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The economy recovers quickly from most recessions, but the increase in adverse selection
and moral hazard problems in the credit markets caused by ____ led to the severe economic
contraction known as The Great Depression.
A) debt deflation
B) illiquidity
C) an improvement in banks' balance sheets
D) increases in bond prices
Answer: A
Diff: 3 Type: MC Page Ref: 186 - 187
Skill: Recall
Objective List: 9.2 Explain how increases in adverse selection and moral hazard cause financial
crises
Financial innovations that emerged after 2000 in the mortgage markets included all of the
following except ____.
A) adjustable-rate mortgages
B) subprime mortgages
C) Alt-A mortgages
D) mortgage-backed securities
Answer: A
Diff: 1 Type: MC Page Ref: 188
Skill: Recall
Objective List: 9.3 Discuss the most recent financial crisis
Before 2000, most borrowers in the mortgage markets were ____.
A) subprime
B) credit-worthy (prime)
C) risky
D) less than stellar
Answer: B
Diff: 1 Type: MC Page Ref: 188
Skill: Recall
Objective List: 9.3 Discuss the most recent financial crisis
Mortgages for borrowers with higher expected default rates are also known as ____.
A) Adjustable-rate mortgages
B) Prime mortgages
C) Alt-A mortgages
D) Fixed-rate mortgages
Answer: C
Diff: 1 Type: MC Page Ref: 188
Skill: Recall
Objective List: 9.3 Discuss the most recent financial crisis