Print this chapterPrint this chapter

How to complete your module content

6. Long-answer questions

You could also include more detailed, long-answer questions. In order to make this worthwhile for students, supply a model answer or some guidance on answering the question so that students can compare their answer with that and judge how well they did. These model answers will be hidden from the students until they choose to read them. Students may need to do the reading again in order to understand the answer provided – please supply cross-references. 

Example

The following is an example of a question and model answer from an MBA module, 'Economics for managers'.

What do you think were the main factors contributing to the behaviour of financial institutions in the run up to the global financial crisis in 2008?

How confident are you that you did well on this exercise? If you struggled, you may find it helpful to go back to the essential reading for this topic, Mankiw, Taylor and Ashwin (2019), Chapter 1: What is business economics?

Model answer

  1. Risky lending: Financial institutions, seeking high returns, engaged in risky lending practices, offering mortgages to borrowers with limited creditworthiness, which created a housing bubble that eventually burst.
  2. Complex financial products: Banks bundled mortgages into complicated financial products that were difficult to understand and assess their underlying risks.
  3. Excessive risk-taking: Financial institutions, driven by short-term profits and incentivised by a compensation structure that rewarded risk-taking, took on too much risk and made speculative investments.
  4. Regulatory failures: Regulators didn’t properly oversee the financial industry, allowing risky practices to go unchecked.
  5. Lack of transparency: Investors couldn't see the true risks associated with complex financial products, leading to false confidence.
  6. Global financial interconnectedness: Problems in one part of the financial system spread quickly and affected banks worldwide, causing a widespread crisis.

It is important to note that these factors are interrelated and contributed to a complex web of systemic vulnerabilities. The combined effect of these factors led to a breakdown in the financial system, triggering the global financial crisis of 2008. The root of the crisis could be said to be financial institutions’ risky lending practices, encouraged by a sense of being protected due to their economic importance – they were deemed ‘too big to fail’.