Dynamics of Past U.S. Financial Crises
1) When financial institutions go on a lending spree and expand their lending at a rapid pace they are participating in a
A) credit boom.
B) credit bust.
C) deleveraging.
D) market race.
2) When the value of loans begins to drop, the net worth of financial institutions falls causing them to cut back on lending in a process called
A) deleveraging.
B) releveraging.
C) capitulation.
D) deflation.
3) When financial intermediaries deleverage, firms cannot fund investment opportunities resulting in
A) a contraction of economic activity.
B) an economic boom.
C) an increased opportunity for growth.
D) a call for government regulation.
4) A credit boom can lead to a(n) ________ such as we saw in the tech stock market in the late
1990s.
A) asset price bubble
B) liability war
C) decline in lending
D) decrease in moral hazard