Question 1

The increased level of excess reserves that many banks held in 2008 made traditional monetary policy less effective.

Accepted Answer

A) True 
 B)False  True

Question 2

A bubble is best defined as

Accepted Answer

A) an increase in the price of an asset resulting from fundamentals causes. 
B) an increase in the price of an asset resulting from factors other than fundamentals causes. 
C) a decrease in the price of an asset resulting from fundamentals causes. 
D) a decrease in the price of an asset resulting from factors other than fundamentals causes. 
A) an increase in the price of an asset resulting from fundamentals causes. 
B) an increase in the price of an asset resulting from factors other than fundamentals causes. 
C) a decrease in the price of an asset resulting from fundamentals causes. 
D) a decrease in the price of an asset resulting from factors other than fundamentals causes. B

Question 3

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. B

Question 4

A larger interest rate spread in 2003-2006 is one of the factors that led to the recession of 2007.

Accepted Answer

A) True 
 B)False

Question 5

The central idea behind the Troubled Asset Relief Program was for the Treasury to sell mortgage-backed securities to interested investors, wait for prices to increase, and then buy these securities back for a profit.

Accepted Answer

A) True 
 B)False

Question 6

Both monetary policy and fiscal policy were used in response to the recession of 2007-2009.

Accepted Answer

A) True 
 B)False

Question 7

In 2008, interest rates on Treasury securities fell even though most other interest rates were rising.

Accepted Answer

A) True 
 B)False

Question 8

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 9

Expansionary monetary policy is essentially finished once the Fed reduces the federal funds rate to zero.

Accepted Answer

A) True 
 B)False

Question 10

During the real estate boom of the early 2000s, some banks operated with leverage ratios in excess of 30-to-1.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) 2-to-1 
B) 7-to-1 
C) 8-to-1 
D) 10-to-1 
A) 2-to-1 
B) 7-to-1 
C) 8-to-1 
D) 10-to-1

Question 12

It would be impossible to have an unlevered bank.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following was not a typical characteristic of subprime mortgages?

Accepted Answer

A) low down payments 
B) loans to borrowers with poor credit histories 
C) limited incomes with which to make loan payments 
D) fixed interest rates 
A) low down payments 
B) loans to borrowers with poor credit histories 
C) limited incomes with which to make loan payments 
D) fixed interest rates

Question 14

Mortgage-backed securities became a significant issue becauseI.housing prices fell across all regions.II.these securities were not as widely distributed as previously thought.

Accepted Answer

A) I above only 
B) II above only 
C) both I and II above 
D) neither I nor II above 
A) I above only 
B) II above only 
C) both I and II above 
D) neither I nor II above

Question 15

The first signs of major financial problems associated with the financial sector and real estate investment appeared in 2009.

Accepted Answer

A) True 
 B)False

Question 16

The monetary and fiscal stimulus response to the Great Recession resulted in an immediate increase in real GDP.

Accepted Answer

A) True 
 B)False

Question 17

The recession of 2007-2009 was the most severe economic downturn in the U.S.since the

Accepted Answer

A) 1930s. 
B) 1950s. 
C) 1970s. 
D) 1980s. 
A) 1930s. 
B) 1950s. 
C) 1970s. 
D) 1980s.

Question 18

In hindsight, mortgage-backed securities implied very limited risk because the underlying mortgages were spread across different geographic areas.

Accepted Answer

A) True 
 B)False

Question 19

Despite both monetary and fiscal policy actions, real GDP declined at an annualized rate of 6% during the last quarter of 2008 and the first quarter of 2009.

Accepted Answer

A) True 
 B)False

Question 20

What was the lowest federal funds rate target the Fed set in response to the financial crisis?

Accepted Answer

A) 0% 
B) 1.8% 
C) 2.0% 
D) 2.2% 
A) 0% 
B) 1.8% 
C) 2.0% 
D) 2.2%

Exam 31: He Financial Crisis and the Great Recession

The increased level of excess reserves that many banks held in 2008 made traditional monetary policy less effective.

A bubble is best defined as

When the housing bubble burst, prices fell particularly severely in

A larger interest rate spread in 2003-2006 is one of the factors that led to the recession of 2007.

The central idea behind the Troubled Asset Relief Program was for the Treasury to sell mortgage-backed securities to interested investors, wait for prices to increase, and then buy these securities back for a profit.

Both monetary policy and fiscal policy were used in response to the recession of 2007-2009.

In 2008, interest rates on Treasury securities fell even though most other interest rates were rising.

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

Expansionary monetary policy is essentially finished once the Fed reduces the federal funds rate to zero.

During the real estate boom of the early 2000s, some banks operated with leverage ratios in excess of 30-to-1.

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

It would be impossible to have an unlevered bank.

Which of the following was not a typical characteristic of subprime mortgages?

Mortgage-backed securities became a significant issue becauseI.housing prices fell across all regions.II.these securities were not as widely distributed as previously thought.

The first signs of major financial problems associated with the financial sector and real estate investment appeared in 2009.

The monetary and fiscal stimulus response to the Great Recession resulted in an immediate increase in real GDP.

The recession of 2007-2009 was the most severe economic downturn in the U.S.since the

In hindsight, mortgage-backed securities implied very limited risk because the underlying mortgages were spread across different geographic areas.

Despite both monetary and fiscal policy actions, real GDP declined at an annualized rate of 6% during the last quarter of 2008 and the first quarter of 2009.

What was the lowest federal funds rate target the Fed set in response to the financial crisis?

What Is Economics

The Economy: 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

Securities: Business Finance and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets: the Price System

The Shortcomings of Free Markets

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

Is Useconomic Leadership Threatened

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

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