Question 1

Markets looked to central banks to respond by:

Accepted Answer

A)   Their speed of intervention.
B)   The degree of innovation shown.
C)   Co-ordinated action.
D)   All of the above.E) None of the above
F) A) and B)

Question 2

The size of the output gap depends on which of the following?

Accepted Answer

A)   The ease with which the unemployed can find work.
B)   The difference between consumption spending and total output.
C)   How far businesses have built up inventories during an economic slowdown.
D)   How far an economic downturn has destroyed economic capacity in a country.E) B) and C)
F) None of the above

Question 3

What's 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 4

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) A) and D)
G) C) and D)

Question 5

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)   The inability of a country to pay back its public debt.
D)   All of the above.E) B) and D)
F) A) and C)

Question 6

The higher a government budget deficit is the more likely

Accepted Answer

A)   The risk of default on sovereign debt.
B)   Economic growth is to stall.
C)   That interest rates will remain stable over the long run.
D)   The economic cycle will be predictable over a period.
E)   It is that tax rates in the country will remain low.F) B) and D)
G) B) and E)

Question 7

A feature of the sovereign debt crisis has been for a number of Eurozone countries to:

Accepted Answer

A)   Put all their debts together.
B)   Agree to have different interest rates.
C)   Spend their way out of debt.
D)   Agree to austerity measures.E) None of the above
F) A) and C)

Question 8

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

Accepted Answer

The debt can grow because the economy gr...

Question 9

During a severe downturn in the economy, a central bank would be most likely to:

Accepted Answer

A)   Increase its base lending rates.
B)   Cut interest rates and increase liquidity in the markets.
C)   Instruct markets to cut back lending to reduce inflation.
D)   Manage its assets so that the exchange rate falls.E) A) and C)
F) B) and C)

Question 10

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 11

Lending to governments used to be seen as relatively risk-free, but in the wake of the ____________ it became clear that for some governments, this was not the case.

Accepted Answer

A)   creation of the eurozone
B)   deregulation of the banking sector
C)   2007-09 global economic crisis
D)   Brexit vote.E) A) and C)
F) A) and D)

Question 12

When a government fails to balance its _______, it has to borrow money by issuing ______ in order to make up the shortfall.

Accepted Answer

A)   bonds, budget
B)   budget, bonds
C)   sheet, stocks
D)   act, paperE) A) and C)
F) A) and D)

Question 13

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year. The debt created by these continuing deficits is

Accepted Answer

A)   Sustainable, but the future burden on your children cannot be offset.
B)   Sustainable, and the future burden on your children can be offset if you save for them.
C)   Not sustainable, and the future burden on your children cannot be offset.
D)   Not sustainable, but the future burden on your children can be offset if you save for them.E) A) and B)
F) None of the above B

Question 14

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 B)
F) None of the above

Question 15

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  True

Question 16

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

Accepted Answer

The financial markets were deregulated w...

Question 17

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) A) and B)
F) A) and C) A

Question 18

Securitization of assets became more popular because it enabled banks to generate additional reserve assets on its books and thus allowed them to expand lending.

Accepted Answer

A) True 
 B)False

Question 19

As opposed to the sub-prime market, the prime market is where

Accepted Answer

A)   Individuals are assessed as being a relatively low credit risk for mortgage lending.
B)   Individuals are assessed as being a relatively high credit risk for mortgage lending.
C)   Interest rates on mortgages were likely to be high.
D)   Individuals have a poor credit rating.E) A) and D)
F) All of the above

Question 20

Which of the following reduces the potential burden of an increase in debt on future generations?

Accepted Answer

A)   The growth rate of output is high.
B)   In response to increased debt, parents save more to leave their children larger bequests.
C)   some of the current spending benefits future taxpayers.
D)   All of the above are correct.E) A) and C)
F) B) and C)

Exam 38: The Financial Crisis and Sovereign Debt

Markets looked to central banks to respond by:

Correct AnswerverifiedShow Answer

The size of the output gap depends on which of the following?

Correct AnswerverifiedShow Answer

What's 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

Asset price bubbles occur because:

Correct AnswerverifiedShow Answer

A sovereign debt crises is when:

Correct AnswerverifiedShow Answer

The higher a government budget deficit is the more likely

Correct AnswerverifiedShow Answer

A feature of the sovereign debt crisis has been for a number of Eurozone countries to:

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

During a severe downturn in the economy, a central bank would be most likely to:

Correct AnswerverifiedShow 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

Lending to governments used to be seen as relatively risk-free, but in the wake of the ____________ it became clear that for some governments, this was not the case.

Correct AnswerverifiedShow Answer

When a government fails to balance its _______, it has to borrow money by issuing ______ in order to make up the shortfall.

Correct AnswerverifiedShow Answer

Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year. The debt created by these continuing deficits is

Correct AnswerverifiedB

Which of the following is NOT correct?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedTrue

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

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

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

Correct AnswerverifiedA

Securitization of assets became more popular because it enabled banks to generate additional reserve assets on its books and thus allowed them to expand lending.

Correct AnswerverifiedShow Answer

As opposed to the sub-prime market, the prime market is where

Correct AnswerverifiedShow Answer

Which of the following reduces the potential burden of an increase in debt on future generations?

Correct AnswerverifiedShow Answer

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A government deficit means that the gove...
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The debt can grow because the economy gr...
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When a government fails to balance its _, it has to borrow money by issuing in order to make up the shortfall.

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B

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True

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The financial markets were deregulated w...
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A

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