the economics of money, banking, and financial markets

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51. 
    

    The housing price bubble ____.
    A) was aided by low interest rates on residential mortgages
    B) only occurred in the emerging economies
    C) was not a contributing factor to the 2007-2008 recession
    D) cannot be explained
    Answer: A
    Diff: 1 Type: MC Page Ref: 191
    Skill: Recall
    Objective List: 9.2 Explain how increases in adverse selection and moral hazard cause financial
    crises

    
    


52. 
    

    The growth of the subprime mortgage market led to ____.
    A) increased demand for houses and helped fuel the boom in housing prices
    B) a decline in the housing industry because of higher default risk
    C) a decrease in home ownership as investors chose other assets over housing
    D) decreased demand for houses as the less credit-worthy borrowers could not obtain residential
    mortgages
    Answer: A
    Diff: 2 Type: MC Page Ref: 191
    Skill: Recall
    Objective List: 9.3 Discuss the most recent financial crisis

    
    


53. 
    

    Agency problems in the subprime mortgage market included all of the following except
    ____.
    A) homeowners could refinance their houses with larger loans when their homes appreciated in
    value
    B) mortgage originators had little incentives to make sure that the mortgage is a good credit risk
    C) underwriters of mortgage-backed securities had weak incentives to make sure that the holders
    of the securities would be paid back
    D) the evaluators of securities, the credit rating agencies, were subject to conflicts of interest
    Answer: A
    Diff: 2 Type: MC Page Ref: 189 - 190
    Skill: Recall
    Objective List: 9.3 Discuss the most recent financial crisis

    
    


54. 
    

    Credit rating agencies were subject to conflicts of interest in the subprime mortgage market
    because ____.
    A) banks were earning large fees by underwriting the mortgage-backed securities
    B) they had little incentives to make sure that the mortgage was a good credit risk
    C) they had weak incentives to make sure that the holders of the securities would be paid back
    D) they were earning fees from rating the mortgage-backed securities and from advising clients
    on how to structure the securities to get the highest ratings
    Answer: D
    Diff: 3 Type: MC Page Ref: 190
    Skill: Recall
    Objective List: 9.3 Discuss the most recent financial crisis