The great recession of 2008

The Great Recession of 2008 was a global economic downturn that began in the United States and quickly spread to other parts of the world. It was the most severe economic crisis since the Great Depression of the 1930s and had far-reaching impacts on the global economy and individual lives.

The roots of the Great Recession can be traced back to the US housing market, which had experienced a significant boom in the early 2000s. Low-interest rates and lax lending standards had led to a surge in housing prices, and many people had taken on mortgages they could not afford. When the housing bubble burst in 2006, housing prices plummeted, and many people owed more on their mortgages than their homes were worth.

As the housing market collapsed, it triggered a chain reaction throughout the financial system. Banks and other financial institutions that had invested heavily in mortgage-backed securities saw their assets decline in value, leading to massive losses. The interconnectivity of the financial system meant that these losses quickly spread throughout the global economy, leading to a credit crunch and a severe recession.

The impact of the Great Recession was felt around the world. Unemployment rates soared, and many lost their homes and life savings. Governments and central banks took various measures to stabilize the economy, including massive stimulus spending and interest rate cuts. However, these efforts were unsuccessful, and the recovery was slow and uneven.

The Great Recession had lasting impacts on the global economy and individual lives. It led to a deep distrust of financial institutions and a desire for greater financial sector regulation. It also highlighted the importance of economic inequality and the need for policies addressing the needs of those most vulnerable in times of crisis.

In conclusion, the Great Recession of 2008 was a severe economic crisis that had far-reaching impacts on the global economy and individual lives. A collapse triggered it in the US housing market, but its impact was felt worldwide. At the same time, the economy has recovered in the years since the lessons of the Great Recession continue to inform economic policy and financial regulation today.

1.Which of the following is most central to the understanding of the economic crisis of 2008?

The housing boom (2001-2005) and bust (2007-2008)

Unethical investment practices beginning in 2000

The decline of the stock market in late 2007

The sharp rise in oil prices in 2008

2.Identify the correct statement about the foreclosure rates for fixed-interest rate and adjustable-rate mortgages (ARMs) for both subprime and prime loans.

Compared to their prime borrower counterparts, the foreclosure rates for subprime borrowers were approximately ten times higher for fixed-rate mortgages and seven times higher for adjustable-rate mortgages during 2006-2008

The foreclosure rates for subprime borrowers were approximately ten times lower for fixed-rate mortgages and seven times lower for ARMs compared to prime borrowers

There was little difference between prime and subprime borrowers in the foreclosure rates during 2000-2008

The foreclosure rates on ARMs decreased for both prime and subprime loans during 2006-2008

3.Subprime loans are loans:

extended to borrowers with blemished credit or with limited documentation of income, employment history, and other indicators of creditworthiness

extended to borrowers who have a Fair Isaac Corporation (FICO) score above 700

typically extended to the most creditworthy borrowers at subsidized rates of interest

with interest rates that are adjusted as the interest rate on Treasury bonds changes

4.Which of the following was true of Fannie Mae and Freddie Mac during 1970-2008?

They were responsible for hiring the credit-rating agencies that are legally authorized to rate securities

They were profit-maximizing enterprises and were, therefore, apolitical in nature

They provided mortgages to banks, mortgage brokers, and other lenders

They had access to funds at 50 to 75 basis points below the funds available to private firms in the lending market

5.Which of the following contributed to the collapse of large investment banks in the United States?

The weak incentive of rating agencies to assign a Triple-A rating to the mortgage-backed securities of the investment banks

Banking regulations that required investment banks to keep a large proportion of their deposits as excess reserves

The bonus structure of most Wall Street executives being tied to the short-term profitability of mortgage-backed securities

Federal Reserve policy that pushed real interest rates to high levels during 2002-2004

6.Identify the correct statement about Fannie Mae and Freddie Mac.

They were government-owned, non-profit businesses set up to provide liquidity in secondary mortgage markets

In order to meet the mandates imposed by the Department of Housing and Urban Development (HUD), Fannie Mae and Freddie Mac began accepting larger loans with smaller down payments from borrowers with weaker credit

The Department of Housing and Urban Development (HUD) mandates, adopted in 1995, required Fannie Mae and Freddie Mac to extend a larger share of their loans to high-income households with strong credit ratings

They were forced to borrow funds at higher interest rates than private lenders and, as a result, incurred extreme losses during the 1990s

7.Identify the correct statement about the Great Recession of 2008-2009 in the U.S.

The housing crisis was caused by the recession

The mortgage default rates declined rapidly before the recession began in December 2007

Foreclosure rates declined rapidly before the recession began in December 2007

The recession was caused by the housing crisis

8.Which of the following is true?

Household debt grew to unprecedented levels during 1985-2007

The share of mortgages to borrowers making a down payment of 5 percent or less decreased during 2003-2007

Housing prices leveled off initially and then increased substantially during 2006-2008

Adjustable-rate mortgages decreased as a share of total mortgages during 2000-2005

9.Which of the following is true?

