Which of the following is true of the credit crunch of the early 1990s? Small bu
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Question
Which of the following is true of the credit crunch of the early 1990s?
Small business firms were the most affected during the credit crunch.
The government bailed out many financial firms affected by the credit crunch.
The main reason behind the credit crunch was the dramatic decline in housing prices.
The credit crunch affected mostly big business firms.
Which of the following is a reason for the government to regulate banks?
Encourage contagion
Prevent bank runs
Help a bank grow in size
Make sure all banks stay in business
The government provides deposit insurance through the
FDIC.
FSLIC.
IDC.
FHC.
If average costs decline as a bank offers a greater variety of products, it acheives economies of
scale
scope
size
financing
If average costs decline as a bank’s sales volume increases, it acheives economies of
size
scale
scope
financing
Which law allowed banks to engage in investment banking and sell insurance?
Dodd-Frank Act of 2010.
Glass-Steagall Act of 1933.
Gramm-Leach-Bliley Act of 1999.
Riegle-Neal Act of 1994.
Which law allowed nationwide bank branching?
Gramm-Leach-Bliley Act of 1999.
Riegle-Neal Act of 1994.
Dodd-Frank Act of 2010.
Glass-Steagall Act of 1933.
Which law increased regulatory oversight to keep large financial firms from behaving recklessly?
Riegle-Neal Act of 1994.
Dodd-Frank Act of 2010.
Gramm-Leach-Bliley Act of 1999.
Glass-Steagall Act of 1933.
In the CAMELS rating system, which is used to assess the health of the banks, the letter A stands for
accounting practices.
analysis of risk.
auditing procedures.
asset quality.
The Herfindahl-Hirschman Index (HHI) is used to
determine if a merger reduces competition in a banking market.
calculate whether or not a bank has met its reserve requirements.
find which bank has the lowest spread.
measure the capital adequacy of a bank.
According to the Dodd-Frank Act, a bank merger can be stopped if the new bank would hold more than ________ percent of the nation’s deposits.
5
10
15
20
Most often after a merger, bank profits
fall to zero.
drop slightly.
remain constant.
rise.
Suppose three banks in a banking market have market shares of 42 percent, 33 percent, and 25 percent. Calculate the HHI of the banking industry.
100
3,478
1,356
4,320
The aggregate demand curve shows how a nation’s output varies with
changes in
output.
the price level.
the interest rate.
unemployment.
An increase in interest rates will mainly cause
an increase in Net Exports (Xn).
an increase in Consumer spending (C).
a decrease in Gov. purchases (G)
a decrease in Investment spending (I).
A tax cut for individuals in an economy will
increase disposable income.
increase investment spending.
decrease aggregate demand.
decrease government spending
A rightward shift in the aggregate demand (AD) curve can be caused by an increase in
taxes.
the price level.
investment spending.
production costs.
An increase in imports would
increase production costs.
increase aggregate demand
decrease net exports
decrease consumer spending
A leftward shift in the aggregate demand (AD) curve can be caused by
an increase in exports.
a decrease in interest rates.
an increase in immigration
a decrease in business profit expectations
Increasing pessimism by businesses on the future of the economy will:
increase (C) & increase AD
increase (G) & increase AD
increase (I) & increase AD
decrease (XN) & decrease AD
increase (XN) & increase AD
decrease (I) & decrease AD
decrease (C) & decrease AD
decrease (G) & decrease AD
A decrease in Defense Spending due to an end to the war in Iraq will:
increase (XN) & increase AD
increase (G) & increase AD
decrease (XN) & decrease AD
increase (C) & increase AD
increase (I) & increase AD
decrease (I) & decrease AD
decrease (C) & decrease AD
decrease (G) & decrease AD
Small business firms were the most affected during the credit crunch.
The government bailed out many financial firms affected by the credit crunch.
Explanation / Answer
- small business firms were the most affected during the credit crunch.
Credit crunch is the situation where banks lend less than they usually do. Their criteria of lending becomes difficult to fulfill for new and small borrowers. This makes small firms most affected by credit crunch.
- prevent bank runs
Bank runs occur when all savers show up to withdraw their deposits in the fear that banks in future will not function. Government regulates banks to make sure that banks do not face bank runs.
- FDIC
Federal deposit insurance corporation is a government corporation providing deposit insurance.
- scale
We have economies of scale when average cost falls as output increases.
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