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5 points 1. Which of the following factors worsen the conditions in financial markets? * a. Increased bank panics O b. Anticipated increases in the price level O c. Decreased interest rates O d. a and c only O e. band c only 5 points 2. Which of the following is a correct definition of debt deflation? * a. A decrease in net worth as price O levels fall while debt burden remains unchanged. b. A decrease in bond prices as default rates rise. O c. A decrease in general debt levels due to deleveraging. d. An increase in net worth, leading O to a relative fall in general debt levels. O e. None of the above * 3. What is deleveraging? 5 points O a. it is the process of cutting back in lending by financial institutions. b. it is the process of reducing debt owed by banks O c. it is the process of decreasing banks' deposits O d. both A and B. O e. none of the above 4 points 4. Based on the efficient market hypothesis, if you take the advice of a financial analyst when investing in financial markets, you will:* O a. Certainly earn higher returns than if you do not take his advice b. Always earn lower returns than if you do not take his advice O c. Earn the same level of return than if you do not take his advice O d. Always earn abnormal returns than if you do not take his advice e. None of the above 5 points 5. The increase in interest rates have a direct effect on increasing adverse selection problems and promoting financial crises by: * O a. increasing firms' and households' interest payments, therefore increasing their cash flow. b. increasing firms' and households' interest payments, therefore decreasing their cash flow. O c. decreasing firms' and households' interest payments, therefore increasing their cash flow. O d. decreasing firms' and households interest payments, therefore decreasing their cash flow e. None of the above

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