During the Great Recession, securitization:
a. Permitted mortgage originators to shift the negative impact of their underwriting mistakes to investors.
b.Was one of the only sources of relief for investors who were suffering heavy losses on their mortgage investments.
c. Was one of the main strategies used by the Federal Reserve to cure the economic downturn.
d. Was caused by excessive money creation by the Federal Reserve immediately before and during the downturn.
e. None of the above.
Question 2 - If the U.S. government repaid its multitrillion debt by printing (i.e., creating) new money, the effect would be to:
a. Lower nominal interest rates.
b. Increase aggregate demand, reduce unemployment, and reduce the nation's price level.
c. Increase the real risk-free interest rate.
d. Wildly inflate prices.
Question 3 - In the mortgage securitization process, tranching means:
a. Separating mortgage cash flows into securities of varying risks and returns.
b.Pooling risks by combining mortgages with high and low credit ratings.
c. Creating a whirlpool of speculative activity by offering easy credit terms to borrowers who do not have the capacity repay their loans.
d. Creating new incentives for families to own homes.
e. None of the above.
Question 4 - To put government debt into perspective, it should be:
a. Put on a per capita basis
b. Realized that if the debt is not eventually brought to zero (i.e., repaid in full and with no outstanding obligations), the nation could default on its loans.
c. Looked upon as the problem of future generations and not a concern of the current generation.
d. Realized that the debt is a liability of a government and, therefore, not really a liability of the nation.
Question 5 - The Paradox of Thrift states that:
a. Any increase in saving by an individual will be offset by the interactions of the Three-Sector-Model.
b.Saving by a nation (as a whole) is always good, while saving by individuals can lead to unexpectedly bad results.
c. A nation-wide increase in saving might cause GDP to fall and, in the end, reduce, or not increase,the actual amount of saving.
d. When a large portion of the market tries to de-lever its balance sheet, asset prices fall, thereby causing leverage to increase (not decrease).
e. If not fully understood by users and regulators, financial instruments that were created to increase saving can end up causing saving to fall.
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