Question 1

In the events of the housing bubble collapsing, once the housing prices stopped increasing refinancing:

Accepted Answer

A)   was no longer an option, and a wave of foreclosures occurred.
B)   no longer allowed people to borrow cash on the new value of their home, and spending slowed.
C)   became less popular, and people's consumption overall dropped.
D)   became more popular, and people's consumption accelerated overall.E) B) and C)
F) A) and C)

Question 2

After nearly tripling the money supply after the housing market crash and subsequent 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)   has slowly increased, due to restored consumer confidence in the market, increasing the marginal propensity to consume.E) A) and C)
F) B) and C)

Question 3

The decrease in consumer spending that occurred after the collapse of the housing bubble caused aggregate:

Accepted Answer

A)   demand to increase.
B)   demand to decrease.
C)   supply to increase.
D)   supply to decrease.E) A) and B)
F) All of the above

Question 4

Mortgage-backed securities are:

Accepted Answer

A)   tradable assets made up of packages of individual mortgages.
B)   investments that people bought based on the equity of their homes.
C)   assets that were purchased based on the leveraged value of people's homes.
D)   securities that are often purchased by homeowners.E) None of the above
F) A) and B)

Question 5

The basic human tendency to overvalue recent experience when trying to predict the future is called:

Accepted Answer

A)   tulip mania.
B)   the leverage effect.
C)   herd instinct.
D)   the recency effect.E) A) and B)
F) A) and C)

Question 6

An investor who sees through irrational optimism of a market could:

Accepted Answer

A)   earn a profit by betting against what everyone else is doing.
B)   follow the lead of what most are doing, and earn consistent profits.
C)   earn a profit by being a "leader" among the "herd."
D)   be overwhelmed by market optimism and simply do what everyone else is doing.E) C) and D)
F) B) and D)

Question 7

How many years did it take the stock market to recover to the value it had been in September 1929?

Accepted Answer

A)   3 years
B)   10 years
C)   25 years
D)   54 yearsE) B) and C)
F) A) and C)

Question 8

The investors who bought mortgage-backed securities just before the housing bubble burst:

Accepted Answer

A)   were not concerned about the original mortgage.
B)   were all very comfortable assuming high-risk assets.
C)   were not confident in the rising home value underlying each mortgage.
D)   knew exactly what they were buying.E) A) and B)
F) All of the above

Question 9

The overall drop in stock prices that began in 1929 and continued through 1932 was due to:

Accepted Answer

A)   dropping stock prices causing a rational sale of certain stocks.
B)   a panicked massive sale of stocks which caused the stock prices to plummet.
C)   the exuberant confidence in the rising value of the stock market in general.
D)   the decline in profitability of companies.E) A) and C)
F) A) and D)

Question 10

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

Accepted Answer

A)   buy bigger and better homes.
B)   become less risk-averse.
C)   become more risk-averse.
D)   securitize their investments.E) A) and C)
F) C) and D)

Question 11

Which of the following actions did Congress NOT take in the 1930s, in an effort to prevent future financial crises like the stock market crash of 1929?

Accepted Answer

A)   Glass-Steagall Banking Act
B)   Formation of the SEC
C)   Formation of the FDIC
D)   Federal Reserve ActE) None of the above
F) A) and D)

Question 12

Which of the following actions did Congress take in the 1930s, in an effort to prevent future financial crises like the stock market crash of 1929?

