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:

Predictive Validity

The extent to which a score on a scale or test predicts future performance on some outcome measure.

Cultural Differences

Variations in practices, beliefs, and values among different societies or communities.

Assessing

The process of evaluating or estimating the nature, ability, or quality of something or someone.

Diagnosing

The process of identifying a disease or condition from its symptoms and clinical signs.