Question 1

The combined efforts of the Fed and the Treasury in response to the financial crisis following the housing market crash were _______ in restoring aggregate supply to its pre-crisis level, but _______.

Accepted Answer

A)   effective; left the economy with sluggish aggregate demand
B)   ineffective; aggregate demand increased
C)   effective; left the economy facing severely increasing inflation
D)   ineffective; output increased due to increased consumer confidence.E) A) and B)
F) A) and C)

Question 2

Homeowners who are "underwater":

Accepted Answer

A)   possess a mortgage worth more than their house.
B)   possess a mortgage with lower interest rates for the first few years of the loan.
C)   have a debt-to-income ratio that is higher than FHA guidelines.
D)   own a house that requires substantial renovations before it can move to a traditional loan.E) B) and C)
F) None of the above

Question 3

Which of the following government actions would qualify as quantitative easing?

Accepted Answer

A)   Lowering the reserve requirement
B)   Lowering the interest rate
C)   Buying long-term government bonds using newly-printed money
D)   Funding shovel-ready infrastructure projectsE) A) and B)
F) None of the above

Question 4

Leveraging investments based on irrational expectations:

Accepted Answer

A)   can lead to gradually deflating financial bubbles.
B)   can exacerbate financial crises.
C)   explains the success of companies like Lehman Brothers.
D)   All of these are true.E) All of the above
F) B) and D)

Question 5

The English Parliament passed the _______ to regulate companies that traded stock publicly.

Accepted Answer

A)   Leverage Act
B)   Bubble Act
C)   Company Act
D)   Anti-Corruption ActE) None of the above
F) A) and D)

Question 6

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

Accepted Answer

A)   increased government regulation of the stock market.
B)   a panicked, massive sale of stocks that caused stock prices to plummet.
C)   growing signs of tension in Europe.
D)   the decline in many firms' profitability.E) None of the above
F) A) and D)

Question 7

Which of the following is not a reason why subprime lending gained popularity before the Great Recession?

Accepted Answer

A)   Investing in a home was seen as the safest investment one could make.
B)   Subprime mortgages were seen as a relatively safe investment.
C)   The value of homes had not fallen for over 60 years.
D)   Subprime mortgages encouraged those with risky credit to make a safe investment.E) A) and D)
F) A) and B)

Question 8

The relative financial stability following the Great Depression was ended by:

Accepted Answer

A)   World War II.
B)   the Great Crash.
C)   stagflation.
D)   the Great Recession.E) A) and B)
F) A) and C)

Question 9

If you lost 20 percent on $100 worth of stock in a 2x margin account, then you would:

Accepted Answer

A)   lose $20.
B)   gain $20.
C)   lose $40.
D)   gain $40.E) A) and B)
F) All of the above

Question 10

To prevent future financial crises like the stock market crash of 1929, in the 1930s Congress:

Accepted Answer

A)   passed the Glass-Steagall Banking Act.
B)   passed the Bubble Act.
C)   passed the Hastings Banking Act.
D)   formed the Congressional Budget Office (CBO) .E) A) and B)
F) All of the above

Question 11

If you lost 50 percent on $100 worth of stock in a 3x margin account, then you would lose:

Accepted Answer

A)   $50.
B)   $150.
C)   $300.
D)   $600.E) C) and D)
F) All of the above

Question 12

As a result of the housing-market crash, aggregate demand _______ and aggregate supply _______.

Accepted Answer

A)   decreased; decreased
B)   increased; increased
C)   decreased; increased
D)   increased; decreasedE) All of the above
F) None of the above A

Question 13

The practice of packaging individual debts into a single uniform asset that can be easily bought and sold is called:

Accepted Answer

A)   leveraging.
B)   securitization.
C)   federally-backed financing.
D)   bundled risk.E) None of the above
F) A) and D)

Question 14

When the housing market bubble burst, many people found that:

Accepted Answer

A)   they owed more on their mortgage loans than their house was now worth.
B)   it was much easier to sell their home.
C)   the value of their homes exceeded what they owed on their mortgage loans.
D)   only a limited number of houses were available for sale.E) B) and C)
F) A) and B)