The tax deductibility of interest on home mortgages that encouraged Americans to concentrate their indebtedness in mortgage loans has been repealed

To a large degree, the mortgage lending market has been nationalized, but most of the perverse incentives that generated the Great Recession remain in place

Reform policies correcting most of the perverse incentives in the mortgage lending market were adopted soon after the Great Recession was over

Fannie Mae and Freddie Mac have discontinued extending home mortgage loans to borrowers with little or no down payment

10.The mortgage default rate is:

the percentage of home mortgages on which a borrower is late by 90 days or more with the payments on a loan or it is in the foreclosure process

the percentage of the interest payment that is borne by the Federal Reserve when borrowers fail to repay their home loans

the percentage of interest payment that commercial banks have to pay to the Federal Reserve on the default of home mortgages

the percentage of home mortgages on which a lender starts the process of taking ownership of a property because a borrower has failed to make the monthly payments

11.The relaxation of mortgage-lending standards resulting from the regulations imposed on Fannie Mae and Freddie Mac beginning in 1995 led to:

a substantially lower mortgage default rate during 2007-2008

a reduction in the share of mortgage loans extended to subprime borrowers during 1998-2007

high mortgage default rates during 2007-2008

a reduction in foreclosure rates in the United States during 2007-2008

12.Which of the following was true with regard to housing prices in the United States during 1987-2008?

They decreased substantially between January 2002 and mid-year 2006

They increased rapidly during 2002 through mid-year 2006, but they fell sharply during 2007-2008

They increased rapidly during the 1990s, but they rose at a slower rate during 2000-2008

They increased at a slow, but steady rate throughout 1987-2008

13.The regulations imposed by the Department of Housing and Urban Development (HUD) in 1995:

increased the required down payments of low and moderate-income households to obtain mortgage loans

required investment banks to maintain more reserves against their holdings of mortgage loans

led to substantially lower default and foreclosure rates

loosened lending standards and resulted in an extension of more loans to borrowers who did not meet the conventional credit criteria

14.The tax deductibility of interest payments on home mortgages and home equity loans encourages households to:

refrain from all forms of debt including mortgages against their housing

decrease their marginal propensity to consume

concentrate their outstanding debt into mortgages against their housing

repay their mortgage loans faster by making larger monthly payments

15.The rapid growth of Fannie Mae and Freddie Mac and their dominance of the secondary mortgage market during 1998-2007 encouraged mortgage originators to:

offer lower rates than what Fannie Mae and Freddie Mac could offer

shift toward conventional loans in which borrowers were required to make at least a 20 percent down payment

tighten credit standards and decrease the number of subprime loans extended to borrowers

lower credit standards and reduce down payments in order to sell more mortgages

16.Which of the following explains the sudden collapse of Fannie Mae, Freddie Mac, and other major investment banks during 2007-2008 in the United States?

The incentive structure of Wall Street executives was built in such a way that mortgage-backed securities became highly profitable when housing prices were low and interest rates were high

A rule change adopted by the Securities and Exchange Commission (SEC) in April 2004 made it possible for investment banks and other lending agencies to substantially increase their outstanding loans relative to their investment capital

The incentive structure of the rating agencies was built in a manner that a lower credit rating meant more business for the rating agencies as well as the investment banks

A new regulation requiring investment banks to maintain more capital against their residential housing loans than commercial business loans was adopted in 2003

17.Which of the following contributed to the housing boom and bust in the U.S. during the Great Recession?

A substantial increase in adjustable-rate mortgages (ARMs) during 2000-2005

A decrease in the share of loans to subprime borrowers during 2000-2006

An increase in the inflation rate during 1985-1999

An increase in short-term interest rates during 2002-2004

18.Identify the correct statement about the foreclosure rate in the United States during 1978-2008.

It fluctuated between 2 percent and 5 percent during the period

It decreased sharply during the recessions of 1982–1983, 1990, and 2001

It remained almost stable at 2 percent throughout the entire period

It started to increase during the second half of 2006 and tripled over the next two years

19.Based on the rising housing prices of 2000-2005, many buyers opted for interest-only loans and variable rate mortgages with little or no down payment because

variable rate mortgages are a good way to reduce the risk accompanying your investment when you plan to stay in the house for a long time

they could easily recoup their investment, even if there was a downturn in housing prices in the future

they thought housing prices would continue to rise and therefore they would be able to sell the house for a profit within a couple of years

they expected short-term interest rates to fall substantially in the future and this would reduce their monthly mortgage payment in the years ahead

20.After new HUD guidelines were issued in 1999, Freddie Mac and Fannie Mae

extended more loans to borrowers making a down payment of 5 percent or less

refused to extend new loans without full verification that the borrower had prime credit status

extended fewer loans to borrowers making a down payment of 5 percent or less

extended new loans only to borrowers making a down payment of at least 20 percent

The great recession of 2008

The great recession of 2008

You May Also Like

Государственная служба в Казахстане | Закон о Правительстве | Тест 5

IELTS пробный тест по словарному запасу 116. Готовимся к сдаче тестирования

Leave a comment Cancel reply