What year did the US Financial Crisis of 2008 begin?
A) 2006
B) 2007
C) 2008
D) 2009
Answer: B
The financial crisis of 2008 is often referred to by what popular name?
A) The Great Recession
B) The Big Crash
C) The Dot-Com Bubble Burst
D) The Wall Street Crash
Answer: A
The US housing market crash in 2007 was largely triggered by:
A) An increase in housing demand
B) Loose lending practices and subprime mortgages
C) High interest rates
D) A surplus of housing inventory
Answer: B
What are “subprime mortgages”?
A) Mortgages for luxury homes
B) Mortgages with low interest rates
C) Mortgages for commercial properties
D) High-risk mortgages for borrowers with poor credit
Answer: D
Which major US investment bank filed for bankruptcy in September 2008, marking a significant event in the crisis?
A) Goldman Sachs
B) JPMorgan Chase
C) Lehman Brothers
D) Morgan Stanley
Answer: C
The Troubled Asset Relief Program (TARP) was a government initiative aimed at:
A) Bailing out struggling airlines
B) Providing financial aid to homeowners
C) Injecting capital into banks and stabilizing the financial system
D) Funding infrastructure projects
Answer: C
Which US government agency oversees and regulates the financial markets and played a role in responding to the crisis?
A) Environmental Protection Agency (EPA)
B) Department of Defense (DoD)
C) Federal Reserve
D) Federal Aviation Administration (FAA)
Answer: C
The collapse of what major insurance company highlighted the interconnectedness of financial institutions during the crisis?
A) Allstate
B) AIG (American International Group)
C) Prudential
D) MetLife
Answer: B
Which term describes the process by which banks borrow money short-term and lend it long-term, contributing to the crisis?
A) Fractional reserve banking
B) Securitization
C) Moral hazard
D) Maturity mismatch
Answer: D
The collapse of Lehman Brothers is often seen as a turning point in the crisis because:
A) It triggered a wave of government bailouts
B) It led to increased investor confidence
C) It marked the end of the recession
D) It caused panic and worsened the crisis
Answer: D
What is the term used to describe the situation in which financial institutions are so intertwined that the failure of one can lead to a chain reaction?
A) Financial interdependence
B) Systemic risk
C) Market diversification
D) Regulatory convergence
Answer: B
The collapse of the US housing market was primarily driven by:
A) A shortage of available homes
B) A decrease in mortgage interest rates
C) Subprime mortgage defaults and foreclosures
D) An increase in demand from foreign buyers
Answer: C
The “too big to fail” concept refers to:
A) The idea that large companies should be allowed to fail without government intervention
B) The idea that small companies are more likely to fail during a crisis
C) The idea that certain financial institutions are so interconnected that their failure could have catastrophic effects on the economy
D) The idea that governments should not regulate financial markets
Answer: C
Which US President was in office during the onset of the financial crisis?
A) George W. Bush
B) Bill Clinton
C) Barack Obama
D) Ronald Reagan
Answer: A
The Federal Reserve’s response to the crisis included:
A) Raising interest rates to encourage borrowing
B) Lowering interest rates to stimulate economic activity
C) Selling government bonds to reduce the money supply
D) Freezing all financial transactions
Answer: B
Which investment vehicle, commonly tied to the US housing market, suffered significant losses during the crisis and contributed to the turmoil?
A) Mutual funds
B) Hedge funds
C) Exchange-traded funds (ETFs)
D) Collateralized debt obligations (CDOs)
Answer: D
The Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted to:
A) Dismantle the Federal Reserve
B) Increase risky lending practices
C) Strengthen regulations on financial institutions and prevent future crises
D) Provide tax breaks to large corporations
Answer: C
Which major credit rating agency was criticized for failing to accurately assess the risk of mortgage-backed securities?
A) Moody’s Investors Service
B) Standard & Poor’s
C) Fitch Ratings
D) Weiss Ratings
Answer: B
The term “credit default swap” refers to:
A) A type of personal loan
B) A form of credit card
C) An insurance-like contract used to hedge against the risk of default on loans
D) A mortgage-backed security
Answer: C
Which major US automaker faced bankruptcy during the crisis and received government bailout funds to prevent its collapse?
A) Ford
B) General Motors
C) Chrysler
D) Toyota
Answer: B
The term “quantitative easing” refers to the central bank’s practice of:
A) Tightening monetary policy to combat inflation
B) Increasing interest rates to encourage saving
C) Buying financial assets to inject money into the economy
D) Reducing the money supply to stabilize prices
Answer: C
Which major US government-sponsored enterprises were involved in the purchase and securitization of mortgage loans, contributing to the crisis?
A) Fannie Mae and Freddie Mac
B) NASA and NOAA
C) USDA and FDA
D) USPS and DHS
Answer: A
The term “toxic assets” refers to:
A) Hazardous waste materials
B) Highly valuable commodities
C) Financial instruments with uncertain value due to their association with the crisis
D) Clean energy investments
Answer: C
Which major US investment bank was acquired by JPMorgan Chase during the crisis to prevent its collapse?
A) Goldman Sachs
B) Morgan Stanley
C) Citigroup
D) Bear Stearns
Answer: D
Which financial institution was the first to receive a government bailout during the crisis?
