econ 13,14
The recession of 2007-2009 started
rather mildly in late 2007.
The bursting U.S. housing bubble of 2007 did not trigger an immediate recession because
the bubble only existed in relatively few locations.
One of the most significant factors causing the recession of 2007-2009 was
the bursting of the housing bubble.
Among the most important demand side factors explaining homes prices would be the age of
the house
A factor that might have contributed to the weakening of the U.S. economy in 2007-2009 was
the impending expiration of the Bush Tax Cuts of 2003.
In 2007 relative to 2001 in the U. S., household
revolving and non-revolving debt both were higher.
"Exotic" mortgages became popular in part because home prices were expected to
rise quickly
If homeowners purchased a $250,000 home with a zero-down, interest-only mortgage, and the value of the home subsequently fell to $200,000, in order to sell the house and move to another city, the homeowners would be required at closing to pay (in addition to the proceeds from the home sale)
$50,000 plus any transaction costs and real estate fees.
The company that was the largest seller of credit default swaps was
AIG
In comparing the traditional way of structuring mortgages and the newer structure of providing mortgages that securitized them and insured those securities with credit default swaps, it is clear that the ________________ structure allowed fewer people to afford homes and that the ________________ structure was safer to the health of the overall economy.
both traditional
If homeowners with no savings purchased a $250,000 home using a zero-down, interest-only mortgage, and the value of the home subsequently fell to $200,000, in order to sell the house and move to another city, the homeowners might be forced to
declare bankruptcy.
If home prices rise far above the value of the homeowner's mortgage loan,
default risk faced by lenders tends to decrease.
The elements of the stimulus package adopted in 2009 that allowed states to pay $25 per week more than they had been paying in unemployment compensation should be considered
discretionary fiscal policy.
In the recession of 2007-2009, the unemployment rate first began to increase sharply
in the third and fourth quarters of 2008.
Among the most important demand side factors explaining homes prices would be the
income in the potential homebuyers
Non-discretionary fiscal policy initiatives adopted in 2009 were intended mainly to
increase aggregate demand.
Discretionary fiscal policy designed to counteract a reduction in aggregate demand might include
increased government infrastructure spending.
Non-discretionary fiscal policy designed to counteract a reduction in aggregate demand might include
increased government spending on unemployment benefits.
In January of 2006, the Federal Reserve
increased its target federal funds rate by a larger amount than it had in several years.
As unemployment rose in 2008, non-discretionary fiscal policy measures included
increased spending on unemployment insurance, food stamps and Medicaid.
The mathematics of amortization for mortgage loans must utilize the
interest rate. payment amount. period of time over which the debt will be repaid.
Among the most important demand side factors explaining homes prices would be the
local population growth rate
If an adverse shock reduces the level of aggregate demand, it is likely to lead to
lower Real GDP ("RGDP") and a lower price level ("PI").
If not corrected, the financial sector crisis of late 2008 would have tended to
lower both Real GDP and the general price level.
The stimulus package proposed by the Bush Administration in early 2008 relied upon
making permanent the 2003 income tax rate cuts, as well as tax rebates to taxpayers.
Among the most important demand side factors explaining homes prices would be the size of the
metropolitan area and home itself
"Exotic" mortgages became popular in part because they allow someone of
modest means to get into a home they might otherwise not have been able to afford.
A notable macroeconomic effect of the bursting U.S. housing bubble in 2007 was a
modest reduction in Real GDP growth of one percentage point.
The mathematics of amortization for mortgage loans must utilize the
period of time over which the debt will be repaid
Mortgage amortization is a plan to
reduce the borrower's original debt over a specified period of time.
The main effect on the economy of the financial sector crisis in late 2008 was
reduced aggregate demand.
The stimulus plan adopted in 2009 by newly-elected President Obama consisted of
roughly equal tax cuts and spending increases, with additional spending to shore up existing federal programs.
