Question 1

The same tools that were intended to allocate funds and spread risk more efficiently in the housing market made it:

Accepted Answer

A)  easier to keep everyone fully informed.
B)  more difficult to keep everyone fully informed.
C)  easier to understand the true risk involved with these assets.
D)  more difficult to justify buying mortgage-backed securities over other low-risk assets.E) None of the above
F) B) and C)

Question 2

The combined efforts of the Fed and the Treasury in response to the financial crisis following the housing market crash were:

Accepted Answer

A)  effective in restoring aggregate supply to its pre-crisis level,but still left the economy with sluggish aggregate demand.
B)  ineffective in restoring aggregate supply to its pre-crisis level,and output remained far below potential.
C)  effective in restoring aggregate supply to its pre-crisis level,but left the economy facing severely increasing inflation.
D)  ineffective in restoring aggregate supply to its pre-crisis level,but output increased due to increased consumer confidence boosting aggregate demand.E) A) and C)
F) C) and D)

Question 3

Banks became more willing to make subprime loans because of:

Accepted Answer

A)  securitization.
B)  leveraging.
C)  hedging.
D)  All of these statements are true.E) A) and D)
F) B) and C)

Question 4

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

Accepted Answer

A)  investors had acted rationally.
B)  investors had acted irrationally.
C)  large companies had been more objective in their decision making.
D)  large companies had been more emotional in their decision making.E) All of the above
F) A) and D)

Question 5

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

Accepted Answer

A)  the South Seas Company.
B)  the East India Company.
C)  the Bubble Company.
D)  the Apple Company.E) A) and B)
F) A) and C)

Question 6

When investors follow a "herd instinct," they:

Accepted Answer

A)  invest in something as a group,making it appear more valuable than it is.
B)  make decisions as a group,inflating the prices of goods somewhat arbitrarily.
C)  invest in something simply because everyone else is doing it.
D)  None of these statements is true.E) All of the above
F) C) and D)

Question 7

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)  All of these statements are true.E) B) and C)
F) A) and D)

Question 8

In finance,leverage:

Accepted Answer

A)  multiplies the effect of gains and losses in financial markets.
B)  is using borrowed money to pay for investments.
C)  helps explain why a crash is so damaging after a bubble bursts.
D)  All of these statements are true.E) A) and C)
F) None of the above

Question 9

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

Accepted Answer

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

Question 10

Quantitative easing involves policies that are designed to:

Accepted Answer

A)  directly increase the money supply by a certain amount.
B)  indirectly increase the money supply by decreasing interest rates.
C)  directly increase aggregate demand through increased government spending.
D)  indirectly increase aggregate demand through decreased taxes.E) A) and B)
F) B) and C)

Question 11

The shifts in aggregate demand and aggregate supply as a result of the housing bubble collapse caused:

Accepted Answer

A)  output to fall dramatically.
B)  output to stay the same,since the shifts worked in opposite directions.
C)  output to rise temporarily,then fall.
D)  None of these statements is true.E) A) and B)
F) None of the above

Question 12

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

Accepted Answer

A)  prime mortgage.
B)  hi-risk mortgage loan.
C)  bundled financial loan.
D)  subprime mortgage.E) A) and D)
F) B) and C)

Question 13

If you lost 10 percent on $200 worth of stock in a 2x margin account,then you would:

Accepted Answer

A)  lose $20.
B)  gain $20.
C)  lose $40.
D)  gain $40.E) A) and B)
F) A) and C)

Question 14

The level of household debt incurred over the two decades leading up to the 2008 crisis was only sustainable if interest rates:

Accepted Answer

A)  remained low and housing prices remained high.
B)  and housing prices both remained high.
C)  and housing prices both remained low.
D)  remained high and housing prices remained low.E) C) and D)
F) B) and C)

Question 15

If you lost 20 percent on $100 worth of stock in a 2x margin account,then you would:

Accepted Answer

A)  lose $20.
B)  gain $20.
C)  lose $40.
D)  gain $40.E) B) and C)
F) A) and B)

Question 16

Subprime lending gained popularity because:

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)  All of these statements are true.E) All of the above
F) C) and D)

Question 17

The government bailed out banks deemed too big to fail through:

Accepted Answer

A)  increased government spending.
B)  fiscal policy.
C)  the Troubled Asset Relief Program,commonly known as TARP.
D)  All of these statements are true.E) A) and B)
F) B) and C)

Question 18

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

Accepted Answer

A)  inflation.
B)  deflation.
C)  stagflation.
D)  hyperinflation.E) A) and B)
F) C) and D)

Question 19

When investors invest in something simply because everyone else is doing it,they are:

Accepted Answer

A)  suspect to "tulip mania."
B)  following a "herd instinct."
C)  acting objectively on full information available in the market.
D)  leveraging market performance for their own gain.E) All of the above
F) B) and C)

Question 20

One reason the housing bubble occurred is because:

Accepted Answer

A)  the securitization of mortgages meant more mortgages were low-risk,attracting investors.
B)  the herd instinct caused everyone to stop buying homes.
C)  the recency effect affected people's perceptions of home values.
D)  All of these statements are true.E) All of the above
F) C) and D)

Exam 33: Financial Crisis

If you lost 20 percent on $100 worth of stock in a 2x margin account,then you would:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The shifts in aggregate demand and aggregate supply as a result of the housing bubble collapse caused:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The same tools that were intended to allocate funds and spread risk more efficiently in the housing market made it:

Correct AnswerverifiedShow Answer

The combined efforts of the Fed and the Treasury in response to the financial crisis following the housing market crash were:

Correct AnswerverifiedShow Answer

If you lost 10 percent on $200 worth of stock in a 2x margin account,then you would:

Correct AnswerverifiedShow Answer

One reason the housing bubble occurred is because:

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

In finance,leverage:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Subprime lending gained popularity because:

Correct AnswerverifiedShow Answer

The level of household debt incurred over the two decades leading up to the 2008 crisis was only sustainable if interest rates:

Correct AnswerverifiedShow Answer

Quantitative easing involves policies that are designed to:

Correct AnswerverifiedShow Answer

The government bailed out banks deemed too big to fail through:

Correct AnswerverifiedShow Answer

Banks became more willing to make subprime loans because of:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When investors invest in something simply because everyone else is doing it,they are:

Correct AnswerverifiedShow Answer

When investors follow a "herd instinct," they:

Correct AnswerverifiedShow Answer

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