CHAP014 - Chapter 14 Regulating the Financial System...

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Chapter 14 Regulating the Financial System Multiple Choice Questions 1. Empirical evidence points to the fact that: A) Financial crises, though newsworthy, have no impact on economic growth. B) Financial crises have a negative impact on economic growth only for the year of the crisis. C) Financial crises have a negative impact on economic growth for years. D) Financial crises can have a positive impact on economic growth as weak borrowers are weeded out. Answer: C LOD: 1 Page: 349 A-Head: Regulating the Financial System. 2. There is a tradeoff that a bank faces that can impact its likelihood of failure; this tradeoff is: A) The more competitive the banking environment, the more likely the bank will fail. B) The greater the regulation from government the more likely the bank will fail. C) The more profitable the bank, the less liquid the bank will be and the more likely it will fail. D) The larger the bank in asset size the more likely it will fail. Answer: C LOD: 2 Page: 351 A-Head: The Sources and Consequences of Runs, Panics and Crises. 3. Rumors of a bank failing, even if not true, can become a self-fulfilling prophecy because: A) Customers will not want to obtain loans from this bank. B) The rumors will cause people to not want to deposit in this bank. C) Regulators will scrutinize the bank heavily looking for something wrong. D) Depositors will rush to the bank to withdraw their deposits and the bank under normal situations would not have this amount of liquid assets on hand. Answer: D LOD: 2 Page: 352 A-Head: The Sources and Consequences of Runs, Panics and Crises. 398 Cecchetti: Money, Banking, and Financial Markets
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Chapter 14 Regulating the Financial System 4. What matters most during a bank run is: A) The number of loans outstanding. B) The solvency of the bank. C) The liquidity of the bank. D) All of the above. Answer: C LOD: 2 Page: 352 A-Head: The Sources and Consequences of Runs, Panics and Crises. 5. Contagion is: A) The failure of one bank spreading to other banks through depositors withdrawing of funds. B) The phenomenon of one bank loan that defaults will cause other bank loans to default. C) The rapid contraction of investment spending that occurs when interest rates are increase by the Federal Reserve. D) The rapid inflation that results from the printing of money. Answer: A LOD: 1 Page: 352 A-Head: The Sources and Consequences of Runs, Panics and Crises. 6. A bank run involves: A) Illegal activities on the part of the bank's officers. B) A bank being forced into bankruptcy. C) A large number of depositors withdrawing their funds during a short time span,. D) A bank's return on assets being below the acceptable level. Answer: C LOD: 1 Page: 352 A-Head: The Sources and Consequences of Runs, Panics and Crises. 7.
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This note was uploaded on 02/12/2012 for the course ECON 101 taught by Professor Abrams during the Spring '11 term at Adams State University.

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CHAP014 - Chapter 14 Regulating the Financial System...

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