econ 420 midterm 1

In the question above, suppose the number of apartment units remained at 88,000 while the number of households grew from 200,000 to 220,000. To what level would real rents rise? (a) $500 (b) $475 (c) $450 (d) $425 (e) Cannot be determined from the information given.

(b) $475

Use the following information to answer the next 2 questions. Suppose demand for apartments in a metropolitan area is: #Apt.units=60,000 +(0.30)(# households)-(80)*($Rent/unit/mo.) If developers increase the number of apartment units from 88,000 to 100,000, over a period of several years, to what level will real rent fall in the market below the original $400/mo level if the population remains stable at 200,000 households? (a) $350 (b) $300 (c) $250 (d) $200 (e) Cannot be determined from the information given.

(c) $250

Which of the following is an example of the private equity market? (a) The commercial real estate property asset market. (b) The stock market. (c) The commercial mortgage market. (d) The money market.

(a) The commercial real estate property asset market.

If properties in a certain market are typically selling for prices of $100/SF and they are yielding current annual net income of $8/SF, then the typical "cap rate" prevailing in this market is: (a) $12.50. (b) $8/SF. (c) 8%. (d) Cannot be estimated from the information given.

(c) 8%.

Long-run equilibrium in a DiPasquale-Wheaton "Four-Quadrant Model" (4QM) is found by: (a) The triangle connecting the current quantity of built space, the current price of property per square foot, and the current rent per square foot. (b) The square that equates supply and demand. (c) The rectangle with vertical sides and horizontal top & bottom whose four corners just touch the four binary relationship lines in each quadrant. (d) The diamond whose four corners are on the four axes at the current prices and quantities.

(c) The rectangle with vertical sides and horizontal top & bottom whose four corners just touch the four binary relationship lines in each quadrant.

Other things being equal, which would have the lowest cap rate? (a) A building with short-term leases in a declining market. (b) A building with long-term leases in a declining market. (c) A building with short-term leases in a stable market. (d) A building with long-term leases in a growing market.

(d) A building with long-term leases in a growing market.

Which statement below is true? (a) The supply side of the space market consists of investors. (b) The demand side of the space market consists of investors. (c) The supply side of the space market consists of potential tenants. (d) The demand side of the space market consists of potential tenants.

(d) The demand side of the space market consists of potential tenants.

The basic geographic unit in real estate space markets is typically: (a) The country (b) The state (c) The county (d) The metropolitan area (MSA)

(d) The metropolitan area (MSA)

What would be the 'short-term' effect of an increase in demand for space usage on the following factors? 1) Rent ... 2) Price of real estate assets ... 3) New development ...

1) Rent goes up 2) Price of real estate assets goes up 3) New development increases

According to Mian and Sufi's book "House of Debt", household's net worth is defined to be: Select one: a. Financial assets plus housing assets, minus any debt b. Financial assets plus housing assets c. Financial assets d. Housing assets minus any debt

a

Consider two islands, Debtor Island (DI) and Creditor Island (CI), and two goods in both islands, autos and haircuts. Only autos can be traded between the two islands. Also assume that people cannot move across islands. Suppose house prices collapse on DI, and levered losses lead to a sharp decline in spending on cars and haircuts. If wages and prices flexibly adjust: Select one: a. Wages are higher in DI and lower in CI b. Wages are lower in both DI and CI c. Wages are higher in both DI and CI d. Wages are lower in DI and higher in CI

b

The real interest rate is equal to Select one: a. The nominal interest rate minus growth b. The nominal interest rate minus inflation c. The nominal interest rate plus growth d. The nominal interest rate

b

You are buying a piece of land to grow corn that you will sell for 2 million dollars per year, but you need to spend 1.5 million a year on supplies and equipment, how much should you pay for the land if you can also invest in treasury bonds which yield 1% a year?

50m

segmented market

Because both supply and demand are location and type specific, real estate space markets are highly segmented. That is, space markets tend to be local rather than national, and specialized around building usage categories. This is in contrast to nationally integrated markets for homogeneous commodities

the 'replacement cost' level of rent

The level of rent that is just sufficient to stimulate profitable new development in the market

