Question 1

In the USA, the Federal Reserve Bank maintained low interest rates for much of the 2000s.This was because the Fed

Accepted Answer

A)  was concerned that inflationary pressures were rising throughout the period.
B)  it wanted to encourage banks to build up capital reserves.
C)  wanted to maintain economic confidence in the wake of exogenous shocks.
D)  realized that ecommerce needed support to become established.E) A) and B)
F) B) and D)

Question 2

Which government policy is most likely to increase future productivity?

Accepted Answer

A)  Selling more bonds because the sovereign deficit has increased.
B)  Increasing spending on infrastructure rather than welfare payments.
C)  Decreasing both spending on welfare and on infrastructure investment.
D)  Cutting back on education spending.E) None of the above
F) A) and B)

Question 3

Which of the following is NOT correct?

Accepted Answer

A)  Deficits give people the opportunity to consume at the expense of their children, but deficits do not require them to do so.
B)  Deficits and surpluses could be used to avoid fluctuations in the tax rate.
C)  The only times deficits have increased have been during times of war or economic downturns.
D)  Reducing the budget deficit rather than funding more education spending could, all things considered, make future generations worse off.E) A) and D)
F) None of the above

Question 4

The securitization of assets relies on

Accepted Answer

A)  banks building up their reserve assets.
B)  the backing assets generating a stream of income over time.
C)  the present value of income streams rising over time.
D)  real interest rates continuing to be negative for at least a five year period.E) B) and C)
F) A) and C)

Question 5

De-regulated financial markets mean that

Accepted Answer

A)  financial institutions can trade globally.
B)  financial institutions have more freedom to innovate.
C)  credit is much easier for the average person.
D)  All of the above.E) A) and C)
F) B) and C)

Question 6

Which of the following is true?

Accepted Answer

A)  The European Financial Stability Fund (EFSF)  replaced the European Stability Mechanism (ESM) .
B)  The ESM assumed the tasks of the EFSF.
C)  The ESM is now part of the International Monetary Fund (IMF) .
D)  The ESM is now part of the World Bank.E) B) and C)
F) All of the above

Question 7

A structural deficit refers to a situation where the deficit is not dependent on movements in the economic cycle but indicate that a government is spending beyond its means.

Accepted Answer

A) True 
 B)False

Question 8

Economists who argue that the government need not balance its budget make all of the following arguments except which one?

Accepted Answer

A)  Budget deficits increase future growth because they transfer wealth from the present generation to future generations.
B)  As long as the budget deficit is used to finance investment spending rather than current government spending, then a budget deficit is quite acceptable.
C)  Budget deficits will not become an increasing burden as long as they do not grow more quickly than a nation's nominal income.
D)  Cutting the budget deficit means the tax burden on future generations can be lower; but if the deficit reduction is achieved by reducing spending on public services such as education then it may mean that younger generations have lower productivity, and so lower incomes, than would otherwise have been the case.E) B) and D)
F) B) and C)

Question 9

What is the sub-prime market?

Accepted Answer

The sub-prime market represents those po...

Question 10

Sovereign deficits are financed by

Accepted Answer

A)  governments printing money.
B)  governments issuing shares.
C)  governments borrowing by issuing bonds.
D)  governments paying off their debts.E) B) and C)
F) A) and D)

Question 11

The sub-prime market refers to lending to individuals with poor credit ratings who are classed as high-risk.

Accepted Answer

A) True 
 B)False

Question 12

A sovereign debt crises is when

Accepted Answer

A)  any government is in debt to over 10% of the GDP.
B)  national debt falls.
C)  a country is unable to pay back its public debt.
D)  All of the above.E) B) and C)
F) All of the above

Question 13

What is the basis for arguing that deficits are likely to lead to lower living standards in the future?

Accepted Answer

A government deficit means that the gove...

Question 14

Why did banks take more risks before the 2007-09 global economic crisis?

Accepted Answer

The financial markets were deregulated, ...

Question 15

The use of mathematics can help to completely eliminate risk from investment.

Accepted Answer

A) True 
 B)False

Question 16

What usually happens to interest rates on large sovereign debts?

Accepted Answer

A)  They fall.
B)  They remain the same.
C)  They rise.
D)  They fall in real terms.E) None of the above
F) B) and C)

Question 17

Asset price bubbles occur because

Accepted Answer

A)  of a global imbalance in assets.
B)  the supply of assets falls at a faster rate than the demand thus creating a shortage.
C)  expectations of price movements are factored in as a result of the rise in global asset levels.
D)  asset traders become more risk averse over time.
E)  regulators take insufficient notice of the supply and demand of global assets.F) B) and D)
G) B) and C)

Question 18

Suppose that the government goes into deficit in order to build better schools.Would this deficit be a burden on future generations?

Accepted Answer

The benefits of the project accrue not j...

Question 19

Explain how it is possible for the government debt to grow.

Accepted Answer

The debt can grow because the economy gr...

Question 20

An economic bubble refers to when prices of assets and securities rise way above their true or fundamental value.

Accepted Answer

A) True 
 B)False

Exam 19: The Financial Crisis and Sovereign Debt

What is the basis for arguing that deficits are likely to lead to lower living standards in the future?

Correct AnswerverifiedA government deficit means that the gove...View AnswerShow Answer

A structural deficit refers to a situation where the deficit is not dependent on movements in the economic cycle but indicate that a government is spending beyond its means.

Correct AnswerverifiedShow Answer

Why did banks take more risks before the 2007-09 global economic crisis?

Correct AnswerverifiedThe financial markets were deregulated, ...View AnswerShow Answer

Which of the following is NOT correct?

Correct AnswerverifiedShow Answer

Which of the following is true?

Correct AnswerverifiedShow Answer

Asset price bubbles occur because

Correct AnswerverifiedShow Answer

In the USA, the Federal Reserve Bank maintained low interest rates for much of the 2000s.This was because the Fed

Correct AnswerverifiedShow Answer

The use of mathematics can help to completely eliminate risk from investment.

Correct AnswerverifiedShow Answer

De-regulated financial markets mean that

Correct AnswerverifiedShow Answer

The securitization of assets relies on

Correct AnswerverifiedShow Answer

A sovereign debt crises is when

Correct AnswerverifiedShow Answer

The sub-prime market refers to lending to individuals with poor credit ratings who are classed as high-risk.

Correct AnswerverifiedShow Answer

What usually happens to interest rates on large sovereign debts?

Correct AnswerverifiedShow Answer

Economists who argue that the government need not balance its budget make all of the following arguments except which one?

Correct AnswerverifiedShow Answer

Which government policy is most likely to increase future productivity?

Correct AnswerverifiedShow Answer

Suppose that the government goes into deficit in order to build better schools.Would this deficit be a burden on future generations?

Correct AnswerverifiedThe benefits of the project accrue not j...View AnswerShow Answer

What is the sub-prime market?

Correct AnswerverifiedThe sub-prime market represents those po...View AnswerShow Answer

Sovereign deficits are financed by

Correct AnswerverifiedShow Answer

An economic bubble refers to when prices of assets and securities rise way above their true or fundamental value.

Correct AnswerverifiedShow Answer

Explain how it is possible for the government debt to grow.

Correct AnswerverifiedThe debt can grow because the economy gr...View AnswerShow Answer

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A government deficit means that the gove...
View Answer

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The financial markets were deregulated, ...
View Answer

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The benefits of the project accrue not j...
View Answer

Correct Answer
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The sub-prime market represents those po...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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The debt can grow because the economy gr...
View Answer