What Was the Chain of Events That Occurred in 2008-2009

question 111

Multiple Choice

What was the chain of events that occurred in 2008-2009 when the U.S. "housing bubble collapsed"?

• A) Home prices rose out of the reach of households; home sales fell; and banks were left with no borrowers for their excess reserves, creating a crisis for banks.
• B) Savings increased, leading to less investment in homes; a lower demand for homes caused drops in home prices, which led to unemployment in the construction industry.
• C) Interest rates on mortgages rose, which caused homeowners to default on these loans, causing losses to financial firms, investors, and banks.
• D) Banks foreclosed on mortgage loans, which caused housing prices to drop, which led to interest rates rising so that homes became unaffordable.

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Definitions:

Price Per Share

The current market value of a company's shares, determined by dividing the total market capitalization of the company by its number of outstanding shares.

Notes Payable

Short or long-term liabilities; a written promise to pay a specified amount of money, known as the principal, along with interest, by a certain date.

Preferred Stock

A class of ownership in a corporation with a fixed dividend that is paid out before any dividends to common stockholders.

Common Equity

The amount of money that would be returned to shareholders if all the company's assets were liquidated and all its debts repaid.