Question 1

The Fed's low short-term interest rate policy of 2002 to 2004 made it highly attractive for buyers to purchase a house

Accepted Answer

A) with a large down payment and a 30-year,fixed rate mortgage. 
B) with a large down payment and an adjustable rate mortgage. 
C) with a small down payment and an adjustable rate mortgage. 
D) quickly before housing prices began to decline in 2006. 
A) with a large down payment and a 30-year,fixed rate mortgage. 
B) with a large down payment and an adjustable rate mortgage. 
C) with a small down payment and an adjustable rate mortgage. 
D) quickly before housing prices began to decline in 2006.

Question 2

The Fed's low short-term interest rate policy from 2002-2004,along with housing regulations promoting low down-payment loans to sub-prime borrowers,encouraged

Accepted Answer

A) conventional 30-year,fixed rate mortgages which have relatively high default and foreclosure rates. 
B) conventional 30-year,fixed rate mortgages which have relatively low default and foreclosure rates. 
C) adjustable rate mortgages which have relatively low default and foreclosure rates. 
D) adjustable rate mortgages which have relatively high default and foreclosure rates. 
A) conventional 30-year,fixed rate mortgages which have relatively high default and foreclosure rates. 
B) conventional 30-year,fixed rate mortgages which have relatively low default and foreclosure rates. 
C) adjustable rate mortgages which have relatively low default and foreclosure rates. 
D) adjustable rate mortgages which have relatively high default and foreclosure rates.

Question 3

A sub-prime loan is a loan extended to borrowers

Accepted Answer

A) at a subsidized interest rate below the prime rate normally offered to the most creditworthy borrowers. 
B) with blemished credit or limited documentation of their income,employment history,and other indicators of credit worthiness. 
C) seeking a 30-year,fixed rate mortgage. 
D) who have a FICO score above 660. 
A) at a subsidized interest rate below the prime rate normally offered to the most creditworthy borrowers. 
B) with blemished credit or limited documentation of their income,employment history,and other indicators of credit worthiness. 
C) seeking a 30-year,fixed rate mortgage. 
D) who have a FICO score above 660.

Question 4

The substantial increase in household debt relative to income since the mid 1980s meant that in 2008 many households

Accepted Answer

A) had little savings or other reserve assets for use to deal with unexpected expenditures. 
B) could safely afford to purchase larger homes because housing is always a good investment. 
C) could spend everything they earned because their interest obligations on outstanding credit were low. 
D) would be able to easily adjust their current spending if their monthly payments on adjustable rate mortgages rose. 
A) had little savings or other reserve assets for use to deal with unexpected expenditures. 
B) could safely afford to purchase larger homes because housing is always a good investment. 
C) could spend everything they earned because their interest obligations on outstanding credit were low. 
D) would be able to easily adjust their current spending if their monthly payments on adjustable rate mortgages rose.

Question 5

Fannie Mae and Freddie Mac's rapid increase in the percentage of all mortgages held encouraged mortgage lenders to

Accepted Answer

A) tighten credit standards and decrease the number of sub-prime loans extended to borrowers. 
B) offer lower rates than what Fannie Mae and Freddie Mac could offer. 
C) lower credit standards and offer terms acceptable to Fannie Mae and Freddie Mac. 
D) scrutinize the credit-worthiness of borrowers and require higher down payments on mortgages. 
A) tighten credit standards and decrease the number of sub-prime loans extended to borrowers. 
B) offer lower rates than what Fannie Mae and Freddie Mac could offer. 
C) lower credit standards and offer terms acceptable to Fannie Mae and Freddie Mac. 
D) scrutinize the credit-worthiness of borrowers and require higher down payments on mortgages.

Question 6

The share of new loans with a down payment of 5 percent or less extended by Freddie Mac and Fannie Mae

Accepted Answer

A) declined substantially after 1999. 
B) rose from 4 percent in 1998 to 12 percent in 2003 and 23 percent in 2007. 
C) rose from 4 percent in 1998 to 23 percent in 2002,but declined to less than 10 percent in 2007. 
D) never exceeded 10 percent of the new loans financed. 
A) declined substantially after 1999. 
B) rose from 4 percent in 1998 to 12 percent in 2003 and 23 percent in 2007. 
C) rose from 4 percent in 1998 to 23 percent in 2002,but declined to less than 10 percent in 2007. 
D) never exceeded 10 percent of the new loans financed.