According to Mian and Sufi's book "House of Debt", what percentage on consumption did large net-worth-decline counties cut back from 2006 to 2009? Select one: a. 30% b. 20% c. 0% d. 26%

b

According to Mian and Sufi's book "House of Debt", from 2002 to 2007, house owners in inelastic counties increased their debt by what percentage? Select one: a. 45% b. 25% c. 55% d. 75%

c

According to the 100 identical houses example in Mian and Sufi's book, "House of Debt", optimists believe the value of the houses are $125,000 and pessimists believe the houses are only worth $100,000. If there is no debt and the total wealth of all optimists combined is $2.5 million. What will the price of the houses be? Select one: a. $112,500 b. $125,000 c. $100,000 d. 25 houses will be priced at $125,000 and 75 houses will be $100,000

c

Suppose a home owner has 20 percent equity in a home worth $100,000. If house prices fall 20%, what is the percent decline in the home owner's equity in the home? Select one: a. 0% b. 20% c. 100% d. 80%

c

According to Mian and Sufi's book "House of Debt", what are the results from Vernon Smith's experiment regarding bubbles? Select one: a. Stock prices did not deviate from the fundamental value during the experiment b. Stock price changed according to the fundamental value during each period. c. Stock prices fluctuated wildly, with prices deviation two to three times away from their fundamental value. d. Of the 22 experiments conducted, fourteen saw a stock market characterized by a price bubble. e. (c) and (d) are both results from Vernon Smith's experiment.

e

Real estate space markets are segmented for all of the following reasons except: (a) Space users require specific locations and types of buildings. (b) Built space is fungible. (c) Buildings cannot move. (d) It is difficult and expensive to change buildings from one usage type to another (e.g., from office to apartment).

(b) Built space is fungible.

Which are the two fundamental markets in commercial real estate? (a) The space market and the asset market. (b) The space market and the money market. (c) The construction market and the land market. (d) The asset market and the stock market.

The space market and the asset market

According to Mian and Sufi's book, "House of Debt", what percent of jobs lost between March 2007 and March 2009 were because of levered losses? Select one: a. 80% b. 45% c. 65% d. 20%

c

A development tax policy [increases, decreases] the [demand for, supply of] __________ land, and [increases, decreases] the equilibrium price of undeveloped land.

decreases, demand for, decreases

Equilibrium between current supply and demand in the space market is reflected by: (a) The prices (rents) and occupancy observed in the market. (b) The amount of new construction in process in the market. (c) The volume of properties bought and sold during the year. (d) A constant long-run marginal cost function.

(a) The prices (rents) and occupancy observed in the market.

What does financial theory predict for the cap rate in London given an increase in bond yields : a) The cap rate will increase b) The cap rate will decrease c) The cap rate is not affected d) There is no financial theory that relates cap rates with bond yields

a) The cap rate will increase

According to Mian and Sufi's book "House of Debt, which statements on mortgage-credit growth and income growth from 2002 to 2005 are true. Select one: a. Mortgage-credit growth and income growth became positively correlated. b. Mortgage-credit growth and income growth became negatively correlated c. Areas with lower income growth received less mortgage credit d. Areas with lower income growth received more mortgage credit e. (b) and (d) are both true.

e

According to Mian and Sufi's book, "House of Debt", which of the following statement is true regarding tradable and non-tradable jobs? Select one: a. Non-tradable jobs cater to the local economy b. Tradable jobs cater to the local economy c. Tradable jobs cater to the national economy d. (a) and (b) are true e. (a) and (c) are true

e

Question 42 Incorrect 0.00 points out of 1.00 FlaggedRemove flag Question text Based on Figure 5.1 in Mian and Sufi's book, "House of Debt", which of the following statements is false? Select one: a. Loss in tradable jobs was roughly the same for both large net-worth decline and small net-worth decline counties from 2007 to 2009. b. Non-tradable jobs declined more in small net-worth decline counties. c. All the provided choices are true statements based on the figure 5.1 d. Non-tradable jobs declined more in large net-worth decline counties.

b

What would be the implications of a collapse of the commercial real estate debt market in the U.K. for the office market in London? a) Commercial real estate prices will go up b) Commercial real estate prices will go down c) Commercial real estate prices will not be affected d) Commercial real estate prices first go up and then down

b) Commercial real estate prices will go down

The "real estate system" consists of the following three major components: (a) The space market, the capital market, and the mortgage industry. (b) The space market, the asset market, and the development industry. (c) The public equity market, the private equity market, and the debt market. (d) The capital market, the government, and land.

(b) The space market, the asset market, and the development industry.

If the cap rates prevailing in a given market are 10.5%, then how much would you expect a property to sell for in that market if its annual net income were $50,000? (a) $5,250. (b) $50,000. (c) $476,190. (d) $525,000.

(c) $476,190.

