WorksheetsFIN 421 - Financial Crises
Total questions: 15
Worksheet time: 5mins
Homeowners in the bottom 20 percent of the net-worth distribution—the poorest homeowners—had low leverage because banks refused to lend to them.
True
False
High debt in combination with the dramatic decline in house prices increased the already large gap between the rich and poor in the United States.
True
False
From 2006 to 2009, large net-worth-decline counties cut back on consumption by almost 60 percent.
True
False
The financial crisis of 2007-2009 is also called the Great Depression.
True
False
In an advanced economy, a financial crisis can begin in several ways, including
mismanagement of financial liberalization or innovation which leads to credit boom and bust.
asset pricing booms and busts.
an increase in uncertainty caused by failure of financial institutions.
all of the above.
Stage Two of a financial crisis in an advanced economy usually involves a ________ crisis.
currency
stock market
banking
commodities
Stage Three of a financial crisis in an advanced economy features
a general increase in inflation.
debt deflation.
an increase in general price levels.
a full-fledged financial crisis.
When the short-term debt markets seized, so did the availability of credit to the shadow banking system.
True
False
Most financial crises in the United States have begun with
a steep stock market decline.
an increase in uncertainty resulting from the failure of a major firm.
a steep decline in interest rates.
all of the above.
only A and B of the above.
A credit spread is the difference between the interest rate on loans to businesses and the interest rate on completely safe assets that are sure to be paid back.
True
False
Introduction of new types of loans or other financial products can lead to a credit boom.
True
False
Deteriorating balance sheets lead financial institutions into insolvency. If severe enough, these factors can lead to a bank panic.
True
False
Debt deflation increases economic growth.
True
False
The mortgage brokers that originated the loans often did not make a strong effort to evaluate whether the borrower could pay off the loan, since they would quickly sell (distribute) the loans to investors in the form of mortgage-backed securities.
True
False
As mortgage defaults rose, banks and other financial institutions saw the value of their assets fall.
True
False
