Question 1

Historically,household debt in the U.S.:

Accepted Answer

A)  had been rising steadily since the Great Depression until the early 2000s,when it accelerated.
B)  had been rising steadily since the Great Depression until the early 2000s,when it declined.
C)  had been fairly constant since the Great Depression until the early 2000s,when it accelerated.
D)  had been fairly constant since the Great Depression until the early 2000s,when it declined.

Question 2

The English Parliament regulates companies that trade stock publicly through a law known as:

Accepted Answer

A)  the Leverage Act.
B)  the Bubble Act.
C)  the Company Act.
D)  None of these statements is true.

Question 3

The stock market crash of 1929 led to:

Accepted Answer

A)  the South Seas bubble burst.
B)  the Great Depression.
C)  the Great Recession.
D)  Black Thursday.

Question 4

Securitization is the practice of:

Accepted Answer

A)  packaging individual debts into a single uniform asset that can be easily bought and sold.
B)  the government guaranteeing repayment of risky home loans made to individuals with lower credit.
C)  borrowing based on expected future earnings.
D)  None of these statements is true.

Question 5

The sudden explosion of cheap and readily available mortgages encouraged people to:

Accepted Answer

A)  buy bigger and better homes.
B)  become less risk-averse.
C)  become more risk-averse.
D)  securitize their investments.

Question 6

In 2008,the Fed responded to the financial crisis by:

Accepted Answer

A)  offering nearly unlimited short-term financing to any bank that suddenly found itself short on cash.
B)  increasing the interest rates to encourage people to save,so banks would have more money on hand to lend.
C)  doing nothing,and allowing the automatic stabilizers to bring the economy back to its long run equilibrium.
D)  None of these statements is true.

Question 7

The basic human tendency to overvalue recent experience when trying to predict the future is called:

Accepted Answer

A)  tulip mania.
B)  the leverage effect.
C)  herd instinct.
D)  the recency effect.

Question 8

Banks lost trillions of dollars when the housing bubble collapsed because:

Accepted Answer

A)  most of their customers defaulted on the mortgages they held with them.
B)  most large banks held massive quantities of mortgage-backed securities.
C)  most of their customers had to close their accounts due to foreclosures.
D)  None of these statements is true.

Question 9

What event led to the end of the Great Moderation?

Accepted Answer

A)  The Great Depression
B)  The Great Crash
C)  Black Thursday
D)  None of these statements is true.

Question 10

From 1929 to 1932,the total value of the stock market:

Accepted Answer

A)  decreased by nearly 50 percent.
B)  more than tripled.
C)  more than quadrupled.
D)  decreased by nearly 90 percent.

Question 11

Financial markets are:

Accepted Answer

A)  in many ways the purest expression of the market mechanism.
B)  a powerful tool for the efficient allocation of scarce resources.
C)  are a global marketplace in which sophisticated investors make billion-dollar decisions nearly every second of the day.
D)  All of these statements are true.

Question 12

When financial markets are __________,leverage ______________;when they _______,leverage ____________.

Accepted Answer

A)  booming;multiplies the gains;crash;magnifies the losses
B)  booming;magnifies the losses;crash;multiplies the gains
C)  crash;multiplies the gains;booming;magnifies the losses
D)  None of these statements is true.

Question 13

Before it went bankrupt in 2008,Lehman Brothers investment bank was:

Accepted Answer

A)  highly hedged.
B)  in debt more than it was worth.
C)  highly leveraged.
D)  None of these statements is true.

Question 14

The practice of securitization:

Accepted Answer

A)  pooled high-risk mortgages together,which raised the prices of them to investors.
B)  allowed investors to profit from the mortgage payments without being exposed to any risk.
C)  pooled the risk of mortgages,allowing higher risk mortgages to be more safely sold to investors.
D)  None of these statements is true.

Question 15

When the housing bubble collapsed,the entire borrowing and lending engine of the economy ground to a halt because:

Accepted Answer

A)  no one could tell which banks were safe,and which were not.
B)  banks wanted to lend to no one,in case they turned out to be a bad risk.
C)  the herd instinct became to not borrow or lend.
D)  All of these statements are true.

Question 16

The overall drop in stock prices that began in 1929 and continued through 1932 was due to:

Accepted Answer

A)  dropping stock prices causing a rational sale of certain stocks.
B)  a panicked massive sale of stocks which caused the stock prices to plummet.
C)  the exuberant confidence in the rising value of the stock market in general.
D)  Black Thursday.

Question 17

The Great Depression was characterized by:

Accepted Answer

A)  unemployment of 25 percent.
B)  the Roaring Twenties.
C)  accelerated economic growth.
D)  All of these statements are true.

Question 18

After two rounds of quantitative easing,the money supply was:

Accepted Answer

A)  $3 trillion,nearly triple the amount pre-crisis.
B)  $2 trillion,nearly double the amount pre-crisis.
C)  $1 trillion,nearly the same as the amount pre-crisis.
D)  $2 trillion,still less than the amount pre-crisis.

Question 19

The combined efforts of the Fed and the Treasury in response to the financial crisis following the housing market crash caused:

Accepted Answer

A)  aggregate supply to shift right to its pre-crisis level.
B)  aggregate supply to shift right,but still far below its pre-crisis level.
C)  aggregate demand to shift right to its pre-crisis level.
D)  the opposite reaction,and aggregate supply shifted farther to the left.

Question 20

As the housing bubble began to collapse,the wave of initial foreclosures led to:

Accepted Answer

A)  banks no longer offering refinancing as an option,and home sales slowed.
B)  more foreclosures due to the herd instinct.
C)  more household saving in other forms.
D)  banks flooding the market with homes for sale,further depressing their price.

Exam 33: Financial Crisis

The practice of securitization:

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The stock market crash of 1929 led to:

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From 1929 to 1932,the total value of the stock market:

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In 2008,the Fed responded to the financial crisis by:

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Banks lost trillions of dollars when the housing bubble collapsed because:

Correct AnswerverifiedShow Answer

The sudden explosion of cheap and readily available mortgages encouraged people to:

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The Great Depression was characterized by:

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The basic human tendency to overvalue recent experience when trying to predict the future is called:

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The overall drop in stock prices that began in 1929 and continued through 1932 was due to:

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What event led to the end of the Great Moderation?

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The combined efforts of the Fed and the Treasury in response to the financial crisis following the housing market crash caused:

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When financial markets are __________,leverage ______________;when they _______,leverage ____________.

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As the housing bubble began to collapse,the wave of initial foreclosures led to:

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Before it went bankrupt in 2008,Lehman Brothers investment bank was:

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When the housing bubble collapsed,the entire borrowing and lending engine of the economy ground to a halt because:

Correct AnswerverifiedShow Answer

Financial markets are:

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The English Parliament regulates companies that trade stock publicly through a law known as:

Correct AnswerverifiedShow Answer

Securitization is the practice of:

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After two rounds of quantitative easing,the money supply was:

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Historically,household debt in the U.S.:

Correct AnswerverifiedShow Answer

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When financial markets are ,leverage ;when they _,leverage __________.

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