Question 1

What effect did the introduction of securitization have on the economy?

Accepted Answer

A)   Banks could more safely assume subprime mortgage loans.
B)   The government was able to promote a sense of security in the banking industry.
C)   Banks could more safely leverage their investments.
D)   Borrowers felt better about taking out subprime loans.E) None of the above
F) All of the above

Question 2

Leading to the collapse of the housing bubble, inflated home values created a(n) :

Accepted Answer

A)   increase in aggregate supply, which decreased the overall price level.
B)   increased sense of wealth, which increased aggregate demand.
C)   decreased sense of wealth, which decreased aggregate demand.
D)   decrease in aggregate supply, which caused inflation.E) C) and D)
F) B) and D)

Question 3

If you have $1,000 in an account that offers "3x" margin, you can effectively buy _______ worth of stocks.

Accepted Answer

A)   $1,000
B)   $333
C)   $3,000
D)   $300 worthE) C) and D)
F) A) and B)

Question 4

Consumers were able to assume an increasing amount of household debt during the 2000s because:

Accepted Answer

A)   low interest rates made borrowing easier.
B)   real wages increased dramatically.
C)   interest rates were so high that people found it very easy to save their extra income.
D)   the U.S government made it easier for people to declare bankruptcy.E) All of the above
F) A) and D)

Question 5

Historically, household debt in the United States had been _______ from the Great Depression to the early 2000s, when it started to _______.

Accepted Answer

A)   rising steadily; increase even more
B)   rising steadily; decline
C)   constant; increase
D)   constant; declineE) A) and B)
F) B) and C)

Question 6

When investors follow a "herd instinct," they make decisions:

Accepted Answer

A)   based on the results of performance analysis.
B)   based on emotion, not objective information.
C)   as a group, inflating the prices of goods somewhat arbitrarily.
D)   based on the sound logic of a group, rather than the individual.E) B) and C)
F) All of the above

Question 7

A mortgage loan made to a borrower with a low credit score is called a:

Accepted Answer

A)   prime mortgage.
B)   high-service loan.
C)   bundled financial loan.
D)   subprime mortgage.E) A) and B)
F) None of the above

Question 8

Which of the following is a reason why aggregate supply decreased following the housing bubble collapse?

Accepted Answer

A)   Businesses could not access credit to carry out their daily operations.
B)   Consumption decreased.
C)   People stopped investing in homes.
D)   Government tax rates were altered as a response to change in aggregate output.E) B) and C)
F) A) and D)

Question 9

As the housing bubble collapsed, the combination of increasing interest rates and pessimism about future economic prospects _______ consumption and _______ investment.

Accepted Answer

A)   increased; increased
B)   decreased; increased
C)   decreased; decreased
D)   increased; decreasedE) C) and D)
F) None of the above

Question 10

In finance, leverage is using:

Accepted Answer

A)   borrowed money to pay for investments.
B)   the equity one owns to pay for future investments.
C)   predicted earnings to pay for current investments.
D)   forecasted future earnings to pay for current loans.E) A) and B)
F) A) and C)

Question 11

The housing bubble occurred because:

Accepted Answer

A)   the supply of homes dried up, causing fears of shortages.
B)   herd instinct caused everyone to stop buying homes.
C)   the recency effect altered people's perceptions of home values.
D)   All of these are true.E) A) and D)
F) A) and C)

Question 12

How many years did it take the stock market to recover back to the value of September 1929?

Accepted Answer

A)   3
B)   10
C)   25
D)   54E) None of the above
F) All of the above

Question 13

How did the collapse of the housing bubble cause a supply-side driven contraction in output?

Accepted Answer

A)   Because banks were unwilling to lend, many businesses were suddenly unable to access credit for their day-to-day needs.
B)   When homeowners lost value in their homes, they stopped saving, which reduced banks' ability to lend.
C)   Because consumers lost confidence in the banking industry, they stopped depositing money, so banks could no longer lend.
D)   Banks wanted to make loans, but couldn't find any credit-worthy customers to loan to.E) A) and D)
F) A) and B)

Question 14

In finance, leverage:

Accepted Answer

A)   multiplies the effects of gains and losses in financial markets.
B)   can require investors to dig deep into their own resources.
C)   helps explain why a crash is so damaging after a bubble bursts.
D)   All of these are true.E) A) and D)
F) C) and D)

Question 15

The sudden explosion of cheap and readily available mortgages encouraged people to:

Accepted Answer

A)   buy bigger and more expensive homes.
B)   buy homes in areas with lower prices.
C)   become more risk-averse.
D)   invest more in bonds.E) A) and B)
F) A) and C)

Question 16

Stock markets in England were started in the late _______ century.

