8) Stage Two of a financial crisis in an advanced economy usually involves a ________ crisis.
A) currency B) stock market C) banking D) commodities
9) Stage Three of a financial crisis in an advanced economy features
A) a general increase in inflation. B) debt deflation.
C) an increase in general price levels. D) a full-fledged financial crisis.
10) The Baa-U.S. Treasury spread was about 2% at the beginning of 1929. By December 1932, the Dow Jones Industrial Average reached a low, and the spread had increased to how much?
4% B) 6% C) 8% D) 10%
11) Most financial crises in the United States have begun with
A) a steep stock market decline.
B) an increase in uncertainty resulting from the failure of a major firm.
C) a steep decline in interest rates. D) all of the above. E) only A and B of the above.
12) In addition to having a direct effect on increasing adverse selection problems, increases in interest rates also promote financial crises by ________ firms' and households' interest payments, thereby ________ their cash flow.
A) increasing; increasing B) increasing; decreasing
C) decreasing; increasing D) decreasing; decreasing
13) Adverse selection and moral hazard problems increased in magnitude during the early years of the Great Depression as
A) stock prices declined to 10 percent of their levels in 1929. B) banks failed.
C) the aggregate price level declined. D) a result of all of the above.
14) Leading up to the 2007-2009 Financial Crisis, the ________ process, along with computer technology, enabled the bundling of smaller loans (like mortgages) into standard debt securities.
A) liberalization B) securitization C) easing D) investment banking
15) Leading up to the 2007-2009 Financial Crisis, companies like AIG developed financial products divisions which wrote billions of dollars worth of financial insurance contracts, called ________, which later bankrupted the company.
A) REMICs B) CDOs C) credit default swaps D) call options