Question 7

Which of the following contributed to the soaring housing prices during 2002-2005?

Accepted Answer

A) the Fed's low-interest rate policy 
B) regulations that reduced the required down payment and other lending standards for home mortgages 
C) the increased leverage lending by Fannie Mae,Freddie Mac,and large investment banks 
D) all of the above 
A) the Fed's low-interest rate policy 
B) regulations that reduced the required down payment and other lending standards for home mortgages 
C) the increased leverage lending by Fannie Mae,Freddie Mac,and large investment banks 
D) all of the above

Question 8

Based on the rising housing prices of 2000-2005,many buyers opted for interest-only loans and variable rate mortgages with little or no down payment because

Accepted Answer

A) they expected short-term interest rates to fall substantially in the future and this would reduce their monthly mortgage payment in the years ahead. 
B) variable rate mortgages are a good way to reduce the risk accompanying your investment when you plan to stay in the house for a long time. 
C) they thought housing prices would continue to rise and therefore they would be able to sell the house for a profit within a couple of years. 
D) they could easily recoup their investment,even if there was a downturn in housing prices in the future. 
A) they expected short-term interest rates to fall substantially in the future and this would reduce their monthly mortgage payment in the years ahead. 
B) variable rate mortgages are a good way to reduce the risk accompanying your investment when you plan to stay in the house for a long time. 
C) they thought housing prices would continue to rise and therefore they would be able to sell the house for a profit within a couple of years. 
D) they could easily recoup their investment,even if there was a downturn in housing prices in the future.

Question 9

The mortgage default rate is

Accepted Answer

A) the percentage of home mortgage loans in which the borrower has failed to make the current monthly payment. 
B) equal to the foreclosure rate. 
C) the percentage of home mortgages in which the borrower is 90 days or more late with the payment or it is in the foreclosure process. 
D) the percentage of home mortgages in which the borrower owes more than the home is worth. 
A) the percentage of home mortgage loans in which the borrower has failed to make the current monthly payment. 
B) equal to the foreclosure rate. 
C) the percentage of home mortgages in which the borrower is 90 days or more late with the payment or it is in the foreclosure process. 
D) the percentage of home mortgages in which the borrower owes more than the home is worth.

Question 10

Between 2001-2005,

Accepted Answer

A) both sub-prime and adjustable rate mortgages decreased as a share of the total. 
B) both sub-prime and adjustable rate mortgages increased as a share of the total. 
C) sub-prime loans increased,but adjustable rate loans decreased as a share of the total. 
D) sub-prime loans decreased,but adjustable rate loans increased as a share of the total. 
A) both sub-prime and adjustable rate mortgages decreased as a share of the total. 
B) both sub-prime and adjustable rate mortgages increased as a share of the total. 
C) sub-prime loans increased,but adjustable rate loans decreased as a share of the total. 
D) sub-prime loans decreased,but adjustable rate loans increased as a share of the total.

Question 11

Which of the following resulted from Fed policy that first kept short-term interest rates extremely low during 2002-2004,and then pushed them up substantially during 2005-2006?

Accepted Answer

A) a reduction in housing prices because variable rate mortgages were unattractive throughout this period 
B) upward pressure on housing prices when the interest rates were low,but downward pressure on the price of housing as the interest rates rose 
C) lower default rates on adjustable rate mortgages as the interest rates peaked during 2006 
D) downward pressure on housing prices when the interest rates were low,but upward pressure on the price of housing as the interest rates rose 
A) a reduction in housing prices because variable rate mortgages were unattractive throughout this period 
B) upward pressure on housing prices when the interest rates were low,but downward pressure on the price of housing as the interest rates rose 
C) lower default rates on adjustable rate mortgages as the interest rates peaked during 2006 
D) downward pressure on housing prices when the interest rates were low,but upward pressure on the price of housing as the interest rates rose

Question 12

Which of the following is most likely to result from a rising household debt/income ratio?