Figure 6.2 and 6.3 in Mian and Sufi's book "House of Debt" supports: Select one: a. House-price growth was greater for high credit-score zip codes than low credit-score zip codes in elastic housing-supply cities from 2002 to 2006. b. The animal spirits view that the house bubble was created independently of credit expansion. c. The debt centric view that the expansion in credit fueled the house-price growth. d. (a) and (b) are both supported by the figures. e. (a) and (c) are both supported by the figures.

c

How do Mian and Sufi convince us that economic disasters are almost always preceded by a large increase in household debt? Select one: a. They revise previous literature and conclude that the "debt view" is the only one that is correct. b. They develop a theory that supports that statement, but ignore the data. c. They take a close view to microeconomic data and find support for the "debt view" and arguments against alternative views. d. They have magical powers to understand what has happened. Feedback

c

In the book "House of Debt" Mian and Sufi find that: Select one: a. The higher the leverage in the home, the less aggressively the household cuts back on spending when home prices decline. b. The lower the house size, the more aggressively the household cuts back on spending when home prices decline. c. The higher the leverage in the home, the more aggressively the household cuts back on spending when home prices decline. d. The lower the leverage in the home, the more aggressively the household cuts back on spending when home prices decline.

c

Define fire sale. Select one: a. A fire sale is a situation in which a creditor is willing to sell an asset for a price far below its market value b. A fire sale is a situation in which a debtor or creditor is willing to sell an asset for a price far above its market value c. A fire sale is a situation in which a debtor is willing to sell an asset for a price far above its market value d. A fire sale is a situation in which a debtor or creditor is willing to sell an asset for a price far below its market value

d

In a mortgage: Select one: a. The borrower has the senior claim and the borrower experiences the first losses associated with any decline in house prices b. The lender has the junior claim and the borrower experiences the first losses associated with any decline in house prices c. The lender has the senior claim and the lender experiences the first losses associated with any decline in house prices d. The lender has the senior claim and the borrower experiences the first losses associated with any decline in house prices

d

In the previous questions, what if wages and prices do not fully adjust? Select one: a. There is unemployment in DI b. Nothing changes c. There is unemployment in CI d. There is unemployment in both DI and CI

d

If the required rate of return decreases for real estate investments, do prices increase or decrease, all else being equal?

Prices increase, all else being equal; Price = NOI / Cap Rate

MSA

MSAs, short for "metropolitan statistical areas", encompass a central city and its surrounding suburbs. Since an MSA tends to be relatively integrated economically, culturally, and socially, it is often used as the primary geographic units of space market segmentation in real estate.

What is the rate of return for a real estate property?

PV=R/i

Consider a city that has vacant land (6,000 square feet of space) ready for development in a neighborhood that is desirable because of its superior schools. There are two types of households, low income (L) and high income (H). Each L-type household is willing to pay $40,000 to live in the neighborhood, and each H-type household is willing to pay $60,000. The preferred lot size is 1,000 square feet for type L, compared to 3,000 square feet for type H. If there are no restrictions on lot sizes, the vacant land in the desirable neighborhood will be allocated to type [ ... ] because ... Suppose the city sets a minimum lot size. The vacant land will be allocated to type H if the minimum lot size is at least ......... square feet because ......

a. lower income b. higher income

According to Mian and Sufi's book "House of Debt", what is one of Kindleberger's conclusion from his explorations of bubbles and financial crises? Select one: a. Asset-price bubbles are not related to consumer spending. b. The main driver in asset-price bubbles is a contraction in consumer spending. c. Asset-price bubbles are not related to expansion in credit supply. d. The main driver of asset-price bubbles was almost always an expansion in credit supply.

d

According to Mian and Sufi's book, "House of Debt", total debt as a percentage of GDP in Thailand climbed to what percent from 1990 to 1996? Select one: a. 17% b. 51% c. 4% d. 29%

b

According to the example in Mian and Sufi's book "House of Debt", if optimists have $2.5 in cash and can borrow 80 percent of the value of a house, then optimists can buy houses worth up to: Select one: a. Debt does not have an effect on the price optimists can buy houses. b. $12.5 million c. $2.5 million d. $10 million

b

In the absence of foresight among asset market participants, a growth in demand for real estate assets in the capital market, holding demand in the space usage market constant, will produce which of the following short-run and long-run effects? (a) A short-run increase in property asset prices followed by a subsequent drop. (b) A short-run decrease in property asset prices followed by a subsequent rise. (c) A short-run increase in rents followed by a subsequent drop. (d) A short-run decrease in rents followed by a subsequent increase.

(a) A short-run increase in property asset prices followed by a subsequent drop.

In order for the real estate system to function more efficiently and effectively, it is important for: (a) Investors to try to forecast the economy, the space market, development activity, and the capital market. (b) Potential tenants to make their space needs explicitly known to developers. (c) Government regulators not to place too strict requirements on real estate developers. (d) Landlords to treat tenants fairly.

(a) Investors to try to forecast the economy, the space market, development activity, and the capital market.

The "kink point" in the real estate space supply function occurs at: (a) The current quantity of built space and the "replacement cost" rent. (b) The maximum quantity of built space allowed by zoning laws and geographical constraints. (c) The current quantity of built space and the current rent. (d) The rent that provides a cap rate equal to the mortgage interest rate.

(a) The current quantity of built space and the "replacement cost" rent.

