If the Government Increases Taxes, the

question 154

Multiple Choice

If the government increases taxes, the

• A) aggregate demand increases.
• B) aggregate demand decreases.
• C) aggregate supply increases.
• D) aggregate supply decreases.

Analyze the impact of varying interest rates on yield and the implications for bond investors.

Understand the concept and financial mechanics behind tranches in Collateralized Debt Obligations (CDOs).

Differentiate between various mortgage pass-through agencies and their role in the housing finance system.

Assess the reasons behind the 2007 mortgage crisis and the failure of mortgage-backed CDOs.

---

Definitions:

Covariances

A measure of how two securities move in relation to each other, indicating the degree to which their returns are interconnected.

Investments

The act of allocating resources, usually money, with the expectation of generating an income or profit.

Single Index Model

A simplified financial model that describes the return of a security as a linear function of the return of a single market index, plus some random noise.

Portfolio

A diverse collection of investments held by an individual or institution, including stocks, bonds, real estate, or other financial assets, designed to reduce risk and achieve specific financial goals.