At what stage of the securitization process was moral hazard a major problem?
a. Mortgage origination.
b.Due diligence and mortgage servicing.
c. Securitization.
d. All of the above
Question 2 - One reason government deficits do not cause complete crowding out is because:
a. There is an incentive for individuals in the household sector to adjust their investment portfolios to take advantage of the change in relative returns. This provides more funds to the real loanable funds market.
b. Consumption always picks up the slack, which is to say that consumption is the residual spending source when all else fails.
c. The amount of borrowing falls as the real risk-free interest rate rises.
d. All the above.
e. None of the above.
Question 3 - Securitization is the:
a. Process of originating, bundling, packaging, and selling mortgage-backed securities to investors.
b.The process of originating loans and making sure they are secure.
c. The process of unbundling, storing, and then selling mortgages securities to investors.
d. The process of underwriting loans with an originate-to-hold strategy.
e. The process of underwriting loans with an originate-to-distribute strategy.
Question 4 - Government debt is not a problem as long as the:
a. Assets a government purchases increase national productivity by an amount less than the private sector.
b. Government spends the funds on consumption goods rather than investment goods, because consumption goods do not have to be amortized.
c. Government can borrow from foreigners.
d. Government can print money and repay the debt any time it wants.
e. Nation's equity level is rising.
Question 5 - During the Great Recession, securitization:
a. Was a major problem because it prohibited mortgage originators from reducing their underwriting mistakes by shifting them investors.
b.Was one of the only sources of relief for investors who were suffering heavy losses on their mortgage investments.
c. Was a major cause of the moral hazard problem.
d. None of the above.
Question 6 - If a nation repaid its debts by raising taxes, the main effect would be to:
a. Create a wildly inflationary environment.
b. Contract the economy due to the decrease in the monetary base.
c. Expand the economy due to the increase in the monetary base.
d. Redistribute income if the debt was internally held and transfer spending abroad if it was externally held.
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