A factor tending to slow the U.S. economy early in the recession of 2007-2009 was
sharply rising crude oil prices
Among the key ingredients of what a house is fundamentally worth would be
the opportunity cost of the land on which the house is located. the quality of the school system in which the house is located. "location, location, location"!
Of the stimulus package proposed by the Bush Administration in 2008,
the tax rebates were adopted while the extension of temporary tax cuts was rejected.
The efforts to revive the economy in 2009 through 2011 were drawn from
the traditional tools of monetary policy. new tools of monetary policy. discretionary fiscal policy.
By 2006 and 2007, foreclosure rates in some previously-booming states such as Nevada and Colorado were
three times the national average.
The "negative-amortization" mortgage typically converts later to a
traditional mortgage with a higher payment.
A factor that might have contributed to the weakening of the U.S. economy in 2007-2009 was
uncertainty concerning the outcome of the 2008 presidential election.
In 2007, the most affordable places to live tended to be located disproportionately in the
upper mid-west
An asset price "bubble" is created when
buyers base their purchase decision upon their expectation that the asset's price will rise.
A security that pays the holder should mortgage borrowers fail to repay their debts is a
credit default swap.
The discretionary fiscal policy initiatives adopted in 2009 were intended mainly to
increase aggregate demand.
Other things equal, increasing home prices tend to
increase homeowners' equity in their homes.
The lowering of the federal funds rate to nearly zero in 2008 is an example of the use of
the traditional tools of monetary policy.
If homeowners purchased a $250,000 home with a zero-down, interest-only mortgage, and the value of the home subsequently fell to $200,000, the homeowners' equity in the home would be approximately
-50,000
When comparing the severity of recessions since World War II economists focus on the ones in
1982 and 2007-2009.
Monetary policy designed to counteract a reduction in aggregate demand might include
a reduction in short-term interest rates.
One economic factor that can restrain the maximum rate of home price appreciation is
a relatively elastic supply of land available for residential development.
Monetary policy designed to counteract a reduction in aggregate demand might include
an increase in the money stock.
Borrowers who use "exotic" mortgages when purchasing a home must expect
an increase in the value of the home and their income.
Many years ago, the traditional mortgage loan structure specified
an initial loan-to-value ratio of 80%.
Housing Starts peaked
before the recession of 2007-2009 began.
An asset price "bubble" is often supported by
borrowed money
Since the 1980s, mortgages allowing less than 20% down payment have appeared, requiring
borrowers to insure the lender against loss in case of default.
The stimulus package adopted in 2009 by newly-elected President Obama included
both discretionary and non-discretionary fiscal policy programs.
Among the most important supply side factors explaining homes prices would be the
cost of land
If a fiscal policy program requires new legislation to make it happen, it is necessarily
discretionary
The efforts to revive the economy in 2009 through the stimulus package is an example of
discretionary fiscal policy
Home price escalation in the U.S. during 2005 fueled booms in
home building and home equity lines of credit.
In 2006 and 2007, for the first time in decades, in many major urban areas across the U.S.,
housing prices began to fall.
The "exotic" mortgage instrument of recent years is exemplified by the
interest only mortgage
the mathematics of amortization for mortgage loans must utilize the
interest rate
The Federal Reserve is blamed by some for the recession of 2007-2009 because it
kept interest rates too low prior to 2005 leading to a housing boom (that ultimately went bust.)
Compared to the traditional mortgage amortization schedule, "interest-only" mortgages and "negative-amortization" mortgages require
larger principal payments later in the mortgage.
The bursting U.S. housing bubble of 2007 did not trigger an immediate recession because
mortgage interest rates remained relatively low.
A mortgage that allows the borrower to pay less than the interest due for a few years is a
negative amortization mortgage.
In the recession of 2007-2009, the Net Change in Employment was
negative during every month of 2008.
QE2 was an effort to revive the economy in 2010 and 2011. It relied on
new tools of monetary policy.
