Asked by Mariah Trevino on Apr 24, 2024
Verified
What caused the credit crisis of 2008?
A) The sub-prime mortgage mess.
B) The sub-prime mortgage mess along with existing huge leveraged bets that prices of real estate made by investment banks and other firms not regulated by the Fed.
C) Home buyers' misrepresentation of repayment capacity.
D) A large number of home buyers loosing their jobs.
Credit Crisis
A financial situation characterized by a severe shortage of funds for lending, leading to a tightening of credit availability and often a recession.
Leveraged Bets
Investments using borrowed money to increase potential return, amplifying both potential gains and losses.
Fed Regulation
Refers to the rules and guidelines enforced by the Federal Reserve, the central bank of the United States, aimed at maintaining the stability and integrity of the financial system.
- Comprehend the idea and consequences of sub-prime lending.
- Describe the effects of monetary policy tools on the economy.
Verified Answer
DG
Denaya GlantonMay 02, 2024
Final Answer :
B
Explanation :
The credit crisis of 2008 was caused by a combination of factors, including the sub-prime mortgage mess and the huge leveraged bets made by investment banks and other firms not regulated by the Fed. The sub-prime mortgage mess was caused by the lending of large sums of money to home buyers who were not able to repay their loans, resulting in a surge of defaults and foreclosures. Meanwhile, investment banks and other firms made leveraged bets on the prices of real estate, which created a domino effect when prices fell, leading to massive losses and the collapse of several major institutions.
Learning Objectives
- Comprehend the idea and consequences of sub-prime lending.
- Describe the effects of monetary policy tools on the economy.