Question 1

Bank B takes 15,000 mortgage loans,bundles them together,and then sells slices of the bundle.This is descriptive of

Accepted Answer

Bank B is creating a mortgage-backed security by bundling the mortgage loans together and selling slices of the bundle.

Question 2

Rising savings rates in emerging countries in the period 2000-2008 are associated with both falling and rising mortgage interest rates in the United States.

Accepted Answer

Rising savings rates in emerging countries led to an inflow of foreign capital into the United States, which resulted in falling mortgage interest rates. However, this also led to a housing boom, which eventually led to rising mortgage interest rates as the market became oversaturated.

Question 3

A bank is solvent as long as its liabilities are greater than its assets.

Accepted Answer

A bank is solvent when its assets are greater than its liabilities, meaning it has enough resources to cover its obligations to depositors and creditors.

Question 4

If the value of a bank's assets is rising,a high leverage ratio increases the percentage rise in its capital.

Accepted Answer

A higher leverage ratio means that the bank is using more debt to finance its assets. As the value of assets rises, the percentage increase in capital will also be higher due to the higher leverage ratio.

Question 5

If M = $1,200 billion and V = 4,then total spending is _______________billion.Then velocity falls to 2 and M rises to $2,000 billion,so that total spending is now _______________ billion,and GDP has _________________.

Accepted Answer

The answer of If M = $1,200 billion and V...

Question 6

During a time of rising asset values,a bank can increase its returns by engaging in regulatory capital arbitrage.

Accepted Answer

During a time of rising asset values, a bank's regulatory capital may increase without any additional equity capital infusion. The bank can engage in regulatory capital arbitrage, which involves investing in opportunities that require minimal or no regulatory capital, while earning high profits. This enables the bank to increase its returns without significant equity investment, making it a profitable strategy during a time of rising asset values.

Question 7

During the Great Recession,the growth rate of Real GDP _________________ and the inflation rate ___________________.

Accepted Answer

The answer of During the Great Recession,the growth rate of...

Question 8

Which of the following statements is false?

Accepted Answer

The answer of Which of the following statements is false?
...

Question 9

When the money supply increases at the same time that velocity is decreasing,total spending will

Accepted Answer

If velocity is decreasing while the money supply is increasing, it means that people are holding onto their money and not spending it as quickly. This will lead to a decline in total spending, unless the increase in the money supply is large enough to offset the decrease in velocity. If the decrease in velocity is relatively greater than the increase in the money supply, total spending will fall. Therefore, the best choice is D.

Question 10

The downside to a bank having a high leverage ratio is that a decline in asset value magnifies losses.

Accepted Answer

A high leverage ratio means that the bank is relying more on borrowed funds and less on its own equity. If the value of the bank's assets declines, the borrowed funds must still be paid back, resulting in magnified losses for the bank.

Question 11

What does the term run on the bank mean?

Accepted Answer

A run on the bank occurs when a large number of depositors rush to withdraw their money from a bank, usually out of fear that the bank may fail or be unable to give them access to their funds. This can lead to a bank's inability to meet the demand for withdrawals, ultimately resulting in its failure.

Question 12

According to Alan Greenspan,the type of inflation that the Taylor Rule is best at addressing is

Accepted Answer

The Taylor Rule is designed to address product-price inflation, which is caused by excess demand in the economy. Alan Greenspan, the former chairman of the Federal Reserve, has stated that the Taylor Rule is effective in guiding monetary policy to combat inflation caused by excessive demand pressures in the economy, particularly product-price inflation.

Question 13

As a bank approaches insolvency,it is likely to

Accepted Answer

As a bank approaches insolvency, it is likely to decrease its lending activities as a means of reducing risk and conserving capital. The bank may also find that its capital is declining due to losses on loans or investments. Therefore, options A and C are correct. Option B is not correct because the bank would not want to take on additional risk by increasing its lending activities. Option D is also not correct because trying to increase liabilities would not improve the bank's solvency situation.

Question 14

Regulatory capital is the amount of capital financial institutions should hold based on the riskiness of their different assets.

Accepted Answer

The answer of Regulatory capital is the amount of capital...

Question 15

Collateralized debt obligations are

Accepted Answer

The answer of Collateralized debt obligations are
...

Question 16

The answer is,"They are mortgage loans granted to persons who might have low credit ratings." The question is:

Accepted Answer

Subprime mortgage loans are specifically designed for individuals who may have a low credit score or a less than stellar credit history. These loans are typically backed by collateral and charge higher interest rates to compensate for the increased risk associated with lending to borrowers with lower credit scores.

Question 17

All other things being equal among the banks below,which bank is the least likely to become insolvent?

Accepted Answer

The answer of All other things being equal among the...

Question 18

Suppose the Fed lowers its federal funds rate target.The Fed probably seeks to

Accepted Answer

The Fed lowers its federal funds rate target in order to encourage banks to lend more money, which in turn will lower the actual federal funds rate.

Question 19

According to economist John Taylor,the Fed set its federal funds rate target too high during the period 2002-early 2006,which contributed to the financial crisis of 2007-2009.

Accepted Answer

The answer of According to economist John Taylor,the Fed set...

Question 20

Which of the following is more nearly consistent with a global savings glut?

Accepted Answer

A global savings glut would mean that there is an excess of savings in the world economy, leading to low interest rates. This is consistent with option D, which states that low interest rates and a high global savings-World GDP ratio exist. In contrast, option A suggests high interest rates, which would be inconsistent with a savings glut. Options B and C have a low global savings-World GDP ratio, which would be inconsistent with a savings glut. Therefore, option D is the best choice.

Quiz 18: The Financial Crisis of 2007-2009