Question 1

When the housing price bubble burst, there were some obvious effects on the economy, and some that were not so obvious.Explain these.

Accepted Answer

When the housing price bubble burst, obv

Question 2

Suppose that a five-year Treasury bond pays 2.5 percent and a five-year corporate bond pays 8.5 percent, then what is the interest rate spread on this particular corporate bond?

Accepted Answer

A) 5 percent 
B) 6 percent 
C) 7.5 percent 
D) 9.0 percent 
A) 5 percent 
B) 6 percent 
C) 7.5 percent 
D) 9.0 percent

Question 3

Which of the following was not a factor that contributed to the subprime mortgage crisis?

Accepted Answer

A) False security derived from FDIC insurance on mortgage loans 
B) Lower down payments 
C) Households devoting 25 percent or more of their income to mortgage payments 
D) Lending to households with adverse credit ratings 
A) False security derived from FDIC insurance on mortgage loans 
B) Lower down payments 
C) Households devoting 25 percent or more of their income to mortgage payments 
D) Lending to households with adverse credit ratings

Question 4

In computing GDP, new home construction adds to

Accepted Answer

A) consumption. 
B) investment. 
C) government spending. 
D) net exports. 
A) consumption. 
B) investment. 
C) government spending. 
D) net exports.

Question 5

A bank would be considered insolvent when the value of its liabilities exceed its

Accepted Answer

A) assets. 
B) required reserves. 
C) actual reserves. 
D) net worth. 
A) assets. 
B) required reserves. 
C) actual reserves. 
D) net worth.

Question 6

If a five-year Treasury bond pays an interest of 2.5 percent and a five-year corporate bond pays an interest rate of 4.5 percent, then the interest rate spread on the corporate bond equals 2 percent.

Accepted Answer

A) True 
 B)False

Question 7

It would be impossible to have an unlevered bank.

Accepted Answer

A) True 
 B)False

Question 8

The Lehman Brothers bankruptcy triggered a financial panic that featured a(n)

Accepted Answer

A) increase in Treasury interest rates and an increase in most other interest rates. 
B) increase in Treasury interest rates and a decrease in most other interest rates. 
C) decrease in Treasury interest rates and an increase in most other interest rates. 
D) decrease in Treasury interest rates and a decrease in most other interest rates. 
A) increase in Treasury interest rates and an increase in most other interest rates. 
B) increase in Treasury interest rates and a decrease in most other interest rates. 
C) decrease in Treasury interest rates and an increase in most other interest rates. 
D) decrease in Treasury interest rates and a decrease in most other interest rates.

Question 9

The Fed's loan that effectively nationalized AIG was approved by Congress.

Accepted Answer

A) True 
 B)False

Question 10

Subprime mortgages were granted with low or negligible down payments to the borrowers of questionable credit standing who could barely afford their monthly payments.

Accepted Answer

A) True 
 B)False

Question 11

What is the leverage implied by the bank balance sheet listed below? ​

Accepted Answer

A) 10-to-1 
B) 12-to-1 
C) 20-to-1 
D) 21-to-1 
A) 10-to-1 
B) 12-to-1 
C) 20-to-1 
D) 21-to-1

Question 12

Much of the TARP money was used to recapitalize banks.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following was not a lesson from the 2007-2009 financial crisis?

Accepted Answer

A) Regulatory failures were the result of weaknesses across the regulatory structure. 
B) The financial system operated with too much leverage. 
C) The business cycle no longer applies to economic analysis. 
D) Monetary policy alone may not be sufficient to stabilize aggregate demand. 
A) Regulatory failures were the result of weaknesses across the regulatory structure. 
B) The financial system operated with too much leverage. 
C) The business cycle no longer applies to economic analysis. 
D) Monetary policy alone may not be sufficient to stabilize aggregate demand.

Question 14

When the housing bubble burst, prices fell particularly severely in

Accepted Answer

A) Georgia. 
B) Nevada. 
C) Pennsylvania. 
D) West Virginia. 
A) Georgia. 
B) Nevada. 
C) Pennsylvania. 
D) West Virginia.

Question 15

An increase in the price of a particular bond implies an increase in the interest rate for that bond.

Accepted Answer

A) True 
 B)False

Question 16

What amount of money was appropriated by Congress for fiscal stimulus bill of 2009?

Accepted Answer

A) $225 billion 
B) $252 billion 
C) $700 billion 
D) $787 billion 
A) $225 billion 
B) $252 billion 
C) $700 billion 
D) $787 billion

Question 17

Excessive leverage can be traced to lax regulation and inadequate laws.

Accepted Answer

A) True 
 B)False

Question 18

An asset price bubble occurs when the prices of some assets rise far above their fundamental values.

Accepted Answer

A) True 
 B)False

Question 19

Why did observers at first believe that the damage from the impending subprime mortgage crisis would be too small to cause a recession?

Accepted Answer

For two reasons, observers at first thou

Question 20

The Federal Reserve stepped in to help

Accepted Answer

A) Bear Stearns but not Lehman Brothers. 
B) Lehman Brothers but not Bear Stearns. 
C) both Bear Stearns and Lehman Brothers. 
D) neither Bear Stearns nor Lehman Brothers. 
A) Bear Stearns but not Lehman Brothers. 
B) Lehman Brothers but not Bear Stearns. 
C) both Bear Stearns and Lehman Brothers. 
D) neither Bear Stearns nor Lehman Brothers.

Exam 30: The Financial Crisis and the Great Recession

When the housing price bubble burst, there were some obvious effects on the economy, and some that were not so obvious.Explain these.

Suppose that a five-year Treasury bond pays 2.5 percent and a five-year corporate bond pays 8.5 percent, then what is the interest rate spread on this particular corporate bond?

Which of the following was not a factor that contributed to the subprime mortgage crisis?

In computing GDP, new home construction adds to

A bank would be considered insolvent when the value of its liabilities exceed its

If a five-year Treasury bond pays an interest of 2.5 percent and a five-year corporate bond pays an interest rate of 4.5 percent, then the interest rate spread on the corporate bond equals 2 percent.

It would be impossible to have an unlevered bank.

The Lehman Brothers bankruptcy triggered a financial panic that featured a(n)

The Fed's loan that effectively nationalized AIG was approved by Congress.

Subprime mortgages were granted with low or negligible down payments to the borrowers of questionable credit standing who could barely afford their monthly payments.

What is the leverage implied by the bank balance sheet listed below? ​

Much of the TARP money was used to recapitalize banks.

Which of the following was not a lesson from the 2007-2009 financial crisis?

When the housing bubble burst, prices fell particularly severely in

An increase in the price of a particular bond implies an increase in the interest rate for that bond.

What amount of money was appropriated by Congress for fiscal stimulus bill of 2009?

Excessive leverage can be traced to lax regulation and inadequate laws.

An asset price bubble occurs when the prices of some assets rise far above their fundamental values.

Why did observers at first believe that the damage from the impending subprime mortgage crisis would be too small to cause a recession?

The Federal Reserve stepped in to help

What Is Economics

The Economony: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation

Bringing in the Supply Side: Unemployment and Inflation

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Debate Over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder

Exchange Rates and the Macroeconomy

Contemporary Issues in the Useconomy

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What is the leverage implied by the bank balance sheet listed below?