#1
Which of the following is NOT considered an economic factor leading to financial crises?
Sustainable fiscal policies
ExplanationSustainable fiscal policies are generally viewed as a preventive measure against financial crises, not a contributing factor.
#2
What role do interest rates often play in financial crises?
They typically rise sharply during a crisis
ExplanationInterest rates tend to increase significantly during financial crises, impacting borrowing costs and exacerbating economic challenges.
#3
Which of the following is NOT a potential consequence of a financial crisis?
Increased investor confidence
ExplanationIncreased investor confidence is not a typical consequence of a financial crisis; crises often lead to reduced confidence and heightened uncertainty.
#4
What is the term for a situation in which financial institutions face a shortage of liquidity?
Liquidity crisis
ExplanationA liquidity crisis occurs when financial institutions struggle to meet short-term obligations due to a lack of liquid assets.
#5
Which economic theory suggests that markets are efficient and that financial crises are unpredictable?
Efficient market hypothesis
ExplanationThe efficient market hypothesis posits that markets are efficient and information is quickly reflected in asset prices, making financial crises hard to predict.
#6
Which of the following is a characteristic of a currency crisis?
High inflation
ExplanationHigh inflation is often associated with currency crises, reflecting a loss of confidence in a country's currency.
#7
What is the term for the situation in which the value of assets falls rapidly and often leads to a financial crisis?
Asset price collapse
ExplanationAn asset price collapse occurs when the value of assets declines rapidly, triggering financial instability.
#8
What is the term for the situation in which a large number of financial institutions simultaneously experience financial distress?
Systemic risk
ExplanationSystemic risk refers to the risk of widespread financial distress affecting multiple institutions simultaneously.
#9
Which of the following is NOT a common feature of a banking crisis?
Stable financial institutions
ExplanationA banking crisis is characterized by instability in financial institutions; stability is not a common feature during such crises.
#10
What is 'moral hazard' in the context of financial crises?
The risk that individuals or institutions will take greater risks because they believe they are protected from the consequences
ExplanationMoral hazard refers to the increased risk-taking behavior when individuals or institutions feel protected from negative outcomes.
#11
What role did subprime mortgage lending play in the 2008 financial crisis?
It was a primary cause
ExplanationSubprime mortgage lending was a significant contributor to the 2008 financial crisis, leading to a collapse in housing markets and broader economic repercussions.
#12
Which of the following factors contributed to the Asian financial crisis of 1997?
Fixed exchange rates
ExplanationThe Asian financial crisis of 1997 was influenced by fixed exchange rates, speculative attacks, and economic imbalances.
#13
Which of the following factors contributed to the Latin American debt crisis of the 1980s?
Excessive borrowing by governments
ExplanationThe Latin American debt crisis of the 1980s was fueled by excessive borrowing by governments, leading to unsustainable levels of external debt.