Question 1

A rapidly falling stock price can trigger:

Accepted Answer

A)  a flood of margin calls.
B)  massive sales of the stock.
C)  the price to be pushed down even more.
D)  All of these statements are true.E) A) and B)
F) None of the above

Question 2

When the U.S.housing market crashed,it caused:

Accepted Answer

A)  lenders to stop lending.
B)  banks to go bust.
C)  the U.S.economy to tip into the Great Recession.
D)  All of these statements are true.E) All of the above
F) C) and D)

Question 3

When investors become irrationally optimistic that an asset's price will continue to rise,it causes a financial bubble:

Accepted Answer

A)  to start to inflate.
B)  to be on the verge of bursting.
C)  to burst.
D)  None of these statements is likely.E) All of the above
F) A) and C)

Question 4

The Fed 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) B) and D)
F) All of the above

Question 5

The worst financial crisis in history was the:

Accepted Answer

A)  Great Crash of 1929.
B)  South Seas bubble.
C)  Great Recession.
D)  housing bubble of 2007.E) C) and D)
F) A) and D) A

Question 6

An economy suffering from high inflation despite low economic growth and high unemployment is experiencing:

Accepted Answer

A)  stagflation.
B)  an economic boom.
C)  an economic downturn.
D)  hyperinflation.E) B) and C)
F) A) and B)

Question 7

Tranching allows packages of reliable,low-risk mortgages could be sold to ______________,while higher-risk subprime mortgages could be sold to ___________.

Accepted Answer

A)  more risk-averse investors;risk-loving investors
B)  more risk-loving investors;risk-averse investors
C)  national banks;local banks
D)  local banks;the governmentE) A) and D)
F) B) and C)

Question 8

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)  None of these statements is true.E) B) and D)
F) None of the above

Question 9

One reason the housing bubble occurred is because:

Accepted Answer

A)  the recency effect caused homes to typically be undervalued.
B)  the herd instinct caused everyone to believe home prices would continue to fall.
C)  securitization removed much of the risk from the sellers of subprime mortgages.
D)  All of these statements are true.E) C) and D)
F) A) and B)

Question 10

After World War II,the value of homes:

Accepted Answer

A)  did not fall for 60 years.
B)  were unaffected by recessions until the 2000s.
C)  seemed immune to the business cycle.
D)  All of these statements are true.E) A) and B)
F) None of the above

Question 11

Debt service is the amount:

Accepted Answer

A)  of time and energy banks spend creating loans.
B)  of interest payments that need to be paid over the life of a loan.
C)  the nation is in debt,expressed as a percent of GDP.
D)  that consumers have to spend to pay their debts.E) B) and C)
F) A) and B)

Question 12

From 1922 to 1929,the total value of the stock market:

Accepted Answer

A)  more than tripled.
B)  decreased by nearly 50 percent.
C)  decreased by nearly 90 percent.
D)  more than quadrupled.E) A) and B)
F) A) and C) A

Question 13

Subprime mortgages are:

Accepted Answer

A)  mortgage loans made to borrowers with low credit scores.
B)  mortgage loans that have less than prime interest rates.
C)  mortgage loans made to borrowers with higher than average credit scores.
D)  All of these statements are true.E) B) and D)
F) None of the above

Question 14

In finance,leverage is using:

Accepted Answer

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

Question 15

Because local banks earn fees for each loan,their role to:

Accepted Answer

A)  properly assess the risk of each borrower is misaligned with their incentive.
B)  create as many mortgages perfectly aligns with their incentives.
C)  provide mortgage loans only to those with low credit scores is misaligned with their incentive.
D)  properly assess the risk of each borrower is perfectly aligned with their incentive.E) B) and D)
F) B) and C)

Question 16

As the housing bubble collapsed,the cycle of defaults and falling prices began that would ultimately cause home values to:

Accepted Answer

A)  fall by more than 90 percent in the hardest-hit areas.
B)  stop rising,practically halting the mortgage loan industry for a number of years.
C)  fall by more than 50 percent in the hardest-hit areas.
D)  fall by about 25 percent in the hardest-hit areas.E) A) and B)
F) All of the above

Question 17

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

Accepted Answer

A)  sharply downward.
B)  mildly downward.
C)  mildly upward.
D)  just about constant.E) None of the above
F) C) and D)

Question 18

Leveraging investments based on irrational expectations:

Accepted Answer

A)  can lead to gradually deflating financial bubbles.
B)  is often cited as the root cause of financial crises.
C)  explains the success of companies like Apple.
D)  All of these statements are true.E) C) and D)
F) All of the above

Question 19

When the Fed injected newly made money into the economy by buying bonds,it:

Accepted Answer

A)  was practicing quantitative easing.
B)  was trying to avoid a deflationary period similar to Japan.
C)  inserted over $1 trillion of new money into the economy.
D)  All of these statements are true.E) None of the above
F) All of the above

Question 20

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

Accepted Answer

A)  based on hearsay,not objective information.
B)  based on emotion,not objective information.
C)  as a group,inflating the prices of goods somewhat arbitrarily.
D)  None of these statements is true.E) B) and D)
F) A) and C) B

Exam 33: Financial Crisis

A rapidly falling stock price can trigger:

Correct AnswerverifiedShow Answer

When the U.S.housing market crashed,it caused:

Correct AnswerverifiedShow Answer

When investors become irrationally optimistic that an asset's price will continue to rise,it causes a financial bubble:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The worst financial crisis in history was the:

Correct AnswerverifiedA

An economy suffering from high inflation despite low economic growth and high unemployment is experiencing:

Correct AnswerverifiedShow Answer

Tranching allows packages of reliable,low-risk mortgages could be sold to ______________,while higher-risk subprime mortgages could be sold to ___________.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

One reason the housing bubble occurred is because:

Correct AnswerverifiedShow Answer

After World War II,the value of homes:

Correct AnswerverifiedShow Answer

Debt service is the amount:

Correct AnswerverifiedShow Answer

From 1922 to 1929,the total value of the stock market:

Correct AnswerverifiedA

Subprime mortgages are:

Correct AnswerverifiedShow Answer

In finance,leverage is using:

Correct AnswerverifiedShow Answer

Because local banks earn fees for each loan,their role to:

Correct AnswerverifiedShow Answer

As the housing bubble collapsed,the cycle of defaults and falling prices began that would ultimately cause home values to:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Leveraging investments based on irrational expectations:

Correct AnswerverifiedShow Answer

When the Fed injected newly made money into the economy by buying bonds,it:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedB

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A

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Tranching allows packages of reliable,low-risk mortgages could be sold to ____,while higher-risk subprime mortgages could be sold to _.

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A

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B