KEYWORDS:
BLOOM’S: Comprehension
38. 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% interest rate. If the stock’s value increases by 20% in one year and she sells the stock at
that time, what is her rate of return?
a.
13%
b.
16%
c.
20%
d.
80%
ANSWER:
POINTS:
DIFFICULTY:
Difficult
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
TOPICS:
Leverage, Profits, and Risk
KEYWORDS:
BLOOM’S: Comprehension
39. When the housing bubble burst, prices fell particularly severely in
a.
Georgia.
b.
Nevada.
c.
Pennsylvania.
d.
West Virginia.
ANSWER:
POINTS:
DIFFICULTY:
Moderate
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
TOPICS:
The Housing Price Bubble and the Subprime Mortgage Crisis
KEYWORDS:
BLOOM’S: Comprehension
40. When the housing bubble burst, prices fell particularly severely in all of these states except:
a.
Arizona.
b.
California.
c.
Nevada.
d.
Florida
e.
Prices fell severely in all of the above states.
ANSWER:
e
POINTS:
DIFFICULTY:
Moderate
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
TOPICS:
The Housing Price Bubble and the Subprime Mortgage Crisis
KEYWORDS:
BLOOM’S: Comprehension
41. In computing GDP, new home construction adds to
a.
consumption.
b.
investment.
c.
government spending.
d.
net exports.
Easy
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
The Housing Price Bubble and the Subprime Mortgage Crisis
42. Which of the following was not a factor that contributed to the subprime mortgage crisis?
a.
b.
c.
d.
a
Moderate
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
The Housing Price Bubble and the Subprime Mortgage Crisis
43. 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.
a.
I above only
b.
II above only
c.
both I and II above
d.
neither I nor II above
c
Moderate
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
From the Housing Bubble to the Financial Crisis
44. In 2007, which U.S. firm showed the first indication of significant problems in the financial sector?
a.
AIG
b.
Bear Stearns
c.
J.P. Morgan Chase
d.
Lehman Brothers
Moderate
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
From the Housing Bubble to the Financial Crisis
45. The Federal Reserve stepped in to help
a.
Bear Stearns but not Lehman Brothers.
b.
Lehman Brothers but not Bear Stearns.
c.
both Bear Stearns and Lehman Brothers.
d.
neither Bear Stearns nor Lehman Brothers.
a
Moderate
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
46. Which elements of GDP were affected by the financial crisis and the lack of available credit?
a.
consumption and business investment only
b.
consumption and government spending only
c.
consumption, business investment and government spending only
d.
consumption, business investment, government spending and imports/exports
Moderate
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
From the Financial Crisis to the Great Recession
47. In 2008, the Fed utilized expansionary monetary policy which was made
a.
more effective as banks held more excess reserves.
b.
less effective as banks held more excess reserves.
c.
more effective as banks held less excess reserves.
d.
less effective as banks held less excess reserves.
Moderate
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
From the Financial Crisis to the Great Recession
48. The Lehman Brothers bankruptcy triggered a financial panic that featured
a.
an increase in Treasury interest rates and an increase in most other interest rates.
b.
an increase in Treasury interest rates and a decrease in most other interest rates.
c.
a decrease in Treasury interest rates and an increase in most other interest rates.
d.
a decrease in Treasury interest rates and a decrease in most other interest rates.
c
Moderate
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
From the Financial Crisis to the Great Recession
49. As a result of Lehman’s collapse, real GDP first began to fall in
a.
the fourth quarter of 2007.
b.
the second quarter of 2008.
c.
the third quarter of 2008.
d.
the first quarter of 2009.
c
Moderate
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
From the Financial Crisis to the Great Recession
50. What was the lowest federal funds rate target the Fed set in response to the financial crisis?
a.
0%
b.
1.8%
c.
2.0%
d.
2.2%
a
Moderate
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
From the Financial Crisis to the Great Recession
51. What amount of money was appropriated by Congress for the Troubled Asset Relief Program?
a.
$225 billion
b.
$252 billion
c.
$700 billion
d.
$787 billion
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
From the Financial Crisis to the Great Recession
52. The intended use of TARP funds was to
a.
support the FDIC.
b.
increase consumers’ disposable income.
c.
fund “shovel-ready” projects.
d.
purchase unwanted securities.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
From the Financial Crisis to the Great Recession
53. The 2009 fiscal stimulus bill represented approximately
a.
5.5% of GDP and was designed to close the expansionary gap.
b.
5.5% of GDP and was designed to close the recessionary gap.
c.
7.8% of GDP and was designed to close the expansionary gap.
d.
7.8% of GDP and was designed to close the recessionary gap.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
From the Financial Crisis to the Great Recession
54. What amount of money was appropriated by Congress for fiscal stimulus bill of 2009?
a.
$225 billion
b.
$252 billion
c.
$700 billion
d.
$787 billion
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
From the Financial Crisis to the Great Recession
55. As a result of the Great Recession, most financial markets hit bottom around
a.
September 2008
b.
March 2009
c.
September 2009
d.
March 2010
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Hitting Bottom and Recovering
56. Which of the following are accurate arguments suggesting that the fiscal stimulus did work?
a.
Real GDP growth moved from negative to positive in 2009.
b.
Employment increased in 2009.
c.
The economy has natural self-correcting mechanisms.
d.
The return on bailout assets reduced the deficit.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Government Response
57. As a result of the Great Recession, job growth did not resume until
a.
September 2008
b.
March 2009
c.
September 2009
d.
March 2010
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Hitting Bottom and Recovering
58. Which of the following are not valid arguments against the effectiveness of the fiscal stimulus bill?
a.
Employment continued to fall into early 2010.
b.
Without stimulus recessions come to an end naturally.
c.
State and local government spending increased.
d.
Monetary policy played a large role in stimulating the economy.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
From the Financial Crisis to the Great Recession
59. Which of the following was a lesson from the 2007-2009 financial crisis?
a.
The financial system needed more leverage in order to operate.
b.
The job of stabilizing the economy should be assigned exclusively to monetary policy.
c.
Monetary policy is finished once the Fed reduces the federal funds rate to zero.
d.
The business cycle still exists.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Lessons from the Financial Crisis
60. Which of the following was not a lesson from the 2007-2009 financial crisis?
a.
Financial regulations were too “light” prior to the crisis.
b.
Excessive complexity made the financial system more fragile and dangerous.
c.
Both monetary policy and fiscal policy are needed in order for the economy to recover.
d.
Regulatory failures were based primarily on poor job performance.
Moderate
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Lessons from the Financial Crisis
61. Which of the following was not a lesson from the 2007-2009 financial crisis?
a.
Regulatory failures were the result of weaknesses across the regulatory structure.
b.
The financial system operated with too much leverage.
c.
The business cycle no longer applies to economic analysis.
d.
Monetary policy alone may not be sufficient to stabilize aggregate demand.
c
Moderate
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Lessons from the Financial Crisis
Essay
62. Because the U.S. economy failed to snap back from a mild recession in 2001, the Fed pushed the federal funds rate
down to 1%. What effect did this have on the economy?
Moderate
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Roots of the Crisis
63. When the housing price bubble burst, there were some obvious effects on the economy, and some that were not so
obvious. Explain these.
by 12-25%, depending on how you measure it. Plunging prices made both buying and
64. Why did observers at first believe that the damage from the impending subprime mortgage crisis would be too small to
cause a recession?
65. Did President Obama’s $787 billion fiscal stimulus package of early 2009 work? Name several facts in support of the
proposition that it did. Also, list the arguments of the skeptics.
66. Name some important lessons learned from the financial crisis.