Accepted Answer

A)   seventeenth
B)   sixteenth
C)   eighteenth
D)   nineteenthE) B) and D)
F) All of the above

Question 17

To stimulate aggregate demand in the economy, the Federal Reserve Bank can _______ interest rates and the government can _______ spending.

Accepted Answer

A)   lower; increase
B)   raise; decrease
C)   raise; increase
D)   lower; decreaseE) C) and D)
F) None of the above

Question 18

Before the housing bubble, investment banks on Wall Street made money by:

Accepted Answer

A)   buying as many loans as possible to create mortgage-backed securities.
B)   relying on banks to sell as few high-risk mortgages as possible.
C)   ensuring local banks were making good loans.
D)   offering low interest loans to those with very good credit.E) B) and D)
F) All of the above

Question 19

When the money supply nearly tripled after the 2007-2009 financial crisis, inflation:

Accepted Answer

A)   began to spiral out of control due to the newfound solvency of banks, increasing lending and thus the money multiplier effect.
B)   continued to fall due to the lack of consumer confidence in the market, decreasing the marginal propensity to consume.
C)   stayed relatively low due to the lack of lending by banks, reducing the effectiveness of the money multiplier.
D)   slowly increased due to restored consumer confidence in the market, increasing the marginal propensity to consume.E) A) and B)
F) A) and D)

Question 20

During most of the 1990s and 2000s, interest rates:

Accepted Answer

A)   decreased sharply.
B)   decreased slowly.
C)   increased sharply.
D)   stayed constant.E) A) and D)
F) All of the above

Exam 17: Financialcrisis

Historically, household debt in the United States had been _______ from the Great Depression to the early 2000s, when it started to _______.

Correct AnswerverifiedShow Answer

Leading to the collapse of the housing bubble, inflated home values created a(n) :

Correct AnswerverifiedShow Answer

As the housing bubble collapsed, the combination of increasing interest rates and pessimism about future economic prospects _______ consumption and _______ investment.

Correct AnswerverifiedShow Answer

If you have $1,000 in an account that offers "3x" margin, you can effectively buy _______ worth of stocks.

Correct AnswerverifiedShow Answer

How did the collapse of the housing bubble cause a supply-side driven contraction in output?

Correct AnswerverifiedShow Answer

During most of the 1990s and 2000s, interest rates:

Correct AnswerverifiedShow Answer

Before the housing bubble, investment banks on Wall Street made money by:

Correct AnswerverifiedShow Answer

In finance, leverage is using:

Correct AnswerverifiedShow Answer

Consumers were able to assume an increasing amount of household debt during the 2000s because:

Correct AnswerverifiedShow Answer

How many years did it take the stock market to recover back to the value of September 1929?

Correct AnswerverifiedShow Answer

The housing bubble occurred because:

Correct AnswerverifiedShow Answer

When the money supply nearly tripled after the 2007-2009 financial crisis, inflation:

Correct AnswerverifiedShow Answer

The sudden explosion of cheap and readily available mortgages encouraged people to:

Correct AnswerverifiedShow Answer

In finance, leverage:

Correct AnswerverifiedShow Answer

A mortgage loan made to a borrower with a low credit score is called a:

Correct AnswerverifiedShow Answer

To stimulate aggregate demand in the economy, the Federal Reserve Bank can _______ interest rates and the government can _______ spending.

Correct AnswerverifiedShow Answer

What effect did the introduction of securitization have on the economy?

Correct AnswerverifiedShow Answer

Stock markets in England were started in the late _______ century.

Correct AnswerverifiedShow Answer

Which of the following is a reason why aggregate supply decreased following the housing bubble collapse?

Correct AnswerverifiedShow Answer

When investors follow a "herd instinct," they make decisions:

Correct AnswerverifiedShow Answer

Historically, household debt in the United States had been _ from the Great Depression to the early 2000s, when it started to _.

Correct Answer
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As the housing bubble collapsed, the combination of increasing interest rates and pessimism about future economic prospects _ consumption and _ investment.

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To stimulate aggregate demand in the economy, the Federal Reserve Bank can _ interest rates and the government can _ spending.

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