Question 1

As the housing market took off in the early 2000s:

Accepted Answer

A)  household debt became positive for the first time since the Great Depression.
B)  the growth in household debt slowed.
C)  the growth in household debt accelerated.
D)  household debt became negative for the first time since the Great Depression.E) None of the above
F) A) and B)

Question 2

The practice of dividing packages of debts into slices,each with different risk and return characteristics,is called:

Accepted Answer

A)  leveraging.
B)  bundling.
C)  pooling.
D)  tranching.E) A) and B)
F) A) and D)

Question 3

The first recorded example of a financial bubble was:

Accepted Answer

A)  called the Enclosure Movement.
B)  the "dot com" bubble of the 1990s.
C)  a "tulip mania" in the 1600s.
D)  the "stock market" bubble of the 1920s.E) None of the above
F) A) and B)

Question 4

Economists feared that any attempt to _________________ without first ___________________ would have been ineffective at best and dangerous at worst.

Accepted Answer

A)  stimulate aggregate demand;addressing the lack of supply
B)  address the lack of supply;stimulating aggregate demand
C)  curtail inflation;lowering interest rates
D)  lowering interest rates;curtailing inflationE) A) and D)
F) B) and D)

Question 5

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

Accepted Answer

A)  People stopped investing in homes.
B)  Consumption decreased.
C)  Business investment decreased.
D)  All of these caused aggregate demand to decrease.E) A) and C)
F) B) and C)

Question 6

The financial crisis that began in late 2007 ended which era?

Accepted Answer

A)  The Great Recovery
B)  The Golden era
C)  The Great Moderation
D)  The Great RecessionE) None of the above
F) B) and D)

Question 7

If the efficient-market hypothesis is true,then the idea of:

Accepted Answer

A)  herd instinct holds.
B)  herd instinct doesn't always hold.
C)  tulip mania holds.
D)  tulip mania doesn't always hold.E) A) and C)
F) A) and D)

Question 8

Over the two decades leading up the 2008 crisis,__________ interest rates meant that consumers could take on _____ debt without significantly increasing the amount of debt service they had to pay.

Accepted Answer

A)  falling;more
B)  rising;more
C)  falling;less
D)  rising;lessE) B) and D)
F) A) and C)

Question 9

Local banks could pass the risk involved in holding mortgage debts on to an investor with a higher risk tolerance using:

Accepted Answer

A)  mortgage-backed securities.
B)  leveraged securities.
C)  leveraged investments.
D)  government-backed securities.E) All of the above
F) A) and C)

Question 10

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)  13 years
C)  25 years
D)  54 yearsE) A) and B)
F) B) and C)

Question 11

If the idea of herd instinct is true,it suggests that:

Accepted Answer

A)  the efficient-market hypothesis doesn't always hold.
B)  the efficient-market hypothesis does,in fact,hold.
C)  the inefficient-market hypothesis doesn't always hold.
D)  the inefficient-market hypothesis does,in fact,hold.E) None of the above
F) All of the above

Question 12

In events leading to the collapse of the housing bubble,inflated home values caused consumers to:

Accepted Answer

A)  save less and spend more.
B)  spend less and save more.
C)  spend more on homes and less on all other goods.
D)  hold their savings to equity in their homes and stop saving more liquid forms of assets.E) All of the above
F) B) and D)

Question 13

The Fed can ____________ and the government can ___________ to stimulate aggregate demand in the economy.

Accepted Answer

A)  lower interest rates;increase spending
B)  increase interest rates;decrease spending
C)  increase interest rates;increase spending
D)  lower interest rates;decrease spendingE) A) and D)
F) C) and D)

Question 14

When investors use borrowed funds to pay for investments,it's called:

Accepted Answer

A)  leveraging.
B)  tulip mania.
C)  hedging.
D)  herding.E) A) and D)
F) C) and D)

Question 15

As the housing bubble collapsed,as more foreclosures occurred,and the supply of homes for sale:

Accepted Answer

A)  increased,it further decreased home values,which led to more foreclosures.
B)  increased,the price of homes fell,and so the demand for homes increased.
C)  decreased,as homeowners no longer wanted to sell their homes when prices were low.
D)  decreased,as homeowners refused to sell when they owed more than the market value.E) None of the above
F) All of the above

