BUSN 11 Chapter 2 Practice Questions With
Revised Answers
In the context of the global economic crisis, _____ are defined by experts as loans to borrowers
with low credit scores, high debt-to-income ratios, or other signs of a reduced ability to repay the
money they borrow. - answer✔✔subprime mortgages
In the context of the global economic crisis, which of the following statements is true of
subprime mortgage loans? - answer✔✔They were seen by the lenders as low-risk loans.
Which of the following was a result of the collapse of financial institutions during the economic
crisis in the United States? - answer✔✔Companies began to announce layoffs.
Which of the following is a difference between the Troubled Assets Relief Program (TARP) and
the American Recovery and Reinvestment Act? - answer✔✔TARP was a $700 billion economic
bailout plan, whereas the American Recovery and Reinvestment Act was an $825 billion
economic stimulus package.
In the context of fiscal policy, most economists agree that: - answer✔✔lower taxes can leave
more money in people's pockets for them to spend or invest.
Which of the following statements is true of the fiscal cliff? - answer✔✔It was a package of
draconian across-the-board spending cuts.
Which of the following statements best describes a budget deficit? - answer✔✔It is the shortfall
that occurs when expenses are higher than revenue over a given period of time.
In the context of monetary policy, which of the following statements is true of commercial
banks? - answer✔✔They accept demand deposits and make loans for the public
In the context of monetary policy, which of the following statements is true of open market
operations? - answer✔✔They involve securities that the government issues to finance its deficit
spending.
In the context of monetary policy, when the Fed reduces the discount rate, banks: -
answer✔✔can obtain funds at a lower cost.
If the Federal Reserve increases the reserve requirement, _____. - answer✔✔banks must hold
more funds
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