Chapter Questions
How does the concept of asymmetric information help to define a financial crisis?
How can a bursting of an asset-price bubble in the stock market help trigger a financial crisis?
How does an unanticipated decline in the price level cause a drop in lending?
How can a decline in real estate prices cause deleveraging and a decline in lending?
How does a deterioration in balance sheets of financial institutions and the simultaneous failures of these institutions cause a decline in economic activity?
How does a general increase in uncertainty as a result of a failure of a major financial institution lead to an increase in adverse selection and moral hazard problems?
Why do credit spreads rise significantly during a financial crisis?
How can government fiscal imbalances lead to a financial crisis?
How can financial liberalizations lead to financial crises?
What role does weak financial regulation and supervision play in causing financial crises?
Describe two similarities and two differences betweenthe United States' experiences during the Great Depression and the financial crisis of $2007-2009$
What do you think prevented the financial crisis of $2007-2009$ from becoming a depression?
What technological innovations led to the development of the subprime mortgage market?
Why is the originate-to-distribute business model subject to the principal-agent problem?
"Financial engineering always leads to a more efficient financial system." Is this statement true, false, or uncertain?
How did a decline in housing prices help trigger the subprime financial crisis starting in $2007 ?$
What is the shadow banking system, and why is it an important part of the $2007-2009$ financial crisis?
Why would haircuts on collateral increase sharply during a financial crisis? How would this lead to fire sales on assets?
What similarities exist between experiences in the United States and in Ireland during the $2007-2009$ financial crisis?
When can a decline in the value of a country's currency exacerbate adverse selection and moral hazard problems? Why?
Why do debt deflations occur in advanced countries, but not in emerging market countries?
How can opening up to capital flows from abroad lead to a financial crisis?
Why does the "twin crises" phenomenon of currency and banking crises occur in emerging market countries?
How can a currency crisis lead to higher interest rates?
How can a deterioration in bank balance sheets lead toa currency crisis?