The term "real property" refers to: (a) Financial capital as opposed to physical capital. (b) Long-lived personal property, such as automobiles, musical instruments, works of art. (c) Land or built space. (d) Property valued net of inflation.

Land or built space.

In a real estate market. "constrained supply", or rising real Long-Run Marginal Cost (upward-sloping supply curve), is generally caused by: (a) Inflation. (b) Technological improvements in the construction industry. (c) Scarcity of buildable land due to geographic or regulatory constraints. (d) Tenant requirements for more lavish accommodations.

Scarcity of buildable land due to geographic or regulatory constraints.

The basic demand curve for real estate suggests that as rents decline, the amount of space leased increases. How does this differ from the demand growth that occurs in an office market when there is significant job growth in a market?

The former is moving along the demand curve, reflecting the trade-off between quantity and rent at any given level of demand (# of employees) The latter reflects a shift in the overall demand curve to the right, that is, higher quantity occupied at any given level of rents, or, higher rents at any given quantity of supply.

According to Mian and Sufi's book "House of Debt", why the answer to the previous question is important? Select one: a. It immediately implies that the distribution of wealth and debt matters b. Households with high leverage are prone to consume more pizza c. It's not important d. It immediately implies that the distribution of wealth and debt does not matter

a

According to Mian and Sufi's book, "House of Debt" which statement regarding wage growth is true? Select one: a. Wage growth adjusted for inflation increased annually by 1.1 percent from 2008 to 2011. b. Wage growth adjusted for inflation decreased annually by 1.1 percent from 2008 to 2011. c. Wage growth stayed constant from 2008 to 2011 when adjusted for inflation. d. Wage growth adjusted for inflation decreased annually by 2.3 percent from 2008 to 2011.

a

According to Mian and Sufi's book "House of Debt", define "externality of foreclosure". Select one: a. The bank selling the property does not bear the negative effect of a fire sale that all the homeowners in the area do. As a result, the bank is perfectly willing to sell at a lower price, even though society as a whole would not want the bank to do so. b. The bank selling the property does not bear the positive effect of a fire sale that all the homeowners in the area do. As a result, the bank is not willing to sell at a lower price, because society as a whole would not want the bank to do so. c. The bank buying the property bears the positive effect of a fire sale. As a result, the bank is perfectly willing to buy at a higher price, even though society as a whole would not want the bank to do so. d. The bank selling the property does not bear the negative effect of a fire sale that some homeowners in the area do. As a result, the bank is perfectly willing to sell at a lower price, even though a small subset of neighbors would not want the bank to do so.

a

According to Mian and Sufi's book "House of Debt", how much debt increased in Merced County, California, between 2000 and 2006? Select one: a. 80% b. 30% c. 130% d. 60%

a

According to Mian and Sufi's book "House of Debt", what percentage of net worth did large net-worth-decline counties lose from 2006 to 2009? Select one: a. 26% b. 0% c. 20% d. 30%

a

According to Mian and Sufi's book "House of Debt", why debt is the anti-insurance? Select one: a. Instead of helping to share the risks associated with home ownership, it concentrates the risks on those least able to beat it. b. Instead of helping to share the risks associated with home ownership, it concentrates the risks on those most willing to beat it. c. Instead of helping to share the risks associated with stock ownership, it concentrates the risks on those least able to beat it. d. Instead of helping to concentrate the risks associated with home ownership, it diversifies the risks on those least able to beat it.

a

According to Mian and Sufi's book "House of Debt", why fire sales negatively affect prices of other houses in the neighborhood? Select one: a. After the sale, other home owners and appraisers use the fire sale price to estimate the prices of all other homes in the area. As a result, the prices of all the homes in the area suffer. Even home owners with no debt see the value of their homes decline. b. After the sale, only appraisers use the fire sale price to estimate the prices of all other homes in the country. As a result, the prices of all the homes in the country suffer. Even home owners with no debt see the value of their homes decline. c. Before the sale, other home owners and appraisers use the fire sale price to estimate the prices of all other homes in the area. As a result, the prices of all the homes in the area suffer. Even home owners with no debt see the value of their homes decline. d. After the sale, only home owners use the fire sale price to estimate the prices of all other homes in the area. As a result, the prices of some homes in the area suffer. After the sale, other home owners and appraisers use the fire sale price to estimate the prices of all other homes in the area. As a result, the prices of all the homes in the area suffer. Even home owners with no debt see the value of their homes decline.

a

According to Mian and Sufi's book, "House of Debt", a credit score of 620 meant a much higher probability of a mortgage being securitized. The fact that borrowers with credit scores just below 620 had much lower default rates than mortgages to borrowers with credit scores just above 620 is evidence of what? Select one: a. Securitization directly encourages irresponsible lending. b. The lower the credit score the more likely the borrower will default. c. Securitization directly encourages responsible lending. d. Credit scores to not accurately reflect the riskiness of a borrow.

