How did mortgage defaults affect banks involved in mortgage lending and mortgage investing?
What will be an ideal response?
Defaults on home mortgage loans caused losses for financial institutions that either directly or indirectly loaned these funds. Many loans were subprime mortgage loans, which were made to individuals with higher credit risk and at higher interest rates. As the economy declined and unemployment rose, the banks suffered reserve losses and had less capacity to extend loans or credit. Contributing to the problem was that some mortgages were bundled together to create mortgage-backed securities, which in essence are bonds backed by mortgage payments. Banks then lent money to investment firms to purchase such bonds. When defaults rose, banks lost more money on the loans made to the investment firms, thus further reducing bank reserves.
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If the net public debt expanded last year, then which of the following most likely occurred during the year?
A) The government's budget was balanced. B) The government's tax collections exceeded its spending. C) The government experienced a budget surplus. D) The government experienced a budget deficit.
Suppose the following two events occur in the market for elementary school teachers:
a. Overcrowded schools and education budget cuts have discouraged young college students from pursuing careers in teaching. b. With an increasing birth rate, the number of children entering the elementary school system is expected to increase significantly over the next ten years. What is likely to happen to the equilibrium wage and quantity of teachers as a result of these two events? A) The equilibrium wage rises and the effect on the equilibrium quantity of elementary school teachers is indeterminate. B) The equilibrium quantity falls and the effect on the equilibrium wage of elementary school teachers is indeterminate. C) The equilibrium quantity falls and the equilibrium wage of elementary school teachers rises. D) The equilibrium quantity and the equilibrium wage of elementary school teachers fall.
In an ultimatum game where the payoff totals $100 and is split in $1 increments, the rational amount for the proposer to offer and the responder to take is
A) $0. B) $1. C) $50. D) $100.
Which of the following is true of America's millionaires?
a. Only about 20 percent of the millionaires in the United States have college degrees. b. It is virtually impossible to achieve this status by saving and investing over a lengthy period of time. c. Most millionaires inherited at least half of their wealth. d. Millionaires are far more likely than others to be self-employed entrepreneurs