Question 1

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

Accepted Answer

All of the listed options (commercial banks, investment banks, hedge funds, and brokerage firms) are participants in the financial sector.

Question 2

A bank with a leverage ratio of 6.5 to 1 has

Accepted Answer

The leverage ratio is calculated by dividing a bank's total assets by its Tier 1 capital (or equity capital). Therefore, a leverage ratio of 6.5 to 1 means that the bank has $6.50 in assets for every $1 in Tier 1 capital.

Question 3

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 4

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 designed to cater to borrowers who have a poor credit history, a low credit score, or a high debt-to-income ratio. As a result, subprime loans typically come with higher interest rates compared to traditional prime loans. Such loans are considered riskier for lenders as there is a higher probability of default by the borrower.

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

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 a bank's assets are declining in value or have become illiquid, causing a mismatch with their liabilities. This results in the bank approaching or becoming insolvent. The financial crisis was largely caused by the subprime mortgage market's collapse, which led to a decline in the value of the assets held by banks and other financial institutions. This, in turn, led to a balance sheet problem, as these institutions were unable to meet their liabilities, causing a domino effect throughout the financial system.

Question 7

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.

Question 8

A subprime mortgage loan is a loan granted to persons who

Accepted Answer

Subprime mortgages are typically granted to individuals who may have a lower credit score or other factors that make them a higher risk for defaulting on the loan repayment. This means that the interest rates on subprime mortgages are typically higher to compensate for the increased risk.

Question 9

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 mortgage payments, the value of the mortgage-backed securities and collateralized debt obligations falls, which decreases the value of the banks' assets, pushing them closer to insolvency. This is because the cash flows from the mortgage payments that were used to pay bondholders and investors are no longer available, increasing the risk of default on these securities.

Question 10

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 11

A bank with a leverage ratio of 9 to 1 has

Accepted Answer

The leverage ratio is the ratio of a bank's total assets to its Tier 1 capital. In this case, the ratio is 9 to 1, meaning there are $9 in assets for every $1 in Tier 1 capital.

Question 12

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

Accepted Answer

The international standards for risk-based capital requirements were introduced under the 1988 Basel Accord, also known as Basel I. The Accord established minimum capital requirements for banks based on the credit risk of their lending activities.

Question 13

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

Accepted Answer

When bank assets decline in value and banks approach insolvency, they are forced to cut back on lending. This leads to consumers purchasing less and some firms producing less or going out of business, which ultimately leads to layoffs. This sequence accurately describes how financial sector problems spill over to impact the real economy. None of the other choices provide a clear and accurate sequence of events.

Question 14

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 15

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 answer of In the early 2000s,the Fed's ____________ interest...

Question 16

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 17

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 18

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

The FDIC provides deposit insurance for banks, which means that if a bank fails, the depositors' money is insured up to a certain amount. This encourages banks to take on more risk than they would if their depositors' money was not insured, as they know that their depositors are protected even if the bank fails.

Question 19

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 20

The Taylor rule is a recommendation of how

Accepted Answer

The Taylor rule recommends that the Fed should set the federal funds rate target based on the current inflation rate and the output gap. It is a guideline for monetary policy. The other options are not related to the Taylor rule.

Quiz 18: The Financial Crisis of 2007-2009

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

A bank with a leverage ratio of 6.5 to 1 has

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.

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

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

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

A subprime mortgage loan is a loan granted to persons who

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

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.

A bank with a leverage ratio of 9 to 1 has

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

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

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

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.

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.

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?

The Taylor rule is a recommendation of how

Quiz 18: The Financial Crisis of 2007-2009

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

A bank with a leverage ratio of 6.5 to 1 has

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.

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

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

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

A subprime mortgage loan is a loan granted to persons who

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

A bank with a leverage ratio of 9 to 1 has

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

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

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

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.

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.

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?

The Taylor rule is a recommendation of how

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.

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

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

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

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.

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.

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.