Economics Principles and Policy Date: Name: Class: Fourth 46. Which of the follo

Question

Economics Principles and Policy Date: Name: Class: Fourth 46. Which of the following was not a factor that contributed to the subprime mortgage crisis? a. false security derived from FDIC insurance on mortgage loans b. lower down payments c. households devoting 25% or more of their income to mortgage payments d. lending to households with adverse credit ratings 47. If the Fed bu to interest rates? ys more bonds from the public, and increases the price it is willing to pay for the bonds, what will happen a. They will rise. b. They will fall. c. They will remain unchanged. d. The relationship between bond prices and interest rates is unclear. 48. The Fed's principal objective is to a. make profits to pay into the U.S. Treasury b. collect tax revenues. c. supervise the business decisions of banks. d. manage the money supply and interest rates. 49. Banks will hold additional excess reserves when a. loans to customers look safe and interest rates are high b. they anticipate a bank audit. c. loans to customers look risky and interest rates are low. d. the economy is booming and there is a large demand for loans. 50. As a knowledgeable investor in 2007, you should have realized that as interest rates fell, bond prices would a. also fall. b. rise c. become more volatile, like stock prices. d. fall but not by as much as stock prices.

Explanation / Answer

46) Ans) d) lending to households with adverse credit ratings

47) Ans) b) Interest rate will fall

48) ANs) d Manage the money supply and interest rates

49) Ans) c) loans to customers looks risky and interest rates are low.

50) Ans)b) rise

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