a

According to Mian and Sufi's book, "House of Debt", the tranche process creates "safe" securities as long as what assumption holds true? Select one: a. Default probabilities across loans are independent. b. All borrowers' credit scores are greater than 600. c. Default probabilities are highly correlated. d. Mortgages may not be more than 50% geographically concentrated.

a

According to Mian and Sufi's book, "House of Debt", which statement is true regarding job losses at auto dealers? Select one: a. 14% of jobs at dealerships were lost in counties with the largest shock to net worth and only 3% of jobs at dealerships were lost in counties with the smallest shock. b. Few jobs were lost at dealerships because those jobs are tradable. c. Counties that experienced the largest job losses at dealership jobs were located in areas where housing wealth declined the least. d. Only 3% of jobs at dealerships were lost in counties with the largest shock to net worth and 14% of jobs at dealerships were lost in counties with the smallest shock.

a

Correct 1.00 points out of 1.00 Not flaggedFlag question Question text According to Mian and Sufi's book "House of Debt", by how much house prices increased in Merced County, California, from 2000 to 2006? Select one: a. 60% b. 30% c. 130% d. 10%

a

How do Mian and Sufi's book "House of Debt" define mortgage underwater: Select one: a. Underwater refers to the situation where the value of a house drops below the amount still owned on the mortgage. b. Underwater refers to the situation where the value of a house is above the amount still owned on the mortgage. c. Underwater refers to the situation where the household is literally under the water. d. Underwater refers to the situation where the value of a household's stocks drops below the amount still owned on the mortgage.

a

In a locational equilibrium, Select one: a. No one has an incentive to move b. Everyone moves c. There is no construction d. Wages are the same

a

In the book "House of Debt" Mian and Sufi say that it is important to differentiate between a fall in household consumption and a fall in household net worth. Give an example of two crises when the effect of a fall in household net worth has a different effect on household consumption. Select one: a. In the Great Recession both household consumption and household net worth fell, whereas after the dot-com bubble burst, household net worth fell but household spending grew. b. In the Great Recession both household consumption and household net worth fell, whereas after the dot-com bubble burst, household net worth and household spending increased. c. In the Great Recession household consumption increased, whereas after the dot-com bubble burst, household consumption fell. d. In the Great Recession both household consumption and household net worth fell, whereas during the Great Depression, household net worth fell but household spending grew.

a

In the fundamentals view, the interest rate channel is best described as follows: Select one: a. When spending decreases, interest rates go down as demand for credit decreases with spending. And when the interest rates are low enough, consumers (and specially savers) should be induced to spend more b. When spending decreases, interest rates go up as demand for credit decreases with spending. And when the interest rates are high enough, consumers (and specially savers) should be induced to spend more c. When consumer's net worth decreases, interest rates go down as demand for credit decreases with net worth . And when the interest rates are low enough, consumers (and specially savers) should be richer

a

The liquidity trap occurs Select one: a. When the nominal interest rate is zero b. When the real interest rate is zero c. When the inflation is zero d. When the growth rate is zero

a

What are the analogies between the Great Depression and the Great Recession according to Mian and Sufi's book "House of Debt"? Select one: a. All the provided answers are correct b. There was a large drop in household spending once the crises started c. Society's attitudes toward credit had changed, and purchasing on credit became more acceptable d. Consumer's debt as percentage of household income sharply increase before the crisis

a

According to Mian and Sufi's book "House of Debt", which of the following statements best captures the "fundamentalist view": Select one: a. Economic disasters are almost always preceded by a large increase in household debt b. Economic disasters are caused by some fundamentals shock to the economy such as natural disasters, a political coup, or a change in expectations of growth in the future c. "If we can just get banks to start lending to households and businesses again, everything will be all right" d. Economic fluctuations are driven by irrational beliefs, e.g., self-fulfilling prophecy.

b

One week after the vote, the yield on 10-year British government bonds, called gilts, fell to 0.87%, their lowest levels in modern history. Some analysts correctly forecast gilt yields would fall, because: a) domestic investors would seek a haven for cash and international investors would buy bonds in anticipation of the Bank of England cutting the interest rate. Although typically a higher yield is associated to higher uncertainty, bonds yields decreased due to such unexpected high demand for UK bonds. b) international investors would seek a haven for cash and domestic investors would buy bonds in anticipation of the Bank of England cutting the interest rate. Although typically a higher yield is associated to lower uncertainty, bonds yields decreased due to such unexpected low demand for UK bonds. c) domestic investors would seek a haven for cash and international investors would buy bonds in anticipation of the Bank of England cutting the interest rate. Although typically a higher yield is associated to lower uncertainty, bonds yields decreased due to such unexpected low demand for UK bonds. d) international investors would seek a haven for cash and domestic investors would sell bonds in anticipation of the Bank of England cutting the interest rate. Although typically a lower yield is associated to higher uncertainty, bonds yields increased due to such unexpected high demand for UK bonds.

a) domestic investors would seek a haven for cash and international investors would buy bonds in anticipation of the Bank of England cutting the interest rate. Although typically a higher yield is associated to higher uncertainty, bonds yields decreased due to such unexpected high demand for UK bonds.