A) Lehman Brothers
B) AIG (American International Group)
C) JPMorgan Chase
D) Citigroup
Answer: B
The crisis had a significant impact on the employment rate, leading to a surge in:
A) Full-time job opportunities
B) Self-employment and entrepreneurship
C) Unemployment
D) Retirement rates
Answer: C
The term “bailout” refers to the government’s practice of:
A) Abandoning troubled financial institutions
B) Providing financial assistance to struggling banks and companies
C) Requiring banks to reimburse the government for losses
D) Liquidating assets to stabilize the economy
Answer: B
The collapse of the housing bubble resulted in:
A) A decrease in home foreclosures
B) An increase in housing prices
C) A decline in consumer spending
D) A surge in construction projects
Answer: C
What is a “run on the bank”?
A) A competitive race among banks to attract customers
B) A financial institution’s marketing campaign
C) A sudden and mass withdrawal of funds by depositors from a bank
D) A government intervention to stabilize a failing bank
Answer: C
Which sector of the economy was most directly impacted by the crisis?
A) Energy
B) Manufacturing
C) Agriculture
D) Financial services
Answer: D
The crisis exposed weaknesses in the regulatory framework, prompting discussions about the need for greater:
A) Deregulation
B) Transparency and oversight
C) Tax breaks for corporations
D) Export opportunities
Answer: B
Which term describes the practice of bundling various loans and selling them as a package to investors?
A) Maturity mismatch
B) Fractional reserve banking
C) Securitization
D) Quantitative easing
Answer: C
What was the immediate trigger for the collapse of Lehman Brothers?
A) A failed merger with another investment bank
B) An insider trading scandal
C) The discovery of fraudulent accounting practices
D) A lack of investor confidence and liquidity
Answer: D
How did the crisis impact global financial markets?
A) It led to increased global cooperation among governments
B) It had minimal impact outside the United States
C) It caused a chain reaction of financial turmoil and credit freezes worldwide
D) It only affected emerging economies
Answer: C
Which government agency oversees the housing market and plays a role in mortgage regulation in the United States?
A) Federal Reserve
B) Environmental Protection Agency (EPA)
C) Securities and Exchange Commission (SEC)
D) Federal Housing Finance Agency (FHFA)
Answer: D
The crisis had a profound impact on the retirement savings of many Americans due to:
A) A surge in stock market prices
B) Government interventions to protect retirement funds
C) Bank mergers and acquisitions
D) Plummeting stock market values and investments
Answer: D
The crisis brought attention to the phenomenon of “foreclosure,” which refers to:
A) An increase in housing construction
B) The practice of lending to high-risk borrowers
C) The legal process of reclaiming a property from a borrower who has defaulted on their mortgage
D) The buying and selling of real estate properties
Answer: C
Which term refers to the inability of banks to lend due to a lack of available funds or liquidity?
A) Hyperinflation
B) Mortgage default
C) Bankruptcy
D) Credit crunch
Answer: D
The crisis prompted discussions about the concept of “moral hazard,” which refers to:
A) The ethical conduct of financial institutions
B) The risk of government intervention in the economy
C) The possibility of financial institutions taking excessive risks when they believe they will be bailed out by the government
D) The imposition of higher taxes on banks
Answer: C
The “shadow banking system” refers to:
A) Illicit financial activities
B) Government-run banks
C) Financial institutions that operate outside traditional regulations
D) Financial institutions that exclusively provide banking services online
Answer: C
Which term describes the process of homeowners owing more on their mortgages than their homes are worth?
A) Mortgage default
B) Underwater mortgage
C) Mortgage relief
D) Amortization
Answer: B
The crisis had a significant impact on small businesses due to:
A) Decreased demand for goods and services
B) Increased government support
C) A decrease in corporate tax rates
D) The expansion of international markets
Answer: A
Which economic term refers to a prolonged period of economic decline, often characterized by high unemployment and low consumer spending?
A) Inflation
B) Recession
C) Boom
D) Expansion
Answer: B
The crisis led to a decline in consumer confidence, which resulted in:
A) Increased consumer spending
B) A surge in retail sales
C) Decreased demand for goods and services
D) An increase in manufacturing jobs
Answer: C
Which term describes the situation in which an asset’s value is inflated beyond its intrinsic worth?
A) Hyperinflation
B) Deflation
C) Asset bubble
D) Economic equilibrium
Answer: C
The crisis brought attention to the role of credit rating agencies, which were criticized for:
A) Underestimating the risk of mortgage-backed securities
B) Overestimating the value of stocks
C) Ignoring the housing market’s collapse
D) Encouraging excessive consumer borrowing
Answer: A
The crisis had a significant impact on student loans, leading to:
A) A decrease in college enrollment
B) Increased government funding for education
C) More favorable loan terms for students
D) Difficulty in loan repayment for recent graduates
Answer: D
The crisis underscored the importance of financial literacy and understanding concepts such as:
A) Monopoly and market power
B) Comparative advantage and trade
C) Supply and demand equilibrium
D) Debt, credit, and interest rates
Answer: D
The crisis contributed to discussions about the need for improved corporate governance, particularly focusing on:
A) Increasing executive salaries
B) Enhancing transparency, accountability, and ethics within companies
C) Expanding government oversight of corporations
D) Reducing the role of shareholders in decision-making
Answer: B
The crisis resulted in a shift in public perception of the financial industry, leading to increased:
A) Confidence in financial institutions
B) Investment in high-risk assets
C) Regulation and scrutiny of financial practices
D) Consumer spending
Answer: C
