How Did Banks Contribute to the Recent Financial Crisis

question 163

Multiple Choice

How did banks contribute to the recent financial crisis?

• A) They began to offer investment products other than demand and time deposits.
• B) They provided loans higher than the discount rate.
• C) They made risky loans and then created mortgage-backed securities from the assets they held.
• D) They refused to sell anything other than fixed-rate mortgages.

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Definitions:

Comparative Advantage

An economic theory stating that a country or individual can produce goods at a lower opportunity cost than their trade partners, leading to more efficient trade outcomes.

Absolute Advantage

A situation where an entity can produce a good or service more efficiently (using fewer resources) than another entity.

Opportunity Cost

The expense incurred by not choosing the next most favorable option during a decision-making process.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision, a foundational concept in economics that emphasizes the potential benefits that are missed when choosing one option over another.