Holt 7525-9 S15_IT

___ 18. Subprime mortgages:
a. are home loans given to persons who are considered a poor credit risk
b. historically, have had a foreclosure rate almost twice as high as prime mortgages
c. charge a lower interest rate than conventional mortgages in order to encourage
home ownership by lower-income borrowers
d. All of the above
___ 19. The term “irrational exuberance” was first used by Alan Greenspan as he:
a. hinted in 1991 that a little irrational exuberance might help the economy recover from
the recession of 1991
b. hinted in 1996 that stock prices might be unduly escalated due to irrational
exuberance
c. hinted in 1999 that irrational exuberance would carry the economy to continued rapid
growth
d. described in 1997 how he felt about marrying the much-younger Andrea Mitchell
___ 20. If a homeowner could have foreseen the bursting of the housing bubble and had sold
their home in 2003:
a. they would have been better off than if they had sold their home in 2007, one year
after the bubble burst
b. they would have been worse off than if they had sold their home in 2007, one year
after the bubble burst
c. they would have been about as well off as they would have been if they sold their
home in 2007, one year after the bubble burst
___ 21. After Alan Greenspan made his “irrational exuberance” comment, the Dow Jones
Industrial Average:
a. fell 2% at the opening of trading the next day
b. went into a long-term decline
c. increased by another 75% over the next three years
d. Both a. and c. above
___ 22. When the housing bubble burst and home prices began to fall:
a. the increase in foreclosures brought new buyers into the market, helping to slow the
fall in home prices
b. the increase in foreclosures decreased the value of mortgage-backed securities,
making it difficult for investment banks to issue new mortgage-backed securities
c. Both of the above
d. Neither of the above
___ 23. The bursting of any housing bubble would be expected to have an impact on the
economy because:
a. the decrease in home prices would free up more discretionary income leading to an
increase in consumption
b. the decline in home construction would reduce GDP
c. Both of the above
d. Neither of the above
___ 24. The increased perceived credit risk caused by the bursting of the housing bubble:
a. caused the TED spread to increase to a record level of over 10% in October of 2008
b. caused real investment spending to decrease by over 80% from the third quarter of
2007 to the third quarter of 2009
c. Both of the above
d. Neither of the above
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The Federal Reserve System 11 - 16