Chapter 17: Crises and Consequences - LearningCurve

Shadow banks began to develop in the United States after about:

1980

Before the Great Depression in the United States, the spread was about _____ percentage points, but by 1932, the spread was _____ percentage points.

2; 7

Following a severe banking crisis, the unemployment rate begins to decrease after about _____ years.

4

Lehman Brothers was forced to declare bankruptcy in September 2008 when it was not able to come up with _____ billion in cash to meet the demands of one of its short-term lenders for collateral.

5

Historically, following a severe banking crisis, the average increase in the unemployment rate is about _____ percent.

7

During the 2008 financial crisis, commercial banks received loans from the Federal Reserve that rose to _____ billion dollars in the months following Lehman Brothers' bankruptcy.

700

Which is an example of maturity transformation?

Achmad borrowed on his credit card to take courses for a year to begin a new career as a hairdresser.

_____ occurs when the price of an asset is pushed to an unreasonably high level because its future price is expected to be even higher.

An asset bubble

In 1970, _____, a financial innovator, introduced a new concept in finance, the money market mutual fund.

Bruce Bent

_____ leads to a recession because businesses and consumers decrease their spending.

Debt overhang

_____ occurs when a vicious cycle of deleveraging leaves a borrower with high debt but diminished assets.

Debt overhang

From 1990 to 2008, _____ was called the "Celtic Tiger."

Ireland

Because of the Irish banking crisis:

Ireland experienced a severe recession, and the unemployment rate rose to more than 15 percent in 2012.

When _____ declared bankruptcy in September 2008, it was the largest bankruptcy in United States history.

Lehman Brothers

Following the problems in Greece, in 2011 the debt crisis spread to:

Spain and Italy.

During the U.S. financial crisis of 2008, the Federal Reserve

acted as a lender of last resort.

Which is an action of central banks and governments to lessen the severity of a banking crisis?

acting as a lender of last resort

Ireland's banking crisis in 2008 primarily was caused by:

an asset bubble in real estate.

In a vicious cycle of deleveraging, financial institutions:

are forced to sell their assets at a deep discount.

All of the following are reasons why banking crises typically cause prolonged recessions EXCEPT that:

asset bubbles are particularly hard to counteract.

Following the 2008 financial crisis in the United States:

both the unemployment rate and the long-term unemployment rate increased.

Which is NOT a reason why banking crises lead to recessions?

budget surpluses

Shadow banks do not accept deposits; this means that they:

can still engage in maturity transformation.

Short-term bonds issued by private companies are known as:

commercial paper.

The budget cuts required in exchange for loans from other European countries _____ the Greek economy.

depressed

Which element is addressed in the Wall Street Reform and Consumer Protection (Dodd-Frank) Act?

derivatives regulation

A(n) _____ is a vicious downward spiral among depository institutions and shadow banks in which each bank's failure worsens fears and increases the likelihood that another bank will fail.

financial contagion

A sudden and widespread disruption of financial markets that occurs when people lose faith in financial institutions is known as a(n):

financial panic.

If a bank uses "wholesale funding" as a source of funds for making loans, it is:

getting short-term loans from other banks and private investors.

Proponents of fiscal austerity argued that the policy would not be contractionary because:

government spending cuts would improve investor confidence.

If the government has resolution authority, it:

has the power to seize control of financial institutions that need a bailout.

Spain's public debt crisis in 2008 began with a bubble in:

housing.

A(n) _____ in the spread between the debt of Spain and Italy, and the debt of Germany, indicates _____ the risk of the debt of Spain and Italy.

increase; an increase in

Bank failures in poor countries are usually caused by:

lack of regulation of the financial sector.

Banking evolved as a sideline business of:

medieval goldsmiths.

According to the text, the purpose of the Wall Street Reform and Consumer Protection (Dodd-Frank) Act was to:

prevent financial crises like that of 2008.

The U.S. shadow banking system, prior to 2008, was:

provided liquidity and higher return compared to other ways of investing funds.

In 2008, the U.S. government responded to the crisis at Reserve Primary Fund by:

providing temporary guarantees for money market mutual fund deposits.

Which is a regulation designed to prevent bank runs?

provisions that allow troubled banks to borrow from the Federal Reserve's discount window

According to proponents of fiscal austerity, the primary problem facing the economies of the United States and Europe was:

public debt.

To fight a recession, the Federal Reserve typically uses open market operations to:

purchase short-term government securities.

can still engage in maturity transformation.

quickly.

Depository banks borrow on a _____ basis from their depositors and lend these funds on a _____ basis to others.

short-term; long-term

According to the text, _____economists in 2015 agree that the Federal Reserve could have prevented the banking crises of the 1930s and the Great Depression that followed.

some

Bank runs on shadow banks are _____ an underlying cause of financial contagion.

sometimes

The _____ is the difference between the interest rates at which businesses with good, but not great, credit can borrow, and the borrowing costs of the federal government.

spread

Lehman Brothers' bankruptcy primarily was caused by its investments in:

subprime mortgages.

When many banking institutions face banking crises at the same time, this is MOST often because these institutions:

suffer from financial contagion in which the problems and difficulties of one institution spread to and create trouble for other institutions.

In _____, the Federal Reserve acted as a lender of last resort.

the 2008 financial crisis, but not in the Great Depression

The Wall Street Reform and Consumer Protection (Dodd-Frank) Act addressed all of the following EXCEPT:

the elimination of the "revolving door" between bankers and bank regulators

An asset bubble occurs when:

the price of an asset rises to an unreasonably high level because of expectations of future price gains.

Before 2008, a shadow bank was subject to a bank run if:

the shadow bank's lenders decided it was no longer safe to lend funds to the shadow bank, and the shadow bank was unable to fund its operations.

U.S. shadow banks were especially vulnerable to financial crises before 2008 because they were:

under-regulated.

In 2007-08, Lehman Brothers:

was affected by a vicious circle of deleveraging.

In the United States, the Panic of 1873 and the Panic of 1893 both:

were caused by problems in the railroad industry.

Following a severe banking crisis, within a year on average, the unemployment rate:

will have risen by 7 percent.