IS101-Quiz#2

What are the key characteristics of a financial crisis?

• A sudden rise in wages and strong consumer spending

• Asset prices see a sharp decline in value, businesses and consumers are unable to pay their debts, and financial institutions experience liquidity shortages

• Low inflation, high employment, and stable financial markets

• Increased government subsidies and reduced taxation

What is a subprime mortgage?

• A loan given to borrowers with excellent credit

• A mortgage with very low interest and no risk

• A loan given to borrowers with weak credit and high risk of default

• A government-backed housing grant

How did low interest rates contribute to the financial crisis?

• They encouraged saving over spending

• They made borrowing cheaper, leading to excessive debt and risky investments

• They caused inflation to rise uncontrollably

• They reduced home ownership

What is a mortgage-backed security (MBS)?

• A financial product made of bundled home loans sold to investors

• A type of insurance

• A student loan repayment plan

• A government bond

 What was a major cause of the 2008 financial crisis?

• Stable housing market

• Strict banking oversight

• Deregulation of financial markets

• Decrease in speculative investments

What is the first stage of a speculative bubble?

• Euphoria Phase

• Innovation Phase

• Boom Phase

• Burst Phase

What is meant by a “housing bubble”?

• Government subsidies on rent

• Rapid increase in house prices not supported by real value

• Decrease in interest rates

• Decline in real estate demand

What was a major consequence of the financial collapse?

• Global recession and high unemployment

• Economic boom

• Increase in mortgage approvals

• Surge in stock prices

What is a credit default swap (CDS)?

• A type of home insurance

• A type of government bond

• A financial contract that acts as insurance on a debt in case of default

• A savings account

Which of the following was a global response to the Global Financial Crisis?

• Military intervention

• Relaxed banking rules

• Trade embargoes

• Government bailouts and tighter regulation of banks