Question : 11) Firms that participate in regular open market transactions with : 1266974

11) Firms that participate in regular open market transactions with the Federal Reserve are called

A) secondary market banks.

B) Treasury banks.

C) primary dealers.

D) Federal Reserve partners.

12) In 2008, the Treasury and Federal Reserve took action to save large financial firms such as Bear Stearns and AIG from failing.  Which of the following is one reason why these measures were taken?

A) The Emergency Economic Stabilization Act required the Fed and the Treasury to provide financial assistance to firms that participated in regular open market actions with the Fed.

B) The bankruptcy of a large financial firm would force the firm to sell its holdings of securities, which could cause other firms that hold these securities to also fail.  

C) The Fed and the Treasury wanted to allow Freddie Mac and Fannie Mae more time to buy the firms before they went bankrupt.

D) The failure of these firms would have forced the Fed to increase interest rates, which could have led to a severe recession. 

13) While many analysts defended the actions taken by the Fed and the Treasury to respond to the financial crisis in 2008, others were critical of these actions.  The critics were concerned that by not allowing large firms to fail,

A) smaller firms will resent not receiving similar assistance.

B) stockholders and bondholders of these firms were not allowed to receive the proceeds from the sale of assets that would have occurred if the firms had declared bankruptcy.    

C) there is an increased likelihood that other firms will engage in risky behavior in the future with the expectation that they will also not be allowed to fail. 

D) there will be less competition in the U.S. economy, which could led to higher prices for consumers.

14) In October 2008, Congress passed the ________, under which the Treasury provided funds to banks in exchange for stock.

A) Bank Rescue Alliance Treaty (BRAT)

B) Mortgage Transfer Agency (MTA)

C) Troubled Asset Relief Program (TARP)

D) Financial Assurance Association (FAA)

15) If the amount you owe on your house is greater than the price of the house, you have

A) no value to your house.

B) a mortgage rate that is too high.   

C) negative equity in your house.

D) a reverse mortgage on your house.

16) The larger the fraction of an investment financed by borrowing,

A) the greater the potential return and potential loss on that investment.

B) the smaller the potential return and potential loss on that investment.

C) the greater the potential return and the smaller the potential loss on that investment.

D) the smaller the potential return and the greater the potential loss on that investment.

17) In September 2011, the Fed announced a new policy in which it would invest in additional mortgage-backed securities in an attempt to further reduce mortgage rates and boost the housing market. Lower mortgage rates should lead to an increase in refinancing, which should ________ disposable income and therefore ________ aggregate demand. 

A) increase; increase

B) increase; decrease

C) decrease; increase

D) decrease; decrease

18) A borrower defaults on a loan when he stops making payments on the loan.

19) The Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association were established by Congress in order to regulate banks that buy and sell mortgage-backed securities.

20) With the Troubled Asset Relief Program (TARP), the Treasury provided funds to banks in exchange for stock.