money-and-bank-test-bank-chap09

1TheEconomicsofMoney,Banking,andFinancialMarkets,9e(Mishkin)Chapter9FinancialCrisesandtheSubprimeMeltdown9.1FactorsCausingFinancialCrises1)AmajordisruptioninfinancialmarketscharacterizedbysharpdeclinesinassetpricesandfirmfailuresiscalledaA)financialcrisis.B)fiscalimbalance.C)free-riderproblem.D)lemonsproblem.Answer:AQuesStatus:New2)AfinancialcrisisoccurswhenanincreaseinasymmetricinformationfromadisruptioninthefinancialsystemA)causessevereadverseselectionandmoralhazardproblemsthatmakefinancialmarketsincapableofchannelingfundsefficiently.B)allowsforamoreefficientuseoffunds.C)increaseseconomicactivity.D)reducesuncertaintyintheeconomyandincreasesmarketefficiency.Answer:AQuesStatus:New3)AseriousconsequenceofafinancialcrisisisA)acontractionineconomicactivity.B)anincreaseinassetprices.C)financialengineering.D)financialglobalization.Answer:AQuesStatus:New4)Asharpdeclineinthestockmarketmeansthatthe________ofcorporationshasfallenmakinglenders________willingtolend.A)networth;lessB)networth;moreC)liability;lessD)liability;moreAnswer:AQuesStatus:New5)AsharpstockmarketdeclineincreasesmoralhazardincentivesA)sinceborrowingfirmshavelesstoloseiftheirinvestmentsfail.B)becauseitisimmoraltoprofitfromsomeone'sloss.C)sincelendersaremorewillingtomakeloans.D)reducinguncertaintyintheeconomyandincreasingmarketefficiency.Answer:AQuesStatus:New26)Anunanticipateddeclineinthepricelevelincreasestheburdenofdebtonborrowingfirmsbutdoesnotraisetherealvalueofborrowingfirms'assets.TheresultisA)thatnetworthinrealtermsdeclines.B)thatadverseselectionandmoralhazardproblemsarereduced.C)anincreaseintherealnetworthoftheborrowingfirm.D)anincreaseinlending.Answer:AQuesStatus:New7)Ifdebtcontractsaredenominatedinforeigncurrency,thenanunanticipateddeclineinthevalueofthedomesticcurrencyresultsinA)adeclineinafirm'snetworth.B)anincreaseinafirm'snetworth.C)adecreaseinadverseselectionandmoralhazard.D)anincreaseinwillingnesstolend.Answer:AQuesStatus:New8)Factorsthatleadtoworseningconditionsinfinancialmarketsinclude:A)declininginterestrates.B)unanticipatedincreasesinthepricelevel.C)thedeteriorationinbanks'balancesheets.D)increasesinbondprices.Answer:CQuesStatus:PreviousEdition9)Inabankpanic,thesourceofcontagionistheA)free-riderproblem.B)too-big-to-failproblem.C)transactionscostproblem.D)asymmetricinformationproblem.Answer:DQuesStatus:PreviousEdition10)AbankpaniccanleadtoaseverecontractionineconomicactivityduetoA)adeclineininternationaltrade.B)thelossesofbankshareholders.C)thelossesofbankdepositors.D)adeclineinlendingforproductiveinvestment.Answer:DQuesStatus:PreviousEdition311)Inadditiontohavingadirecteffectonincreasingadverseselectionproblems,increasesininterestratesalsopromotefinancialcrisesby________firms'andhouseholds'interestpayments,thereby________theircashflow.A)increasing;increasingB)increasing;decreasingC)decreasing;decreasingD)decreasing;increasingAnswer:BQuesStatus:PreviousEdition12)Inemergingeconomies,governmentfiscalimbalancesmaycausefearsofA)debtdeflation.B)defaultongovernmentdebt.C)stockpricedeclines.D)lowerinterestrates.Answer:BQuesStatus:Revised13)Howcanasymmetricinformationleadtoabankpanic?Answer:Depositorscannotjudgethequalityoftheirbanks'loanportfolios.So,whentheyhearaboutafailedfinancialinstitution,theymayworryaboutthesafetyoftheirdepositsandbegintowithdrawtheirfundsfromtheirbank.Evenhealthyinstitutionscangounderifenoughdepositsarewithdrawnquickly.QuesStatus:New9.2DynamicsofPastU.S.FinancialCrises1)WhenfinancialinstitutionsgoonalendingspreeandexpandtheirlendingatarapidpacetheyareparticipatinginaA)creditboom.B)creditbust.C)deleveraging.D)marketrace.Answer:AQuesStatus:New2)Whenthevalueofloansbeginstodrop,thenetworthoffinancialinstitutionsfallscausingthemtocutbackonlendinginaprocesscalledA)deleveraging.B)releveraging.C)capitulation.D)deflation.Answer:AQuesStatus:New43)Whenfinancialintermediariesdeleverage,firmscannotfundinvestmentopportunitiesresultinginA)acontractionofeconomicactivity.B)aneconomicboom.C)anincreasedopportunityforgrowth.D)acallforgovernmentregulation.Answer:AQuesStatus:New4)Acreditboomcanleadtoa(n)________suchaswesawinthetechstockmarketinthelate1990s.A)asset-pricebubbleB)liabilitywarC)declineinlendingD)decreaseinmoralhazardAnswer:AQuesStatus:New5)Many19thcenturyU.S.financialcriseswerestartedbyA)spikesininterestrates.B)financialinnovation.C)onerousfinancialregulations.D)astrongimprovementinbanks'balancesheets.Answer:AQuesStatus:New6)MostU.S.financialcriseshavestartedduringperiodsof________eitherafterthestartofarecessionorastockmarketcrash.A)highuncertaintyB)lowinterestratesC)lowassetpricesD)highfinancialregulationAnswer:AQuesStatus:New7)Ifuncertaintyaboutbanks'healthcausesdepositorstobegintowithdrawtheirfundsfrombanks,thecountryexperiencesa(n)A)bankingcrisis.B)financialrecovery.C)reductionoftheadverseselectionandmoralhazardproblems.D)increaseininformationavailabletoinvestors.Answer:AQuesStatus:New58)DebtdeflationoccurswhenA)aneconomicdownturncausesthepriceleveltofallandadeteriorationinfirms'networthbecauseoftheincreasedburdenofind