According to Mian and Sufi's book "House of Debt", how much was the decline in home equity in Merced County, California, from 2006 to 2009? Select one: a. 80% b. 50% c. 130% d. 60%

b

According to Mian and Sufi's book "House of Debt", what are implications for economic inequality of the high percentage number of mortgages underwater in Merced County, California? (Remember you can choose only one answer) Select one: a. Foreclosures and a contagion effect of foreclosures on house prices. b. Foreclosures and lower credit scores for households with mortgages underwater, and a contagion effect of foreclosures on house prices. c. Foreclosures and lower credit scores for households with mortgages underwater. d. Lower credit scores for households with mortgages underwater, and a contagion effect of foreclosures on house prices.

b

According to Mian and Sufi's book "House of Debt", what are the differences between the poorest and the richest households in the US in 2007? Select one: a. First, the richest 20 percent of home owners had a leverage ratio of only 1 percent, compared to the 100 percent leverage ratio of the poorest home owners. Second, while the poor had $4 of home equity for every $1 of other assets, the rich were exactly the opposite, with $1 of home equity for every $4 of other assets. b. First, the richest 20 percent of home owners had a leverage ratio of only 7 percent, compared to the 80 percent leverage ratio of the poorest home owners. Second, while the poor had $4 of home equity for every $1 of other assets, the rich were exactly the opposite, with $1 of home equity for every $4 of other assets. c. First, the richest 20 percent of home owners had a leverage ratio of only 7 percent, compared to the 10 percent leverage ratio of the poorest home owners. Second, while the poor had $1 of home equity for every $4 of other assets, the rich were exactly the opposite, with $4 of home equity for every $1 of other assets. d. First, the richest 20 percent of home owners had a leverage ratio of only 7 percent, compared to the 80 percent leverage ratio of the poorest home owners. Second, while the poor had $1 of home equity for every $4 of other assets, the rich were exactly the opposite, with $4 of home equity for every $1 of other assets.

b

According to Mian and Sufi's book "House of Debt", what are the spillover effects of the collapse in house prices? Select one: a. A failing construction sector b. All the provided answers are correct c. The startling rise in foreclosures d. Higher unemployment

b

According to Mian and Sufi's book "House of Debt", what is the "animal spirits" view on the expansion of mortgage credit? Select one: a. There was an initial expansion in the supply of credit that then fueled a housing bubble. b. The housing bubble started independently and credit merely followed. c. The expansion and collapse of the bubble would not have happened even if there had been no debt at all. d. (a) and (c) are correct. e. (b) and (c) are correct.

b

According to Mian and Sufi's book "House of Debt", what is the definition of a marginal borrower? Select one: a. A borrower who takes out an additional mortgage. b. A borrower who most likely would not have been able to get a mortgage without the dramatic expansion of credit. c. A borrower that uses all equity to purchase a home. d. A borrow with a high credit score, sufficient collateral, and with sufficient income capacity to repay the mortgage debt.

b

Figure 2.2. in Mian and Sufi's book "House of Debt" implies that Select one: a. The net worth of rich households collapsed from $30,000 to almost zero from 2007 to 2010 b. The net worth of poor households collapsed from $30,000 to almost zero from 2007 to 2010 c. The net worth of poor households increased from $2.9 million to $3.2 million from 2007 to 2010 d. The net worth of poor households collapsed from $30,000 to almost zero from 1992 to 2007

b

Before Brexit, the Governor of Bank of England, Mark Carney, said that if the "leave" option wins, the return that investors would demand for holding longer-term U.K. government debt—or the term premium—would rise. In the same line, analysts at BlackRock said in a report on Brexit that a 'leave' vote would likely increase gilt yields. What was the economic intuition behind this forecast? a) Higher yield is a consequence of lower uncertainty/risk and investor's decision to reallocate their investments towards other regions outside the UK b) Higher yield is a consequence of higher uncertainty/risk and investor's decision to reallocate their investments towards other regions outside the UK c) Higher yield is a consequence of higher uncertainty/risk and investor's decision to reallocate their investments towards other regions inside the UK d) Higher yield is a consequence of lower uncertainty/risk and investor's decision to reallocate their investments towards other regions inside the UK

b) Higher yield is a consequence of higher uncertainty/risk and investor's decision to reallocate their investments towards other regions outside the UK

