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Exam Name___________________________________ 1) A sharp decline in the stock market means that the ________ of corporations has fallen making lenders...

Suppose that the expected inflation rate is 5.5% and the actual inflation rate is 3% then borrowersA-are worse off and lenders are better offB-and lenders are both worse offC-and lenders are both better offD-are better off and lenders are worse off

Exam Name___________________________________ 1) A sharp decline in the stock market means that the ________ of corporations has fallen making lenders ________ willing to lend. A) liability; more B) net worth; more C) net worth; less D) liability; less 2) In a bank panic the source of contagion is the A) transactions cost problem. B) free-rider problem. C) too-big-to-fail problem. D) asymmetric information problem. 3) A bank panic can lead to a severe contraction in economic activity due to A) the losses of bank shareholders. B) a decline in international trade. C) the losses of bank depositors. D) a decline in lending for productive investment. 4) An unanticipated decline in the price level increases the burden of debt on borrowing firms but does not raise the real value of borrowing firms assets. The result is ʹ A) that net worth in real terms declines . B) an increase in lending. C) an increase in the real net worth of the borrowing firm. D) that adverse selection and moral hazard problems are reduced. 5) Debt deflation occurs when A) lenders reduce their lending due to declining stock prices (equity deflation) that lowers the value of collateral. B) an economic downturn causes the price level to fall and a deterioration in firms net worth because of ʹ the increased burden of indebtedness. C) corporations pay back their loans before the scheduled maturity date. D) rising interest rates worsen adverse selection and moral hazard problems. 6) When financial institutions go on a lending spree and expand their lending at a rapid pace they are participating in a A) deleveraging. B) credit boom . C) credit bust. D) market race.
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7) When the value of loans begins to drop, the net worth of financial institutions falls causing them to cut back on lending in a process called A) capitulation. B) deflation. C) deleveraging . D) releveraging. 8) Most U.S. financial crises have started during periods of ________ either after the start of a recession or a stock market crash. A) low interest rates B) low asset prices C) high uncertainty D) high financial regulation 9) A possible sequence for the three stages of a financial crisis in the U.S. might be ________ leads to ________ leads to ________. A) banking crises; increase in uncertainty; increase in interest rates B) banking crises; increase in interest rates; unanticipated decline in price level C) asset price declines; banking crises; unanticipated decline in price level D) unanticipated decline in price level; banking crises; increase in interest rates 10) Financial innovations that emerged after 2000 in the mortgage markets included all of the following except A) mortgage-backed securities. B) Alt-A mortgages. C) adjustable - rate mortgages . D) subprime mortgages. 11) ________ is a process of bundling together smaller loans (like mortgages) into standard debt securities. A) Origination B) Debt deflation C) Securitization D) Distribution 12) Mortgage brokers often did not make a strong effort to evaluate whether the borrower could pay off the loan. This created a A) call to deregulate the industry . B) severe adverse selection problem . C) decrease in the demand for houses. D) decline in mortgage applications. 13) u’kd hggdk; pri A) the basement flooded since they could not afford to fix the leaky plumbing . B) the roof leaked during a rainstorm. C) the value of the house fell below the amount of the mortgage.
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