1. Which of the following is an example of maturity transformation?
- The local credit union offers savings accounts and uses the deposits to fund car loans.
- A firm uses profits for the quarter to fund the purchase of new computers.
- An investment bank borrows from the Federal Reserve discount window and uses those funds to make overnight loans to other banks.
- John sells his house and uses the profits from the sale as a down payment on his next house.
2. During the "bank holiday" in 1933:
- banks were temporarily closed to prevent further bank failures.
- a record number of banks failed within a two-week period.
- banks received loans from the Federal Reserve at zero interest to maintain stability.
- President Roosevelt instituted deposit insurance for the banking system.
3. The major difference between Fed policy in 2008 and Fed policy during the Great Depression is that:
- during the crisis in 2008, the Fed did not take steps to prevent a credit freeze.
- during the Depression, the Fed acted more aggressively as lender of last resort.
- during the crisis in 2008, the Fed had fewer tools at its disposal than during the Depression.
- the Fed did not take steps to rescue failing banks for years during the Great Depression.
4. European proponents of austerity argue that:
- low inflation indicates that reducing government deficits is the proper policy.
- because unemployment remains high in Europe, a larger amount of stimulus is needed.
- Europe's recent troubles all revolve around high levels of government debt and can be resolved by cutting deficits.
- because interest rates are low in Europe, governments should borrow and spend to stimulate the economy.
5. During the crisis in 2008, the Fed enacted unusual measures to improve economic conditions by:
- providing loans directly to consumers.
- lowering the interest rate by conducting open-market purchases.
- providing direct financing to private companies.
- providing loans to depository banks through the discount window.