250 $
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If debt contracts are of fairly long maturity, then an unanticipated decline in the aggregate
price level results in ____.
A) a decline in a firm's net worth
B) an increase in a firm's net worth
C) a decrease in adverse selection and moral hazard
D) an increase in willingness to lend
Answer: A
Diff: 2 Type: MC Page Ref: 185
Skill: Applied
Objective List: 9.1 Discuss the factors that lead to financial crises
Factors that lead to worsening conditions in financial system include ____.
A) increases in net worth
B) unanticipated increases in the price level
C) decreases in interest rates
D) unanticipated declines in the price level
Answer: D
Diff: 2 Type: MC Page Ref: 185
Skill: Applied
Objective List: 9.1 Discuss the factors that lead to financial crises
An unanticipated decline in the price level increases the burden of debt on borrowing firms
but does not raise the real value of borrowing firms' assets. The result is ____.
A) that net worth in real terms declines
B) that adverse selection and moral hazard problems are reduced
C) an increase in the real net worth of the borrowing firm
D) an increase in lending
Answer: A
Diff: 3 Type: MC Page Ref: 185
Skill: Applied
Objective List: 9.1 Discuss the factors that lead to financial crises
A bank panic can lead to a severe contraction in economic activity due to ____.
A) a decline in international trade
B) the losses of bank shareholders
C) the losses of bank depositors
D) a decline in lending for productive investment
Answer: D
Diff: 1 Type: MC Page Ref: 185
Skill: Recall
Objective List: 9.1 Discuss the factors that lead to financial crises