)  $1 trillionE) A) and D)
F) B) and C)

Question 16

What is a credit boom?

Accepted Answer

A)  an explosion in a credit cycle, which can increase or decrease lending in the short-run
B)  essentially a lending spree on the part of banks and other financial institutions
C)  when credit card receivables rise due to low initial interest rates
D)  the signal of the end of a credit spree, with credit contracting rapidlyE) C) and D)
F) A) and B)

Question 17

Discuss the difference in Stage Two of a financial crisis between an advanced economy and an emerging market economy.

Accepted Answer

Stage Two of a financial crisis in an ad...

Question 18

Stage Two of a financial crisis in an advanced economy usually involves a ________ crisis.

Accepted Answer

A)  currency
B)  stock market
C)  banking
D)  commoditiesE) All of the above
F) A) and C)

Question 19

In the second stage of a financial crisis in an emerging economy, a speculative currency attack begins. Why can't the government defend itself from such an attack?

Accepted Answer

In the second stage of a financial crisi...

Question 20

Factors that can lead to worsening conditions in financial markets include increasing interest rates and asset price booms.

Accepted Answer

A) True 
 B)False

Exam 8: Why Do Financial Crises Occur and Why Are They so Damaging to the Economy

Because asset markets are relatively small in an emerging market, they play less of a prominent role in a financial crisis in those economies.

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What is a credit boom?

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Describe the sequence of events in a financial crisis in an emerging market economy and explain why they can cause economic activity to decline.

Correct AnswerAnswered by ExamLex AIThe sequence of events in a financial cr...View AnswerShow Answer

Financial crises

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Most financial crises in the United States have begun with

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In an emerging market economy, a financial crisis generally begins with

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Approximately how large was the U.S. subprime mortgage market in 2007?

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Stage Two of a financial crisis in an advanced economy usually involves a ________ crisis.

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Contrast the stages of a financial crisis between an advanced economy and an emerging market economy.

Correct AnswerAnswered by ExamLex AIA financial crisis in an advanced econom...View AnswerShow Answer

Debt deflation refers to the decline in debt values as creditors agree to lower interest rates as an alternative to defaults.

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Discuss the difference in Stage Two of a financial crisis between an advanced economy and an emerging market economy.

Correct AnswerAnswered by ExamLex AIStage Two of a financial crisis in an ad...View AnswerShow Answer

In the second stage of a financial crisis in an emerging economy, a speculative currency attack begins. Why can't the government defend itself from such an attack?

Correct AnswerAnswered by ExamLex AIIn the second stage of a financial crisi...View AnswerShow Answer

The failure of Ohio Life Insurance and Trust in 1857 did not signal the start of a recession due to prompt actions by the Fed.

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Which of the following factors led up to the Mexican financial crisis of 1994?

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When asset prices fall following a boom,

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Financial crises

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Why was the shadow banking system important during the 2007-2009 U.S. financial crisis?

Correct AnswerAnswered by ExamLex AIThe shadow banking system played a cruci...View AnswerShow Answer

During the 1800s, many U.S. financial crises were precipitated by an increase in ________, often originating in London.

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In an emerging market economy, a country often faces severe fiscal imbalances before a financial crisis initiates.

Correct AnswerverifiedShow Answer

Factors that can lead to worsening conditions in financial markets include increasing interest rates and asset price booms.

Correct AnswerverifiedShow Answer

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The sequence of events in a financial cr...
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A financial crisis in an advanced econom...
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Stage Two of a financial crisis in an ad...
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In the second stage of a financial crisi...
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The shadow banking system played a cruci...
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