Question 16

By 2006,20 percent of the mortgage market consisted of:

Accepted Answer

A)  subprime loans,while 80 percent were still regular prime mortgages.
B)  prime loans,and an overwhelming 80 percent had become subprime mortgages.
C)  securitized loans,and the rest were back by the government.
D)  individual mortgage loans,and an overwhelming 80 percent had become securitized loans.E) A) and B)
F) None of the above

Question 17

A financial bubble starts to inflate when:

Accepted Answer

A)  investors become irrationally optimistic that an asset's price will continue to rise.
B)  investors become irrationally pessimistic that an asset needs to be sold immediately.
C)  a good experiences a rise in demand that is unexplained,increasing its price.
D)  inflation begins to accelerate,and monetary and fiscal policy are ineffective at slowing its growth.E) All of the above
F) None of the above

Question 18

In events leading to the collapse of the housing bubble,inflated home values created:

Accepted Answer

A)  a wealthier economy,which caused economic growth.
B)  a false sense of wealth,which increased aggregate demand.
C)  a false sense of wealth,which spurred economic growth to increase.
D)  a wealthier economy,which caused inflation.E) A) and B)
F) A) and C)

Question 19

In 2008,several banks had a:

Accepted Answer

A)  solvency problem,and the Fed kept them all from going bankrupt.
B)  confidence problem,and would not lend enough to keep from going bankrupt.
C)  solvency problem,and eventually went bankrupt as a result.
D)  reserve problem,and did not have enough funds on hand to lend to keep from going bankrupt.E) A) and D)
F) B) and D)

Question 20

One reason consumers were able to assume an increasing amount of household debt during the 2000s is because:

Accepted Answer

A)  interest rates were so low that it made borrowing easier.
B)  even though interest rates were high,the inflated values of homes allowed them to afford it.
C)  interest rates were so low that people found it very easy to save their extra income.
D)  even though interest rates were high,the herd instinct gave people a false confidence in their future wealth.E) B) and D)
F) B) and C)

Exam 33: Financial Crisis

One reason consumers were able to assume an increasing amount of household debt during the 2000s is because:

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Economists feared that any attempt to _________________ without first ___________________ would have been ineffective at best and dangerous at worst.

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When investors use borrowed funds to pay for investments,it's called:

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Over the two decades leading up the 2008 crisis,__________ interest rates meant that consumers could take on _____ debt without significantly increasing the amount of debt service they had to pay.

Correct AnswerverifiedShow Answer

By 2006,20 percent of the mortgage market consisted of:

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The first recorded example of a financial bubble was:

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

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The Fed can ____________ and the government can ___________ to stimulate aggregate demand in the economy.

Correct AnswerverifiedShow Answer

A financial bubble starts to inflate when:

Correct AnswerverifiedShow Answer

In events leading to the collapse of the housing bubble,inflated home values created:

Correct AnswerverifiedShow Answer

If the efficient-market hypothesis is true,then the idea of:

Correct AnswerverifiedShow Answer

As the housing bubble collapsed,as more foreclosures occurred,and the supply of homes for sale:

Correct AnswerverifiedShow Answer

The financial crisis that began in late 2007 ended which era?

Correct AnswerverifiedShow Answer

In 2008,several banks had a:

Correct AnswerverifiedShow Answer

The practice of dividing packages of debts into slices,each with different risk and return characteristics,is called:

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

Local banks could pass the risk involved in holding mortgage debts on to an investor with a higher risk tolerance using:

Correct AnswerverifiedShow Answer

In events leading to the collapse of the housing bubble,inflated home values caused consumers to:

Correct AnswerverifiedShow Answer

If the idea of herd instinct is true,it suggests that:

Correct AnswerverifiedShow Answer

As the housing market took off in the early 2000s:

Correct AnswerverifiedShow Answer

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Economists feared that any attempt to _ without first ___ would have been ineffective at best and dangerous at worst.

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Over the two decades leading up the 2008 crisis,______ interest rates meant that consumers could take on _ debt without significantly increasing the amount of debt service they had to pay.

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The Fed can __ and the government can _ to stimulate aggregate demand in the economy.

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