Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Chapter 9, Problem 4TY
To determine
Explain the role of subprime mortgages.
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How did higher returns securities in the secondary mortgage market contribute to the liquidity crisis and global recession?
What are the convergence of issues that led to and caused the subprime financial crisis of 2007-2008
Investors typically buy and sell stocks, bonds and other securities in the secondary market.
Describe the different types of security markets and why they are so different.
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- Explain the ways in which financial institutions manage credit risk.arrow_forwardDiscuss the Contribution of Stephen Ross(1976) to the theory of Financial Economics and identify the risk factors (in his model) which are applicable in our economyarrow_forwardExplain the reasons for the emergence of financial crises in the world and what measures were taken to overcome the crisis.arrow_forward
- Explain the role of financial innovation and the role of regulation in the generation of a financial crisis.arrow_forwardDefine and discuss the portfolio-balance effect in terms of Quantitative Easing and its impact on bond and stockarrow_forwardExplain at least two important roles played by a safe asset in a financial market.arrow_forward
- Identify and explain the main factors that contributed to the financial crisis of 2007-2008.arrow_forwardName anddescribe two markets that are part of the financialsystem in the U.S. economyarrow_forwardIn 2008 there was an increase in uncertainty about the quality of structured financial products that were backed by mortgages (MBS - mortgaged backed securities). So that the market for these securities dried up (became less liquid). What policies the government could do to jump start (improve liquidity of) the marketarrow_forward
- financial markets that function well: a. increase the ease of converting common stocks into bonds b. reduce riskiness of most assets continually c. continually increase the liquidity of most assets d. including available information in asset pricesarrow_forwardThe subprime mortgage crisis of the mid 2000s in the USA was a result of ... a. Increasing mortgage rates. b. Inflated house prices. c. Poor credit management practices. d. Deregulation of the insurance sector.arrow_forwardStock prices fell throughout much of 2007 and 2008 and many investors decided to switch their funds into the bond market. What only about 30 percent of surveyed investors knew was that as bond prices rise, interest rates a. fall in reaction to the decreased demand for bonds. b. rise in reaction to the increased demand for bonds. c. fall in reaction to the increased demand for bonds. d. rise in reaction to the decreased demand for bonds.arrow_forward
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