Question

20. In the liquidity preference (money supply/money demand) model, we assume A. as nominal interest rates rise, households hold less wealth as money.
B. as real income rises, households hold less wealth as money.
C. as price level rises, households hold less wealth as money.

D. as expected inflation increases, households hold less wealth as money.

21.When interest rates rise, the value of bank’s fixed-income assets and the revenue from future loans .

A. rises/rises

B. rises/falls

C. falls/falls

D. falls/rises

22. Which of the following is a reason why the subprime mortgage market expanded significantly over the period 2001-2007?

1. Population demographics changed and there were fewer prime borrowers.

2. The recession of 2001 resulted in a general decline in credit-worthiness of the population.

3. Subprime loan issuers earned large profits making loans and selling them to be packaged into CDOs.

4. Fannie Mae and Freddie Mac entered conservatorship the government and private compa- nies began issuing mortgage-backed securities.

5. all of these

Answer 1

20) In the liquidity preference (money supply/money demand) model, we assume A. as nominal interest rates rise, households hold less wealth as money

21)When interest rates rise, the value of bank’s fixed-income assets and the revenue from future loans both rises.

22)

1. Population demographics changed and there were fewer prime borrowers.

2. The recession of 2001 resulted in a general decline in credit-worthiness of the population.

3. Subprime loan issuers earned large profits making loans and selling them to be packaged into CDOs.

4. Fannie Mae and Freddie Mac entered conservatorship the government and private compa- nies began issuing mortgage-backed securities. all of these are reason why the subprime mortgage market expanded significantly over the period 2001-2007.