Economics of Money Banking and Financial Markets The Business School Edition 3rd Edition Mishkin Test Bank 1
Economics of Money Banking and Financial Markets The Business School Edition 3rd Edition Mishkin Test Bank 1
Economics of Money Banking and Financial Markets The Business School Edition 3rd Edition Mishkin Test Bank 1
Economics of Money, Banking, and Financial Markets, 3e, Bus. School Ed., (Mishkin)
Chapter 9 Financial Crises
1) A major disruption in financial markets characterized by sharp declines in asset prices and
firm failures is called a
A) financial crisis.
B) fiscal imbalance.
C) free-rider problem.
D) "lemons" problem.
Answer: A
Ques Status: Previous Edition
2) A financial crisis occurs when an increase in asymmetric information from a disruption in the
financial system
A) causes severe adverse selection and moral hazard problems that make financial markets
1
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incapable of channeling funds efficiently.
B) allows for a more efficient use of funds.
C) increases economic activity.
D) reduces uncertainty in the economy and increases market efficiency.
Answer: A
Ques Status: Previous Edition
AACSB: Reflective thinking skills
2
Copyright © 2013 Pearson Education, Inc.
9.2 Dynamics of Financial Crises in Advanced Economies
2) When financial institutions go on a lending spree and expand their lending at a rapid pace they
are participating in a
A) credit boom.
B) credit bust.
C) deleveraging.
D) market race.
Answer: A
Ques Status: Previous Edition
3) When the value of loans begins to drop, the net worth of financial institutions falls causing
them to cut back on lending in a process called
A) deleveraging.
B) releveraging.
C) capitulation.
D) deflation.
Answer: A
Ques Status: Previous Edition
5) A credit boom can lead to a(n) ________ such as we saw in the tech stock market in the late
1990s.
A) asset-price bubble
B) liability war
C) decline in lending
D) decrease in moral hazard
Answer: A
Ques Status: Previous Edition
3
Copyright © 2013 Pearson Education, Inc.
6) Most U.S. financial crises have started during periods of ________ either after the start of a
recession or a stock market crash.
A) high uncertainty
B) low interest rates
C) low asset prices
D) high financial regulation
Answer: A
Ques Status: Previous Edition
AACSB: Reflective thinking skills
7) If uncertainty about banks' health causes depositors to begin to withdraw their funds from
banks, the country experiences a(n)
A) banking crisis.
B) financial recovery.
C) reduction of the adverse selection and moral hazard problems.
D) increase in information available to investors.
Answer: A
Ques Status: Previous Edition
AACSB: Reflective thinking skills
4
Copyright © 2013 Pearson Education, Inc.
10) A substantial decrease in the aggregate price level that reduces firms' net worth may stall a
recovery from a recession. This process is called
A) debt deflation.
B) moral hazard.
C) insolvency.
D) illiquidity.
Answer: A
Ques Status: Previous Edition
11) A possible sequence for the three stages of a financial crisis in an advanced economy might
be ________ leads to ________ leads to ________.
A) asset price declines; banking crises; unanticipated decline in price level
B) unanticipated decline in price level; banking crises; increase in interest rates
C) banking crises; increase in interest rates; unanticipated decline in price level
D) banking crises; increase in uncertainty; increase in interest rates
Answer: A
Ques Status: Revised
AACSB: Reflective thinking skills
12) The economy recovers quickly from most recessions, but the increase in adverse selection
and moral hazard problems in the credit markets caused by ________ led to the severe economic
contraction known as The Great Depression.
A) debt deflation
B) illiquidity
C) an improvement in banks' balance sheets
D) increases in bond prices
Answer: A
Ques Status: Previous Edition
AACSB: Reflective thinking skills
13) ________ is a process of bundling together smaller loans (like mortgages) into standard debt
securities.
A) Securitization
B) Origination
C) Debt deflation
D) Distribution
Answer: A
Ques Status: Previous Edition
5
Copyright © 2013 Pearson Education, Inc.
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