Question 1

In the early 2000s, credit ratings of mortgage backed securities turned out to be:

Accepted Answer

A)   too low, which led many investors to them during the financial crisis.
B)   accurate, but investors ignored the risk.
C)   too high, as many securities contained far riskier loans than initially realized.
D)   volatile, as it is hard to assess the risk of these securities.E) C) and D)
F) B) and C)

Question 2

If you lost 10 percent on $200 worth of stock in a 3x margin account, then you would lose:

Accepted Answer

A)   $60.
B)   $20.
C)   $30.
D)   $40.E) B) and D)
F) A) and C)

Question 3

Securitization of mortgages:

Accepted Answer

A)   pooled high-risk mortgages together, which raised their price.
B)   allowed investors to profit from the mortgage payments without being exposed to risk.
C)   pooled the risk of mortgages, allowing high-risk mortgages to be more safely sold to investors.
D)   helped the government guarantee the values of real estate.E) A) and C)
F) A) and D)

Question 4

The stock market crash of 1929 may have been avoided if:

Accepted Answer

A)   investors had acted rationally.
B)   investors had placed more money in savings.
C)   firms had been more objective in their decision making.
D)   the U.S. government had stayed with the gold standard.E) A) and B)
F) A) and D)

Question 5

Subprime mortgage loans:

Accepted Answer

A)   are made to borrowers with low credit scores.
B)   have interest rates that are lower than the prime rate.
C)   are made to borrowers with higher than average credit scores.
D)   have lower interest rates than those in the general market.E) A) and B)
F) B) and D)

Question 6

A decrease in housing prices during the Great Recession meant that:

Accepted Answer

A)   borrowers owed less on their loans.
B)   the government earned less revenue in taxes.
C)   borrowers with risky loans couldn't refinance into friendlier terms.
D)   None of these are true.E) B) and C)
F) A) and D)

Question 7

How were incentives misaligned during the housing crisis?

Accepted Answer

A)   Wall Street assessed risk, but local banks earned a commission on each mortgage sold.
B)   Wall Street relied on local banks to assess risk, but local banks earned a commission on each mortgage sold.
C)   Wall Street earned a commission on each security sold, but local banks relied on Wall Street to assess risk.
D)   Wall Street earned a commission on each mortgage sold and relied on local banks to assess risk.E) A) and B)
F) C) and D)

Question 8

The Federal Reserve Bank attempted to deal with the sluggish aggregate demand that followed the housing market crash and subsequent financial crisis through:

Accepted Answer

A)   contractionary monetary policy.
B)   expansionary fiscal policy.
C)   expansionary monetary policy.
D)   contractionary fiscal policy.E) All of the above
F) B) and C)

Question 9

Which of the following is not a contributor to the development of the housing bubble?

Accepted Answer

A)   People expected housing prices would continue to rise.
B)   Leveraging more of a home's value became easier, putting buyers further into debt.
C)   Mortgage lenders had lost some incentive to properly assess the risk of lending.
D)   Homeowners lacked confidence in the institutions that made their loans.E) B) and C)
F) B) and D)

Question 10

Which of the following is not a reason why aggregate demand decreased following the housing bubble collapse?

Accepted Answer

A)   People stopped investing in houses.
B)   Consumption decreased.
C)   Business investment decreased.
D)   Costs of production increased throughout the economy.E) A) and B)
F) All of the above

Question 11

Some experts were concerned quantitative easing would lead to:

Accepted Answer

A)   inflation.
B)   decreased aggregate supply.
C)   deflation.
D)   increased government regulation.E) A) and B)
F) A) and C)

Question 12

Once housing prices stopped increasing in 2007, refinancing:

Accepted Answer

A)   was no longer an option, and a wave of foreclosures occurred.
B)   only occurred through higher risk, subprime loans.
C)   allowed people to convert housing equity into more liquid forms of saving.
D)   became more popular, and people's consumption accelerated overall.E) All of the above
F) B) and D)

Question 13

In finance, the leverage ratio is the ratio of a company's assets relative to its:

Accepted Answer

A)   total investments.
B)   profits.
C)   equity.
D)   debt.E) B) and D)
F) A) and D)

Question 14

Mortgage-backed securities are:

Accepted Answer

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

Question 15

When the housing bubble collapsed, the entire borrowing and lending engine of the economy ground to a halt because:

Accepted Answer

A)   no one could tell which banks were safe and which were not.
B)   banks didn't want to lend to anyone, in case they turned out to be a bad risk.
C)   investors didn't want to borrow or lend money.
D)   All of these are true.E) B) and D)
F) A) and D)

Question 16

After two rounds of quantitative easing in response to the 2007-2009 financial crisis, the money supply was _______ the pre-crisis amount.

Accepted Answer

A)   more than triple
B)   nearly double
C)   approximately the same as
D)   about half ofE) A) and B)
F) All of the above

Question 17

The case of the South Seas Bubble is primarily an example of:

Accepted Answer

A)   leverage.
B)   irrational exuberance.
C)   austerity.
D)   the efficient market hypothesis.E) All of the above
F) A) and B)

Question 18

Banks considered "too big to fail" were:

Accepted Answer

A)   bailed out through fiscal policy.
B)   bailed out through consumer spending.
C)   allowed to go bankrupt.
D)   helped by fiscal policy, but eventually went bankrupt.E) A) and B)
F) A) and C)

Question 19

A financial bubble inflates when:

Accepted Answer

A)   investors become irrationally optimistic that an asset's price will continue to rise.
B)   investors become irrationally pessimistic and desire to sell off an asset immediately.
C)   investors apply the efficient market hypothesis to a financial product for the first time.
D)   inflation begins to accelerate, and monetary and fiscal policy are ineffective at slowing its growth.E) A) and D)
F) B) and C)

Question 20

If you gained 20 percent on $200 worth of stock in a 4x margin account, then you would gain:

Accepted Answer

A)   $20.
B)   $40.
C)   $100.
D)   $160.E) A) and D)
F) None of the above

Exam 17: Financialcrisis

The Federal Reserve Bank attempted to deal with the sluggish aggregate demand that followed the housing market crash and subsequent financial crisis through:

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Which of the following is not a reason why aggregate demand decreased following the housing bubble collapse?

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A decrease in housing prices during the Great Recession meant that:

Correct AnswerverifiedShow Answer

The case of the South Seas Bubble is primarily an example of:

Correct AnswerverifiedShow Answer

Mortgage-backed securities are:

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A financial bubble inflates when:

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Banks considered "too big to fail" were:

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If you lost 10 percent on $200 worth of stock in a 3x margin account, then you would lose:

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When the housing bubble collapsed, the entire borrowing and lending engine of the economy ground to a halt because:

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Subprime mortgage loans:

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In finance, the leverage ratio is the ratio of a company's assets relative to its:

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The stock market crash of 1929 may have been avoided if:

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Once housing prices stopped increasing in 2007, refinancing:

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Which of the following is not a contributor to the development of the housing bubble?

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Securitization of mortgages:

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How were incentives misaligned during the housing crisis?

Correct AnswerverifiedShow Answer

In the early 2000s, credit ratings of mortgage backed securities turned out to be:

Correct AnswerverifiedShow Answer

If you gained 20 percent on $200 worth of stock in a 4x margin account, then you would gain:

Correct AnswerverifiedShow Answer

Some experts were concerned quantitative easing would lead to:

Correct AnswerverifiedShow Answer

After two rounds of quantitative easing in response to the 2007-2009 financial crisis, the money supply was _______ the pre-crisis amount.

Correct AnswerverifiedShow Answer

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