Explain the main difference between the financial crisis

Question

1. Which of the following institutions is NOT part of the shadow banking system

• depository banks
• hedge funds
• investment banks
• money market funds

2. An investment bank is susceptible to events similar to bank runs, and may collapse if:

• depositors rush to withdraw more deposits than an investment bank has available in reserve.
• long-term asset holders refuse to let the investment bank purchase assets, and the investment bank cannot make profits. short-term lenders refuse to lend to the investment bank, and the investment bank cannot fund its operations.
• the investment bank holds too much in reserves and does not invest enough in long-term assets.

3. Suppose the average price of art (an asset) is influenced by household incomes only. Historically, this relationship is given by P_A = $5,000 + .05 × I, where P_A is the price of art and I is household income. Suppose household income during the year is $100,000. Which of the following art prices would indicate that an asset bubble might be forming in the market for art?

• $5,000
• $3,000
• $20,000
• $10,000

4. The main difference between the financial crisis of 2008 in the United States and the subsequent debt crisis in Europe is that:

• the crisis of 2008 revolved around private debt, while the subsequent crisis in Europe revolves around public debt.
• European economies rebounded quickly from their crisis, while the U.S. economy has experienced a slower recovery.
• the crisis in the United States carried the possibility of financial contagion, while Europe's crisis is limited to a few isolated nations.
• the financial crisis of 2008 was fairly mild, while the subsequent debt crisis in Europe is more severe.

5. Which of the following provisions is NOT part of the financial regulation enacted in the aftermath of the financial crisis?

• consumer protection
• reserve requirement regulation
• derivatives regulation
• shadow bank regulation