What is meant by the term secularization? How did mortgage-backed securities spread losses during the mortgage default crisis?
What will be an ideal response?
The process of bundling and segmenting financial contracts, such as loans, mortgages, or corporate bonds, into a financial instrument is called secularization. It was viewed favorably because it was designed to spread the risk of any default to a broader group of financial institutions and investors who held these securities. Insurance could be purchased on these securities with collateralize default swaps. As mortgage default rates rose, these mortgage-backed securities spread losses throughout the economy to the financial institutions and investors who held them or insured them both in the United States and other nations. These losses led to the failure or near-failure of many large financial firms and less availability of money and credit for the economy.
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The Lorenz curve in the above figure implies that
A) income is equally distributed. B) the lowest fifth of households account for less than 20 percent of income. C) the highest fifth of households account for less than 20 percent of income. D) the lowest fifth of households account for more than 20 percent of income.
If the GDP deflator is less than 100, which will be higher: nominal GDP or real GDP? Why?
What will be an ideal response?
Complements are characterized by:
A. negative cross-price elasticity of demand. B. positive cross-price elasticity of demand. C. cross-price elasticity of demand equal to zero. D. cross price elasticity of demand equal to -1.
The marginal cost of pollution abatement is the
A. total social costs of pollution clean-up divided by total social benefits. B. additional benefit from cleaning up an additional unit of pollution. C. additional cost to clean up an additional unit of pollution. D. total social costs of pollution clean-up divided by the total units of clean-up.