Accepted Answer

A) Household income will rise rapidly. 
B) Household consumption will fall as a share of income. 
C) Households will be in a better position to deal with unexpected events that force major adjustments. 
D) A larger share of household income will be required to meet interest payments on debt. 
A) Household income will rise rapidly. 
B) Household consumption will fall as a share of income. 
C) Households will be in a better position to deal with unexpected events that force major adjustments. 
D) A larger share of household income will be required to meet interest payments on debt.

Question 13

Which of the following was a contributing factor to the housing boom and bust and the financial crisis of 2008?

Accepted Answer

A) An increase in the share of loans to sub-prime borrowers. 
B) An increase in the share of loans extended to borrowers making only a small down payment. 
C) An increase in adjustable-rate mortgages (ARMs)as a share of the total. 
D) All of the above. 
A) An increase in the share of loans to sub-prime borrowers. 
B) An increase in the share of loans extended to borrowers making only a small down payment. 
C) An increase in adjustable-rate mortgages (ARMs)as a share of the total. 
D) All of the above.

Question 14

Between 2001 and 2005,sub-prime (including Atl-A)mortgages ____________ as a share of the total.

Accepted Answer

A) fell from 30 percent to less than 10 percent 
B) rose from 5 percent to 10 percent 
C) rose from 10 percent to more than 30 percent 
D) fell from more than 20 percent to less than 10 percent 
A) fell from 30 percent to less than 10 percent 
B) rose from 5 percent to 10 percent 
C) rose from 10 percent to more than 30 percent 
D) fell from more than 20 percent to less than 10 percent

Question 15

During the 1980s and 1990s,the Federal Reserve's monetary policy focused primarily on

Accepted Answer

A) keeping short-term interest rates low in order to stimulate real output and economic growth. 
B) a variety of factors,such as unemployment and real GDP,resulting in variable inflation rates throughout this period. 
C) keeping inflation low and the general price level relatively stable. 
D) monetary expansion in order to reduce unemployment. 
A) keeping short-term interest rates low in order to stimulate real output and economic growth. 
B) a variety of factors,such as unemployment and real GDP,resulting in variable inflation rates throughout this period. 
C) keeping inflation low and the general price level relatively stable. 
D) monetary expansion in order to reduce unemployment.

Question 16

The strong demand for housing,rising housing prices,and a construction boom from 2000 to 2005 were a result of

Accepted Answer

A) market forces that were eventually cut short by the stock market crash of 2008. 
B) policy changes that had positive initial effects,but negative long-term effects. 
C) tightened mortgage lending standards that reduced the risks of obtaining a home mortgage. 
D) the rising interest rates of that period,which increased the demand for housing. 
A) market forces that were eventually cut short by the stock market crash of 2008. 
B) policy changes that had positive initial effects,but negative long-term effects. 
C) tightened mortgage lending standards that reduced the risks of obtaining a home mortgage. 
D) the rising interest rates of that period,which increased the demand for housing.

Question 17

In the latter half of the 1990s,the Department of Housing and Urban Development imposed regulations on Fannie Mae and Freddie Mac,requiring them to

Accepted Answer

A) extend more mortgage loans to households with low and moderate incomes. 
B) accept only mortgages with at least a 20 percent down payment. 
C) tighten lending standards and increase their holdings of low-risk,conventional mortgages. 
D) extend more mortgage loans to households with middle and high incomes. 
A) extend more mortgage loans to households with low and moderate incomes. 
B) accept only mortgages with at least a 20 percent down payment. 
C) tighten lending standards and increase their holdings of low-risk,conventional mortgages. 
D) extend more mortgage loans to households with middle and high incomes.

Question 18

Which of the following was the result of Fannie Mae and Freddie Mac being both privately-owned and government-sponsored enterprises?

Accepted Answer

A) Their government sponsorship increased their cost of acquiring loanable funds. 
B) They were unable to earn profits and pay dividends to their shareholders. 
C) Congressional regulations exerted little or no impact on their business operations. 
D) Their activities were more susceptible to political influence and favoritism. 
A) Their government sponsorship increased their cost of acquiring loanable funds. 
B) They were unable to earn profits and pay dividends to their shareholders. 
C) Congressional regulations exerted little or no impact on their business operations. 
D) Their activities were more susceptible to political influence and favoritism.