According to Mian and Sufi's book "House of Debt", household debt in the United States from 2000 to 2007: Select one: a. Quadrupled b. None of the provided answers is correct c. Doubled d. Tripled

c

According to Mian and Sufi's book "House of Debt", the leverage multiplier explains how Select one: a. A decline in house prices has no effect on the household's net worth b. An increase in house prices leads to a decline in net worth for a household with leverage c. A decline in house prices leads to a larger decline in net worth for a household with leverage d. A decline in house prices leads to a larger decline in net worth for a household with no leverage

c

According to Mian and Sufi's book "House of Debt", what argument contradicts the view that the banking sector caused the recession? Select one: a. Residential investment and consumption were the main drivers of the weakness for the first quarter of the recession b. Non-residential investment and consumption were the main drivers of the weakness for the first three quarters of the recession c. Residential investment and consumption were the main drivers of the weakness for the first three quarters of the recession d. Non-residential investment and consumption were the main drivers of the weakness for the first quarter of the recession

c

According to Mian and Sufi's book "House of Debt", what does the pessimists and optimists example show? Select one: a. The introduction of debt had no impact on the price of houses in the pessimist and optimists example. b. Debt facilitates a decrease in the price of assets by enabling pessimist to increase their influence on the market price. c. Debt facilitates an increase in the price of assets by enabling optimist to increase their influence on the market price. d. Optimists were able to influence the house prices when no debt was involved.

c

According to Mian and Sufi's book "House of Debt", what was the percentage of mortgages underwater in Merced County, California, during the crisis period? Select one: a. 70% b. 23% c. 60% d. 80%

c

According to Mian and Sufi's book "House of Debt", who were more exposed to a shock into housing market, the poorest or richest households? Select one: a. None of them b. The richest c. The poorest d. Both the richest and the poorest were equally exposed

c

According to Mian and Sufi's book, "House of Debt", by 2009 the mortgage default rate for the entire country spiked above what percent? Select one: a. 20% b. 5% c. 10% d. 6.5%

c

According to Mian and Sufi's book, "House of Debt", from 2002 to 2006 private-label securitization soared to what percent of all MBS issued? Select one: a. 25% b. 10% c. 50% d. 75%

c

In the book "House of Debt", Mian and Sufi define the "housing wealth effect" as: Select one: a. An increase in house prices represents an increase in wealth for home owners, and home owners respond to an increase in wealth by saving and investing extra wealth. b. A decrease in the housing price represents a decrease in wealth for home owners, and home owners respond to a decrease in wealth by increasing consumption c. An increase in house prices represents an increase in wealth for home owners, and home owners respond to an increase in wealth by borrowing to spend more. d. The housing wealth effect states that an increase in housing wealth is not related to consumer expenditures.

c

According to Mian and Sufi's book "House of Debt", Select one: a. House prices declined by 1 percentage points for every 1 percent of home owners going into foreclosure between 2007 and 2009. b. House prices declined by 1.9 percentage points for every 1.9 percent of home owners going into foreclosure between 2007 and 2009. c. House prices declined by 1 percentage points for every 1.9 percent of home owners going into foreclosure between 2007 and 2009. d. House prices declined by 1.9 percentage points for every 1 percent of home owners going into foreclosure between 2007 and 2009.

d

According to Mian and Sufi's book "House of Debt", did residential investment fall before or after the heart of the banking crisis? Select one: a. The decline in spending was in full force after the fall of 2008. The National Bureau of Economic Research dates the beginning of the recession in the fourth quarter of 2009, four five after the failure of Lehman Brothers. The collapse of residential investment and durable consumption was dramatic well after the events of the fall of 2008. b. The decline in spending was in full force before the fall of 2008. The National Bureau of Economic Research dates the beginning of the recession in the third quarter of 2008, when Lehman Brothers collapsed. The collapse of residential investment and durable consumption was dramatic before the events of the fall of 2008. c. There is no data that confirms that the decline in spending was in full force before the fall of 2008. d. The decline in spending was in full force before the fall of 2008. The National Bureau of Economic Research dates the beginning of the recession in the fourth quarter of 2007, three quarters before the failure of Lehman Brothers. The collapse of residential investment and durable consumption was dramatic well before the events of the fall of 2008.

d

According to Mian and Sufi's book "House of Debt", which of the following paragraphs is correct: Select one: a. "High debt in combination with the dramatic decline in house prices increased the already large gap between the rich and poor in the United States. Yes, the poor were poor to begin with, but they didn't lose everything because debt did not concentrate overall house price declines directly on their net worth." b. "High debt in combination with the dramatic decline in house prices decreased the already large gap between the rich and poor in the United States. Yes, the poor were poor to begin with, but they lost everything because debt concentrated overall house price declines directly on their net worth." c. "Low debt in combination with the small decline in house prices did not decrease the already large gap between the rich and poor in the United States." d. "High debt in combination with the dramatic decline in house prices increased the already large gap between the rich and poor in the United States. Yes, the poor were poor to begin with, but they lost everything because debt concentrated overall house price declines directly on their net worth."

