Question 1

A bank with a leverage ratio of 9 to 1 has

Accepted Answer

The leverage ratio is calculated by dividing the bank's total assets by its capital. A leverage ratio of 9 to 1 means that for every $1 in capital, the bank has $9 in assets.

Question 2

The Federal National Mortgage Association (FNMA),also known as Fannie Mae,was established in ________to ____________ demand in the housing market.

Accepted Answer

The Federal National Mortgage Association (FNMA), also known as Fannie Mae, was established in 1938 to increase demand in the housing market by providing liquidity to mortgage lenders.

Question 3

When we say that the financial crisis can be viewed as a balance sheet problem,this is descriptive of

Accepted Answer

A balance sheet problem refers to a situation where an organization's assets are declining in value, resulting in it being unable to meet its obligations with its current resources. In the context of the financial crisis, many banks had assets (such as mortgage-backed securities) that were declining in value, ultimately resulting in insolvency for some institutions.

Question 4

One of the contributing factors to the financial crisis of 2007-2009 was that mortgage lending practices were ____________ strict in the late 1990s and early 2000s,compared to earlier periods such as the 1970s and 1980s,which led to a(n)_______________ in subprime and other nontraditional mortgage loans.

Accepted Answer

The answer of One of the contributing factors to the...

Question 5

For a bank,more capital means more _____________,and it also means ___________ returns when asset values are rising.

Accepted Answer

The answer of For a bank,more capital means more _____________,and...

Question 6

A subprime mortgage loan is a loan granted to persons who

Accepted Answer

Subprime mortgage loans are designed for individuals who have a low credit score or a high debt-to-income ratio, making them a greater risk for lenders. These individuals may not qualify for a traditional mortgage, so subprime loans may be their only option for purchasing a home.

Question 7

The Taylor rule is a recommendation of how

Accepted Answer

The Taylor rule is a recommendation for the Federal Reserve to set the federal funds rate target based on inflation and economic growth data. It suggests that the target rate should be adjusted in response to changes in the inflation rate and the level of economic output relative to potential output. The other options are not related to the Taylor rule.

Question 8

Which sequence of events correctly and sequentially best describes financial sector problems spilling over to the real sector of the economy?

Accepted Answer

The sequence of events that correctly and sequentially describes financial sector problems spilling over to the real sector of the economy is when bank assets decline in value, banks approach insolvency, banks cut back on lending, consumers purchase less, some firms produce less and other firms go out of business. This is because if banks are struggling financially, they will have less capital to lend, which will in turn limit consumer spending and reduce the output of firms.

Question 9

During the early 2000s the Fed's __________ federal funds rate targets led to a ___________ in mortgage interest rates.

Accepted Answer

The answer of During the early 2000s the Fed's __________...

Question 10

Which of the following is an example of a participant in the financial sector?

Accepted Answer

All of the above options are participants in the financial sector. Commercial banks perform traditional banking activities, investment banks offer services like underwriting and advising on securities, hedge funds are investment funds that use various strategies to generate returns, and brokerage firms facilitate the buying and selling of financial assets.

Question 11

When borrowers are unable to make their monthly mortgage payments,the value of mortgage-backed securities and collateralized debt obligations

Accepted Answer

If borrowers are unable to make their monthly mortgage payments, the value of mortgage-backed securities and collateralized debt obligations will fall. This is because the income stream that was expected from the mortgages is now disrupted, leading to a decrease in their value. Banks that own these securities will have a reduced value of assets on their balance sheets, which could push them closer to insolvency.

Question 12

Former Fed Chairman Alan Greenspan has argued that low ___________ interest rates,not ______________ interest rates,were the cause of the housing boom in the late 1990s and early 2000s. He also argued that the Fed has more control over _______________ rates than over ____________ rates.

Accepted Answer

The answer of Former Fed Chairman Alan Greenspan has argued...

Question 13

According to Alan Greenspan,the Taylor rule is ________________ when trying to figure out the causes of sharp increases in housing prices. His opinion is based,in part,on his assertion that the Taylor rule addresses ____________ inflation,not ____________ inflation.

Accepted Answer

The answer of According to Alan Greenspan,the Taylor rule is...

Question 14

A ____________________ loan is a nontraditional mortgage loan granted to persons who have some factor,such as low credit ratings,which suggest that they could default on the repayment of their debt.