Question 15

One of the first issuances of stock was offered by the:

Accepted Answer

A)   East India Company.
B)   South Seas Company.
C)   London Exchange Company.
D)   North Seas Company.E) All of the above
F) None of the above

Question 16

The reforms introduced by Congress in the 1930s led to:

Accepted Answer

A)   the Great Depression.
B)   relative financial stability for over 70 years.
C)   a decline that lasted for 25 years.
D)   a very quick recovery.E) A) and C)
F) None of the above

Question 17

Which of the following is not a tool the government used to bail out banks that were deemed "too big to fail"?

Accepted Answer

A)   Increased government spending
B)   Fiscal policy
C)   The Troubled Asset Relief Program (TARP) 
D)   Breaking up large banks into smaller entitiesE) A) and D)
F) A) and C)

Question 18

In an effort to prevent future financial crises like the stock market crash of 1929, in the 1930s Congress:

Accepted Answer

A)   formed the FDIC.
B)   passed the Bubble Act.
C)   formed the Federal Reserve Bank.
D)   passed the American Anti-Corruption Act.E) C) and D)
F) A) and B) A

Question 19

If you gained 7 percent on $100 worth of stock in a 3x margin account, then you would gain:

Accepted Answer

A)   $7.
B)   $21.
C)   $107.
D)   $300.E) B) and C)
F) C) and D) B

Question 20

When your broker sees that you are in danger of running through your money and forces you to sell your stock and use the money to pay back your loan, the broker is making a:

Accepted Answer

A)   margin call.
B)   leverage call.
C)   stock sales call.
D)   futures call.E) A) and B)
F) All of the above

Exam 17: Financialcrisis

The combined efforts of the Fed and the Treasury in response to the financial crisis following the housing market crash were _______ in restoring aggregate supply to its pre-crisis level, but _______.

Correct AnswerverifiedShow Answer

Homeowners who are "underwater":

Correct AnswerverifiedShow Answer

Which of the following government actions would qualify as quantitative easing?

Correct AnswerverifiedShow Answer

Leveraging investments based on irrational expectations:

Correct AnswerverifiedShow Answer

The English Parliament passed the _______ to regulate companies that traded stock publicly.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is not a reason why subprime lending gained popularity before the Great Recession?

Correct AnswerverifiedShow Answer

The relative financial stability following the Great Depression was ended by:

Correct AnswerverifiedShow Answer

If you lost 20 percent on $100 worth of stock in a 2x margin account, then you would:

Correct AnswerverifiedShow Answer

To prevent future financial crises like the stock market crash of 1929, in the 1930s Congress:

Correct AnswerverifiedShow Answer

If you lost 50 percent on $100 worth of stock in a 3x margin account, then you would lose:

Correct AnswerverifiedShow Answer

As a result of the housing-market crash, aggregate demand _______ and aggregate supply _______.

Correct AnswerverifiedA

The practice of packaging individual debts into a single uniform asset that can be easily bought and sold is called:

Correct AnswerverifiedShow Answer

When the housing market bubble burst, many people found that:

Correct AnswerverifiedShow Answer

One of the first issuances of stock was offered by the:

Correct AnswerverifiedShow Answer

The reforms introduced by Congress in the 1930s led to:

Correct AnswerverifiedShow Answer

Which of the following is not a tool the government used to bail out banks that were deemed "too big to fail"?

Correct AnswerverifiedShow Answer

In an effort to prevent future financial crises like the stock market crash of 1929, in the 1930s Congress:

Correct AnswerverifiedA

If you gained 7 percent on $100 worth of stock in a 3x margin account, then you would gain:

Correct AnswerverifiedB

When your broker sees that you are in danger of running through your money and forces you to sell your stock and use the money to pay back your loan, the broker is making a:

Correct AnswerverifiedShow Answer

The combined efforts of the Fed and the Treasury in response to the financial crisis following the housing market crash were _ in restoring aggregate supply to its pre-crisis level, but _.

Correct Answer
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As a result of the housing-market crash, aggregate demand _ and aggregate supply _.

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