d

According to Mian and Sufi's book, "House of Debt", how many jobs were lost from March 2007 to March 2009? Select one: a. 1 million b. 10 million c. 2.5 million d. 6 million

d

According to Mian and Sufi's book, "House of Debt", what conclusion can be drawn from the East Asian crisis in regards to central banks? Select one: a. To maintain independence and control over their economy, central bankers needed to prevent dollar-denominated borrowing by their local banks. b. A central bank should decrease liquidity to banks in order to prevent the self-fulfilling banking crises. c. To fight off potential runs on their currency and banking sectors in the future, central banks needed to maintain a large stockpile of dollars. d. (a) and (c) are both correct conclusions. e. All the provided answers are correct.

d

According to Mian and Sufi's book, "House of Debt", what statement about government-sponsored enterprises (GSEs) is false. Select one: a. GSEs pooled the mortgages and sold financial claims against the pool as mortgage-backed securities (MBS). b. The U.S. Department of Housing and Urban Development promoted securitization through GSE after recognizing weakness in the mortgage market. c. GSEs kept a cut from the interest payments to insure MBS holders against the risk of default. d. GSEs had no requirements such as loan size or LTV ratio in order to be considered "conforming" and be purchased for securitization

d

According to Mian and Sufi's book, "House of Debt", which friction during the Great Recession worked against the economy correcting itself? Select one: a. People did not move to counties with a stronger job market. b. The zero lower bound on nominal interest rates. c. Wages did not lower. d. All the provided answers are correct.

d

The following example is from Mian and Sufi's book "House of Debt": If a homeowner buys a home worth $100,000 using an $80,000 mortgage, then the homeowner's if equity into home is $20,000. If house prices drop 20%, the homeowner loses $20,000, while the mortgage lender's makes no losses. From this example, we can infer the following: Select one: a. A negative shock to the house price decreases inequality because the borrower loses his full investment, whereas the lender fully owns the house. b. Debt is bad c. Financial crisis and income inequality are unrelated. d. A negative shock to the house price increases inequality because the borrower loses his full investment, whereas the lender fully owns the house.

d

Is the collapse of Lehman Brothers the linchpin of the Great Recession? a) Yes, it is. The collapse in residential investment was in full swing in 2006, a full two years before the collapse of Lehman Brothers b) Yes, it is. The collapse in residential investment was in full swing in 2010, a full two years after the collapse of Lehman Brothers c) No, it is not. The collapse in residential investment was in full swing in 2010, a full two years after the collapse of Lehman Brothers d) No, it is not. The collapse in residential investment was in full swing in 2006, a full two years before the collapse of Lehman Brothers

d) No, it is not. The collapse in residential investment was in full swing in 2006, a full two years before the collapse of Lehman Brothers

Which of the following is true? a) The post "Great Recession" recovery has been short and shallow, with growth rates roughly half of that normally observed in expansions. b) The post "Great Recession" recovery has been long and shallow, with growth rates roughly the double of that normally observed in expansions. c) The post "Great Recession" recovery has been long and strong, with growth rates roughly the double of that normally observed in expansions. d) The post "Great Recession" recovery has been long and shallow, with growth rates roughly half of that normally observed in expansions.

d) The post "Great Recession" recovery has been long and shallow, with growth rates roughly half of that normally observed in expansions.

According to Mian and Sufi's book "House of Debt", which statements on housing-supply elasticity are correct. Select one: a. Cities, like Indianapolis, with unrestricted, flat terrain have inelastic housing supply. b. Cities, like San Francisco, that are surrounded by hilly terrain or large bodies of water have inelastic housing supply. c. In an elastic housing supply environment, supply responds quickly by building more houses when house prices rise above construction costs. d. (a) and (c) are both correct statements. e. (b) and (c) are both correct statements.

e

According to Mian and Sufi's book, "House of Debt", what is an explanation to the high unemployment during the great recession? Select one: a. Skills mismatch: Workers need to be retrained to work in other professions that are hiring. b. Workers in non-tradable jobs were laid off and took jobs from workers in tradable jobs c. Delayed foreclosures and government assistance reduced the incentive of workers to find jobs during the Great Recession. d. (a) and (b) are both explanations from "House of Debt" e. (a) and (c) are both explanations from "House of Debt"

e

Consider the effects of a growth boundary on the urban land market. Assume the boundary directly affects only residential land, not commercial or industrial land. Arrows up or down: The policy ...... the equilibrium wage and ...... equilibrium employment. We would expect the owners of commercial and industrial land to [support, oppose] the boundary because the increase in wages will increase production costs.

increase, decrease, oppose