Accepted Answer

A subprime mortgage loan is specifically granted to people who have a lower credit score or a greater risk of defaulting on their repayment, often due to factors like job loss or financial instability. These loans typically have higher interest rates and fees, and may include adjustable or balloon payments that can result in larger monthly payments down the line. The subprime mortgage market was a contributing factor to the 2008 financial crisis, and has since been subject to stricter regulation and oversight.

Question 15

International standards for risk-based capital requirements were introduced under the

Accepted Answer

The 1988 Basel Accord introduced international standards for risk-based capital requirements, commonly known as Basel I. These standards were further refined and updated in subsequent Basel agreements, including Basel II and Basel III. The other options listed do not directly relate to the introduction of risk-based capital requirements.

Question 16

In the early 2000s,the Fed's ____________ interest rate policy had several effects. Among these effects were a _______________ in mortgage interest rates and a(n)____________ in the size of loans taken out by mortgage borrowers.

Accepted Answer

The question mentions "Fed's interest rate policy" in the early 2000s. The correct answer is a low interest rate policy because if the Federal Reserve lowers interest rates, it becomes cheaper for banks to borrow money, and banks pass on those lower costs to their customers. As a result, mortgage interest rates decrease (as mentioned in option B). This results in an increase in demand for loans as mortgages become more affordable, and hence the size of loans taken out by mortgage borrowers increases (as mentioned in option B).

Question 17

The ability of banks to get insurance from ______________ encourages banks to take on a little bit _________ risk than they would in the absence of deposit insurance.

Accepted Answer

Deposit insurance provided by the Federal Deposit Insurance Corporation (FDIC) encourages banks to take on more risk than they otherwise would, as they are protected against losses and can rely on the government to reimburse depositors in case of bank failure. This is known as moral hazard.

Question 18

Which of the following bank assets declined in value in the mid-2000s?

Accepted Answer

All of the listed bank assets declined in value in the mid-2000s due to the subprime mortgage crisis and the resulting economic downturn. Subprime loans, mortgage-backed securities, collateralized debt obligations, and nontraditional loans were all heavily affected by the crisis.

Question 19

With collateralized debt obligations (CDOs)buyers are purchasing _________ slices,and buyers of mortgage-backed securities (MBSs)purchase ___________ slices.

Accepted Answer

With collateralized debt obligations (CDOs), buyers are purchasing unequal slices because the underlying assets are not homogeneous, and therefore, different slices may have different risk and return profiles. On the other hand, buyers of mortgage-backed securities (MBSs) purchase equal slices because the underlying assets are homogeneous (mortgages), and therefore, all slices have the same risk and return profiles.

Question 20

A bank with a leverage ratio of 6.5 to 1 has

Accepted Answer

The leverage ratio is calculated by dividing total assets by total capital. Therefore, a leverage ratio of 6.5 to 1 means that the bank has $6.50 in assets for every $1 in capital, not liabilities. Choice A and D are incorrect because they refer to liabilities instead of capital. Choice C is incorrect because it is the inverse of the correct answer.

Quiz 18: The Financial Crisis of 2007-2009

A bank with a leverage ratio of 9 to 1 has

The Federal National Mortgage Association (FNMA) ,also known as Fannie Mae,was established in to ____ demand in the housing market.

When we say that the financial crisis can be viewed as a balance sheet problem,this is descriptive of

One of the contributing factors to the financial crisis of 2007-2009 was that mortgage lending practices were strict in the late 1990s and early 2000s,compared to earlier periods such as the 1970s and 1980s,which led to a(n) ___ in subprime and other nontraditional mortgage loans.

For a bank,more capital means more ___,and it also means _ returns when asset values are rising.

A subprime mortgage loan is a loan granted to persons who

The Taylor rule is a recommendation of how

Which sequence of events correctly and sequentially best describes financial sector problems spilling over to the real sector of the economy?

During the early 2000s the Fed's federal funds rate targets led to a _ in mortgage interest rates.

Which of the following is an example of a participant in the financial sector?

When borrowers are unable to make their monthly mortgage payments,the value of mortgage-backed securities and collateralized debt obligations

Former Fed Chairman Alan Greenspan has argued that low ___ interest rates,not interest rates,were the cause of the housing boom in the late 1990s and early 2000s. He also argued that the Fed has more control over _ rates than over ____ rates.

