As Short-Term Interest Rates Began to Rise in 2005, Which

question 328

Multiple Choice

As short-term interest rates began to rise in 2005, which one of the following mortgage loan categories experienced the largest increase in default and foreclosure rates?

• A) fixed rate mortgages to prime borrowers
• B) fixed rate mortgages to sub-prime borrowers
• C) adjustable rate mortgages extended to both prime and sub-prime borrowers
• D) adjustable rate mortgages to sub-prime borrowers only; the default and foreclosure rates of these loans extended to prime borrowers declined

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Definitions:

Industry

The organized economic activity connected with the production, manufacture, or construction of goods and services.

Automobile Insurance Costs

The expenses related to insuring a car against accidents, theft, and other risks.

Economies of Scale

Cost advantages reaped by companies when production becomes efficient, as the cost per unit of output decreases with increasing scale.

Long-Run Average Cost Curve

A graphical representation that shows the lowest average cost at which a firm can produce any given level of output in the long run, when all inputs are variable.