Question 19

Which of the following is most central to the understanding of the economic crisis of 2008?

Accepted Answer

A) the decline of the stock market in late 2007 
B) the housing boom (2001-2005)and bust (2007-2008) 
C) the sharp rise in oil prices in 2008 
D) unethical investment practices beginning in 2000 
A) the decline of the stock market in late 2007 
B) the housing boom (2001-2005)and bust (2007-2008) 
C) the sharp rise in oil prices in 2008 
D) unethical investment practices beginning in 2000

Question 20

The leverage ratio of an investment firm refers to

Accepted Answer

A) the ratio of its investment holdings relative to its vault cash. 
B) the ratio of its investment holdings relative to its capital. 
C) the percentage of deposits held by the firm relative to its deposits with Federal Reserve banks. 
D) the percentage of down payments made to the investment firm relative to the size of mortgages issued by the firm. 
A) the ratio of its investment holdings relative to its vault cash. 
B) the ratio of its investment holdings relative to its capital. 
C) the percentage of deposits held by the firm relative to its deposits with Federal Reserve banks. 
D) the percentage of down payments made to the investment firm relative to the size of mortgages issued by the firm.

Exam 33: The Crisis of 2008: Causes and Lessons for the Future

The Fed's low short-term interest rate policy of 2002 to 2004 made it highly attractive for buyers to purchase a house

The Fed's low short-term interest rate policy from 2002-2004,along with housing regulations promoting low down-payment loans to sub-prime borrowers,encouraged

A sub-prime loan is a loan extended to borrowers

The substantial increase in household debt relative to income since the mid 1980s meant that in 2008 many households

Fannie Mae and Freddie Mac's rapid increase in the percentage of all mortgages held encouraged mortgage lenders to

The share of new loans with a down payment of 5 percent or less extended by Freddie Mac and Fannie Mae

Which of the following contributed to the soaring housing prices during 2002-2005?

Based on the rising housing prices of 2000-2005,many buyers opted for interest-only loans and variable rate mortgages with little or no down payment because

The mortgage default rate is

Between 2001-2005,

Which of the following resulted from Fed policy that first kept short-term interest rates extremely low during 2002-2004,and then pushed them up substantially during 2005-2006?

Which of the following is most likely to result from a rising household debt/income ratio?

Which of the following was a contributing factor to the housing boom and bust and the financial crisis of 2008?

Between 2001 and 2005,sub-prime (including Atl-A)mortgages ____________ as a share of the total.

During the 1980s and 1990s,the Federal Reserve's monetary policy focused primarily on

The strong demand for housing,rising housing prices,and a construction boom from 2000 to 2005 were a result of

In the latter half of the 1990s,the Department of Housing and Urban Development imposed regulations on Fannie Mae and Freddie Mac,requiring them to

Which of the following was the result of Fannie Mae and Freddie Mac being both privately-owned and government-sponsored enterprises?

Which of the following is most central to the understanding of the economic crisis of 2008?

The leverage ratio of an investment firm refers to

The Economic Approach

Asome Tools of the Economist

Asupply,demand,and the Market Process

Asupply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Ataking the Nations Economic Pulse

Economic Fluctuations, unemployment, and Inflation

Aan Introduction to Basic Macroeconomic Markets

Dynamic Change, economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and Historical Perspective

Fiscal Policy, incentives, and Secondary Effects

Amoney and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, output, and Employment

Creating an Environment for Growth and Prosperity

Institutions,policies,and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Consumer Choice and Elasticity

Acosts and the Supply of Goods

Aprice Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Aprice-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Government Spending and Taxation

The Economics of Social Security

The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Great Debates in Economics: Keynes Versus Hayek

Lessons From the Great Depression

Lessons From Japan and Canada

The Federal Budget and the National Debt

The Economics of Healthcare

Education: Problems and Performance

Earnings Differences Between Men and Women

Do Labor Unions Increase the Wages of Workers

The Question of Resource Exhaustion

Difficult Environmental Cases and the Role of Government

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