SOLVED

11) When banks fail during a financial crisis, ________. A) the removal of these weak institutions serves to strengthen the financial system B) the elimination of competitors is likely to spark a credit boom C) there is a loss of information that can cause the crisis to worsen D) surviving banks resort to financial engineering to retain customers 12) Assume that a firm has $100 million in real assets and $90 in real liabilities. The value of its net worth would be ________. A) a negative $10 million. B) $190 million. C) $4190 billion. D) $10 million. 13) Assume that a firm has $100 million in real assets and $90 in real liabilities. If the price level rise by ten percent, the real value of its assets would ________. A) fall. B) rise. C) change, but more information must be provided to determine their exact movement. D) remain unchanged. 14) Assume that a firm has $100 million in real assets and $90 in real liabilities. If the price level falls by ten percent, the real value of liabilities would ________. A) fall to $81 million. B) change, but more information must be provided to determine the exact movement. C) remain unchanged. D) rise to $99 million. 15) An asset-price bubble entails ________. A) increasing the value of one’s assets to cover liability losses. B) an increase in asset prices above their fundamental economic value. C) reducing the number of participants in the underlying financial derivatives market. D) an economic skins game. 16) The main reason that many businesses fail when the price level is falling is that ________. A) deflation causes a decline in short-run aggregate supply B) as prices fall, businesses are unable to predict the quantity of output they will be able to sell C) the real value of the firms assets declines in proportion to the decrease in the price level D) falling prices mean that regular loan payments become increasingly difficult 17) When banks and other financial institutions become insolvent, ________. A) the problem of asymmetric information becomes more acute B) it is easier to distinguish the good creditors and borrowers from the bad C) surviving creditors will attract borrower-spenders by lowering the real interest rate D) the resulting increase in short-run aggregate supply will discourage investment 18) U.S. financial crises begin in a period of________. A) rising incomes. B) adverse selection. C) rising uncertainty. D) moral hazard. 19) An individual firm is insolvent when ________. A) its assets exceed the value of its liabilities. B) its average costs per unit are greater than its marginal cost. C) its average costs per unit are less than its marginal cost. D) its liabilities exceed the value of its assets. 20) The decline in net worth that can result from an unanticipated decline in the price level is known as ________. A) a credit boom. B) deleveraging. C) a debt deflation. D) federal funds rationing.