Question 1

Prior to the start of global crisis in 2007, the previous 20 years had been a period of

Accepted Answer

A)   Fluctuating macroeconomic stability.
B)   Macroeconomic stability with sustained growth.
C)   Both boom and bust periods.
D)   Consistently high inflation.E) A) and C)
F) B) and D)

Question 2

Which of the following is true?

Accepted Answer

A)   The European Financial Stability Fund (EFSF)  replaced the European Stability Mechanism (ESM) .
B)   The ESM assumed the tasks of the EFSF.
C)   The ESM is now part of the International Monetary Fund (IMF) .
D)   The ESM is now part of the World Bank.E) A) and B)
F) None of the above

Question 3

Explain the difference between cyclical deficits and structural deficits.

Accepted Answer

A structural deficit is a situation wher...

Question 4

What usually happens to interest rates on large sovereign debts?

Accepted Answer

A)   They fall.
B)   They remain the same.
C)   They rise.
D)   They fall in real terms.E) B) and D)
F) A) and B)

Question 5

In the USA, the Federal Reserve Bank maintained low interest rates for much of the 2000s. This was because the Fed:

Accepted Answer

A)   Was concerned that inflationary pressures were rising throughout the period.
B)   It wanted to encourage banks to build up capital reserves.
C)   Wanted to maintain economic confidence in the wake of exogenous shocks.
D)   Realized that ecommerce needed support to become established.E) B) and C)
F) A) and C)

Question 6

The response of central banks to the credit crunch was

Accepted Answer

A)   To remove some regulatory limitations on banks.
B)   To impose new regulatory limitations on banks.
C)   To provide additional liquidity to the banking system.
D)   To restrict the availability of liquidity to the banking system.E) A) and B)
F) None of the above

Question 7

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 8

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 9

The securitization of assets relies on:

Accepted Answer

A)   Banks building up their reserve assets.
B)   The backing assets generating a stream of income over time.
C)   The present value of income streams rising over time.
D)   Real interest rates continuing to be negative for at least a five-year period.E) None of the above
F) C) and D)

Question 10

Which of the following help explains the growth in the sub-prime market?

Accepted Answer

A)   The demand by shareholders for better returns.
B)   The existence of a bonus culture which could provide some individuals with millions each year.
C)   The desire by individuals to get on the property ladder.
D)   The lack of rigour in regulation and oversight by the central banks.
E)   All of the above.F) A) and D)
G) A) and B)

Question 11

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 12

Which of the following is correct?

Accepted Answer

A)   Deficits always require people to consume at the expense of their children.
B)   If the government uses funds to pay for investment programs, on net the debt need not burden future generations.
C)   If the government is in debt it must be running a deficit currently.
D)   The current government debt is a large share of lifetime income.E) A) and B)
F) None of the above

Question 13

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 14

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) A) and B)
F) None of the above

Question 15

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 16

The use of mathematics can help to completely eliminate risk from investment.

Accepted Answer

A) True 
 B)False

Question 17

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) B) and C)
F) A) and D)

Question 18

Which government policy is most likely to increase future productivity?

Accepted Answer

A)   Selling more bonds because the sovereign deficit has increased.
B)   Increasing spending on infrastructure rather than welfare payments.
C)   Decreasing both spending on welfare and on infrastructure investment.
D)   Cutting back on education spending.E) None of the above
F) A) and D)

Question 19

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) C) and D)
F) All of the above

Question 20

In balancing a budget, economic booms provide opportunities to:

Accepted Answer

A)   Issue more bonds.
B)   Buy back bonds.
C)   Increase deficits.
D)   Raise taxes.E) C) and D)
F) All of the above

Exam 38: The Financial Crisis and Sovereign Debt

Which of the following is true?

Correct Answer
verified

In the USA, the Federal Reserve Bank maintained low interest rates for much of the 2000s. This was because the Fed:

Correct Answer
verified

The response of central banks to the credit crunch was

Correct Answer
verified

Prior to the start of global crisis in 2007, the previous 20 years had been a period of

Correct Answer
verified

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

Correct Answer
verified

Which increase does not apply to large structural deficits?

Correct Answer
verified

Which of the following help explains the growth in the sub-prime market?

Correct Answer
verified

The use of mathematics can help to completely eliminate risk from investment.

Correct Answer
verified

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

Correct Answer
verified

What usually happens to interest rates on large sovereign debts?

Correct Answer
verified

In balancing a budget, economic booms provide opportunities to:

Correct Answer
verified

Which government policy is most likely to increase future productivity?

Correct Answer
verified

Correct Answer
verified
Interest rates on Eurozone government bo...
View Answer

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

Correct Answer
verified

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

Which of the following is correct?

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

Explain the difference between cyclical deficits and structural deficits.

Correct Answer
verified
A structural deficit is a situation wher...
View Answer

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

Correct Answer
verified

The securitization of assets relies on:

Correct Answer
verified

Exam 38: The Financial Crisis and Sovereign Debt

Which of the following is true?

Correct AnswerverifiedShow Answer

In the USA, the Federal Reserve Bank maintained low interest rates for much of the 2000s. This was because the Fed:

Correct AnswerverifiedShow Answer

The response of central banks to the credit crunch was

Correct AnswerverifiedShow Answer

Prior to the start of global crisis in 2007, the previous 20 years had been a period of

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which increase does not apply to large structural deficits?

Correct AnswerverifiedShow Answer

Which of the following help explains the growth in the sub-prime market?

Correct AnswerverifiedShow Answer

The use of mathematics can help to completely eliminate risk from investment.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What usually happens to interest rates on large sovereign debts?

Correct AnswerverifiedShow Answer

In balancing a budget, economic booms provide opportunities to:

Correct AnswerverifiedShow Answer

Which government policy is most likely to increase future productivity?

Correct AnswerverifiedShow Answer

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

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

Correct AnswerverifiedShow Answer

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

Which of the following is correct?

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

Explain the difference between cyclical deficits and structural deficits.

Correct AnswerverifiedA structural deficit is a situation wher...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

The securitization of assets relies on:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Interest rates on Eurozone government bo...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified
A structural deficit is a situation wher...
View Answer

Correct Answer
verified

Correct Answer
verified