Exam 30: The Financial Crisis and the Great Recession

Assume that Sharon purchases $5,000 worth of a stock. To do so she uses $1,000 of her own money and borrows the remaining $4,000 at a 7.0 percent interest rate. If the stock's value decreases by 10 percent in one year and she has to sell the stock at that time, what is her rate of return?

The Fed's loan that effectively nationalized AIG was approved by Congress.

A home mortgage is a particular type of loan used to buy a house where the house serves as the collateral for the mortgage.

Borrowed funds are used in financing every component of GDP.

Excessive leverage can be traced to lax regulation and inadequate laws.

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

An increase in the price of a particular bond implies an increase in the interest rate for that bond.

An asset price bubble occurs when the prices of some assets rise far above their fundamental values.

Assume that Michaela purchases $12,000 worth of a stock. To do so she uses $2,000 of her own money and borrows the remaining $10,000 at an 8.0 percent interest rate. If the stock's value increases by 20 percent in one year and she sells the stock at that time, what is her rate of return?

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

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

In computing GDP, new home construction adds to

Which of the following arguments is not a valid argument against the effectiveness of the fiscal stimulus bill?

Real economy took a sharp turn for the worse immediately after the bankruptcy filing by Lehman Brothers on September 15, 2008.

When the housing price bubble burst, there were some obvious effects on the economy, and some that were not so obvious. Explain these.

A bubble is best defined as a(n)

Most economists feel that overly strict financial regulation from 2000 to 2006 contributed to the financial crisis of 2007-2009.

A mortgage-backed security (MBS) is a type of bond whose interest payments and principal repayments derive from the monthly mortgage payments of many households.

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

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