Accepted Answer

A)   Formation of the FDIC
B)   Bubble Act
C)   Formation of the Federal Reserve Bank
D)   American Anti-Corruption ActE) None of the above
F) A) and B)

Question 13

Subprime lending gained popularity because of all of the following, except:

Accepted Answer

A)   investing in a home was seen as the safest investment one could make.
B)   it was meant to encourage those with risky credit to make a safe investment.
C)   the value of homes had not fallen for over 60 years.
D)   helping poor to own a home.E) B) and D)
F) B) and C)

Question 14

In the late 1600s, the stock being traded in London's Exchange Alley that created a financial bubble belonged to the:

Accepted Answer

A)   South Seas Company.
B)   East India Company.
C)   Bubble Company.
D)   Mediterranean Company.E) None of the above
F) A) and C)

Question 15

In events leading to the housing bubble, investment banks on Wall Street made money through the housing market 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) None of the above

Question 16

When the housing market bubble burst, many people found that:

Accepted Answer

A)   they owed more than their house was now worth.
B)   it was much easier to sell their home.
C)   the value of their homes exceeded their mortgage loans.
D)   there was a limited number of houses for sale.E) A) and B)
F) B) and C)

Question 17

If you have $100 in an account that offers "2x" margin, you can effectively buy:

Accepted Answer

A)   $200 worth of stocks.
B)   $1,000 worth of stocks.
C)   $100 worth of stocks.
D)   $2,000 worth of stocks.E) None of the above
F) A) and B)

Question 18

The reforms introduced by Congress in the 1930s led to:

Accepted Answer

A)   the Great Crash.
B)   relative financial stability for over 70 years.
C)   a further decline that lasted for 25 years.
D)   the Great Depression to be worse than it needed to be.E) All of the above
F) None of the above

Question 19

As the housing bubble collapsed, the combination of increasing interest rates and pessimism about future economic prospects:

Accepted Answer

A)   increased both consumption and investment spending.
B)   decreased consumption and increased investment spending.
C)   decreased both consumption and investment spending.
D)   increased consumption and decreased investment spending.E) B) and C)
F) C) and D)

Question 20

In response to the financial crisis which followed the housing bubble collapse, policy-makers feared stimulating demand would cause:

Accepted Answer

A)   high inflation despite low economic growth and high unemployment.
B)   high inflation despite high economic growth and low unemployment.
C)   low economic growth despite low inflation and low unemployment.
D)   high unemployment despite low inflation and low economic growth.E) B) and C)
F) A) and B)

Exam 17: Financial Crisis

In the late 1600s, the stock being traded in London's Exchange Alley that created a financial bubble belonged to the:

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Which of the following actions did Congress take in the 1930s, in an effort to prevent future financial crises like the stock market crash of 1929?

Correct AnswerverifiedShow Answer

The investors who bought mortgage-backed securities just before the housing bubble burst:

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As the housing bubble collapsed, the combination of increasing interest rates and pessimism about future economic prospects:

Correct AnswerverifiedShow Answer

In events leading to the housing bubble, investment banks on Wall Street made money through the housing market by:

Correct AnswerverifiedShow Answer

Which of the following actions did Congress NOT take in the 1930s, in an effort to prevent future financial crises like the stock market crash of 1929?

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When the housing market bubble burst, many people found that:

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The reforms introduced by Congress in the 1930s led to:

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In response to the financial crisis which followed the housing bubble collapse, policy-makers feared stimulating demand would cause:

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Subprime lending gained popularity because of all of the following, except:

Correct AnswerverifiedShow Answer

If you have $100 in an account that offers "2x" margin, you can effectively buy:

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Mortgage-backed securities are:

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

Correct AnswerverifiedShow Answer

The decrease in consumer spending that occurred after the collapse of the housing bubble caused aggregate:

Correct AnswerverifiedShow Answer

After nearly tripling the money supply after the housing market crash and subsequent financial crisis, inflation:

Correct AnswerverifiedShow Answer

How many years did it take the stock market to recover to the value it had been in September 1929?

Correct AnswerverifiedShow Answer

The overall drop in stock prices that began in 1929 and continued through 1932 was due to:

Correct AnswerverifiedShow Answer

An investor who sees through irrational optimism of a market could:

Correct AnswerverifiedShow Answer

In the events of the housing bubble collapsing, once the housing prices stopped increasing refinancing:

Correct AnswerverifiedShow Answer

The basic human tendency to overvalue recent experience when trying to predict the future is called:

Correct AnswerverifiedShow Answer

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