According to Alan Greenspan,the Taylor rule is ____ when trying to figure out the causes of sharp increases in housing prices. His opinion is based,in part,on his assertion that the Taylor rule addresses inflation,not inflation.

A ____________________ loan is a nontraditional mortgage loan granted to persons who have some factor,such as low credit ratings,which suggest that they could default on the repayment of their debt.

International standards for risk-based capital requirements were introduced under the

In the early 2000s,the Fed's ____ interest rate policy had several effects. Among these effects were a _ in mortgage interest rates and a(n) ______ in the size of loans taken out by mortgage borrowers.

The ability of banks to get insurance from ______ encourages banks to take on a little bit _ risk than they would in the absence of deposit insurance.

Which of the following bank assets declined in value in the mid-2000s?

With collateralized debt obligations (CDOs) buyers are purchasing _ slices,and buyers of mortgage-backed securities (MBSs) purchase ___ slices.

A bank with a leverage ratio of 6.5 to 1 has

Quiz 18: The Financial Crisis of 2007-2009

A bank with a leverage ratio of 9 to 1 has

The Federal National Mortgage Association (FNMA) ,also known as Fannie Mae,was established in ________to ____________ demand in the housing market.

When we say that the financial crisis can be viewed as a balance sheet problem,this is descriptive of

For a bank,more capital means more _____________,and it also means ___________ returns when asset values are rising.

A subprime mortgage loan is a loan granted to persons who

The Taylor rule is a recommendation of how

Which sequence of events correctly and sequentially best describes financial sector problems spilling over to the real sector of the economy?

During the early 2000s the Fed's __________ federal funds rate targets led to a ___________ in mortgage interest rates.

Which of the following is an example of a participant in the financial sector?

When borrowers are unable to make their monthly mortgage payments,the value of mortgage-backed securities and collateralized debt obligations

Former Fed Chairman Alan Greenspan has argued that low ___________ interest rates,not ______________ interest rates,were the cause of the housing boom in the late 1990s and early 2000s. He also argued that the Fed has more control over _______________ rates than over ____________ rates.

According to Alan Greenspan,the Taylor rule is ________________ when trying to figure out the causes of sharp increases in housing prices. His opinion is based,in part,on his assertion that the Taylor rule addresses ____________ inflation,not ____________ inflation.

A ____________________ loan is a nontraditional mortgage loan granted to persons who have some factor,such as low credit ratings,which suggest that they could default on the repayment of their debt.

International standards for risk-based capital requirements were introduced under the

In the early 2000s,the Fed's ____________ interest rate policy had several effects. Among these effects were a _______________ in mortgage interest rates and a(n) ____________ in the size of loans taken out by mortgage borrowers.

The ability of banks to get insurance from ______________ encourages banks to take on a little bit _________ risk than they would in the absence of deposit insurance.

Which of the following bank assets declined in value in the mid-2000s?

With collateralized debt obligations (CDOs) buyers are purchasing _________ slices,and buyers of mortgage-backed securities (MBSs) purchase ___________ slices.

A bank with a leverage ratio of 6.5 to 1 has

The Federal National Mortgage Association (FNMA) ,also known as Fannie Mae,was established in to ____ demand in the housing market.

For a bank,more capital means more ___,and it also means _ returns when asset values are rising.

During the early 2000s the Fed's federal funds rate targets led to a _ in mortgage interest rates.

Former Fed Chairman Alan Greenspan has argued that low ___ interest rates,not interest rates,were the cause of the housing boom in the late 1990s and early 2000s. He also argued that the Fed has more control over _ rates than over ____ rates.

According to Alan Greenspan,the Taylor rule is ____ when trying to figure out the causes of sharp increases in housing prices. His opinion is based,in part,on his assertion that the Taylor rule addresses inflation,not inflation.

In the early 2000s,the Fed's ____ interest rate policy had several effects. Among these effects were a _ in mortgage interest rates and a(n) ______ in the size of loans taken out by mortgage borrowers.

The ability of banks to get insurance from ______ encourages banks to take on a little bit _ risk than they would in the absence of deposit insurance.

With collateralized debt obligations (CDOs) buyers are purchasing _ slices,and buyers of mortgage-backed securities (MBSs) purchase ___ slices.