ANSWER OUTLINE
ECONOMICS 353 (SECTION 1) L. Tesfatsion/Spring 02
EXERCISE 10: 6 POINTS TOTAL DUE: Tuesday, April 23, 9:30 A.M.
*IMPORTANT REMINDER: LATE ASSIGNMENTS CANNOT BE ACCEPTED -- NO EXCEPTIONS*
Q1. The "economic development" of a country refers to changes in __________
whereas the "economic growth" of a country refers to changes in _____________.
A. the size of its government; the distribution of its national income.
B. its employment level; its productive capacity.
C C. its economic structure (infrastructure, organization, and governance);
the size of its economy, as measured by GDP.
D. its productive capacity; the size of its population.
E. the size of its economy, as measured by GDP; its stock of capital.
Q2. Mishkin defines a "financial crisis" for an HC to be a
A. sustained loss of foreign currency reserves held by the HC central
bank, resulting in a sharp depreciation of the HC exchange rate.
B. major disruption in the infrastructure, organization, and governance
of the HC economy.
C. major slowdown in the rate of growth of the HC's real GDP level
D D. major disruption in HC financial markets characterized by a sharp decline
in asset prices and the failure of many financial and nonfinancial firms.
E. sharp rise in the inflation rate (hyperinflation) caused by sudden large
increases in the money supply by the HC central bank.
Q3. According to Mishkin, financial crises primarily result from
A A. adverse selection and moral hazard problems.
B. abrupt changes in production costs (e.g., oil price shocks).
C. inappropriate bank management.
D. inappropriate monetary policy by central banks.
E. inappropriate interventions by international agencies.
Q4. According to Mishkin, key types of events that can either trigger or
worsen financial crises include
A. a sharp decrease in the aggregate price level.
B. an unexpected failure of a firm previously thought to be in good
financial condition.
C. a sharp rise in interest rates.
D D. all of the above
E. only B and C
Q5. According to Mishkin, adverse selection and moral hazard problems
increased dramatically during the early years of the U.S. Great Depression
(1930-1933) as a result of
A. a sharp rise in the aggregate price level.
B B. a sharp decline in the aggregate price level.
C. a sharp decline in real money balances (i.e., the real money supply).
D. a sharp rise in the nominal interest rate.
E. a sharp decline in real government purchases.
Q6. According to Mishkin, a key way in which U.S. financial crises have
differed from financial crises in emerging and transition economies such as
Mexico is that
A. U.S. financial crises have not resulted in substantial bank failures.
B. U.S. regulators have not permitted insolvent financial institutions to
stay in operation.
C. U.S. financial crises tend to be of far shorter duration.
D. moral hazard has not been a serious problem in U.S. financial crises.
E E. foreign exchange crises (e.g., speculative currency attacks) have not
played a dominant role in U.S. financial crises.