In comparing the traditional way of structuring mortgages and the newer structure of providing mortgages that securitized them and insured those securities with credit default swaps, it is clear that the ________________ structure allowed more people to afford homes and that the ________________ structure was safer to the health of the overall economy.
newer,traditional
In comparing the traditional way of structuring mortgages and the newer structure of providing mortgages that securitized them and insured those securities with credit default swaps, it is clear that the ________________ structure increased homeownership rates and that the ________________ structure was safer to the health of the overall economy.
newer,traditional
Unlike the traditional mortgage amortization schedule, "negative-amortization" mortgages permit the
outstanding balance to increase over a part of the life of the mortgage.
A mortgage that allows the borrower to choose the monthly payment for a few years is a
pay option adjustable rate mortgage.
The mathematics of amortization for mortgage loans must utilize the
payment frequency and the period of time over which the debt will be repaid.
The stimulus package implemented by the Bush Administration in 2008 included
rebates to individual taxpayers of $600 per individual and $1200 per married couple.
The "interest-only" mortgage typically converts later to a
traditional mortgage with a higher payment.
The "exotic" mortgage instrument of recent years is exemplified by the
"negative-amortization" mortgage.
A mortgage loan that would allow a borrower to purchase a home paying only the paperwork costs of the loan at closing could be called a
"zero-down" mortgage.
The deepening recession in late 2008 sharply reduced consumer confidence, causing
aggregate demand to contract markedly.
in comparing the traditional way of structuring mortgages and the newer structure of providing mortgages that securitized them and insured those securities with credit default swaps, it is clear that the ________________ structure increased homeownership rates and that the ________________ structure was riskier to the health of the overall economy.
both newer
The traditional mortgage amortization schedule specifies a monthly payment that is
constant over the life of the mortgage
The difference between the purchase price of a home and the amount of the mortgage is the
down payment
A "bubble" in the housing market can be more easily fueled by
exotic mortages
In the 1950s, a traditional, thirty-year fixed rate mortgage would typically have been
held by the original lender or banker until it was paid off.
Discretionary fiscal policies that increase aggregate demand tend to result in
higher Real GDP ("RGDP") and a higher price level ("PI").
Non-discretionary fiscal policies that increase aggregate demand tend to result in
higher Real GDP ("RGDP") and a higher price level ("PI").
A factor that might have contributed to the weakening of the U.S. economy in 2007-2009 was
increases by the Federal Reserve in its target short-term interest rate.
The efforts to reduce the deficit in 2011 can be best thought of as using
none of these the traditional tools of monetary policy. new tools of monetary policy. discretionary fiscal policy.
TARP was created during the Presidency of
President G.W. Bush.
Among the most important demand side factors explaining homes prices would be the
level of mortgage interest rate
TARP was
the name given to the bank bailouts.
The beginning date of the recession of 2007-2009 has been determined by the
National Bureau of Economic Research.
Economic growth leading into the 2007-2009 recession was
almost precisely the same as it had been in the previous 20 years.
Between Labor Day weekend and the date of the U.S. presidential election in 2008,
Fannie Mae and Freddie Mac were placed in conservatorship. Lehman Brothers filed for bankruptcy. the U.S. Treasury and the Federal Reserve asked Congress for $700 billion for TARP.
The companies that were the largest securitizers of mortgages were
Freddie Mac & Fannie Mae.
A mortgage loan that would allow a borrower to repay none of the principal of the debt over the first few (typically five or ten) years of the mortgage could be called
an "interest-only" mortgage.
The stimulus package proposed in 2009 by newly-elected President Obama included
a combination of tax changes and significant increases in federal government spending.
Many years ago, the traditional mortgage loan structure specified
a down payment of 20%.
Homeowner with good credit history usually will be
able to borrow part of the equity in their home to achieve reasonable financial goals.
Other things equal, increasing home prices tend to
allow homeowners to spend more than they earn.