Check Your Understanding

  1. Question

    Draw a circular-flow diagram that includes households, firms, factor markets, markets for goods and services, and financial markets. Circle the section of the diagram that illustrates maturity transformation and briefly explain the maturity transformation process.

  2. Question

    What are the four major causes of the 2008 financial crisis? Briefly describe each one.

  3. Question

    What are the four main elements of the Dodd-Frank Act? Briefly describe each one.

Discussion Starters

  1. Question

    Explain why an efficient financial system is important.

  2. Question

    What is a shadow bank? Give several specific examples of shadow banks.

  3. Question

    Explain how an asset bubble can lead to an economy-wide banking crisis.

  4. Question

    What are some of the possible consequences of a financial crisis?

  5. Question

    Define moral hazard. Explain the role of moral hazard in the 2008 financial crisis.