The Destabilizing Effects of Defaulting Mortgages Quickly Spread Throughout the Financial

question 123

Multiple Choice

The destabilizing effects of defaulting mortgages quickly spread throughout the financial system because those mortgages were involved in widespread:

• A) Diversification
• B) Securitization
• C) Multiplier effect
• D) Real-balance effect

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Definitions:

Stephen Douglas

An American politician from Illinois who was a leader of the Democratic Party and famously debated Abraham Lincoln during the 1858 Senate contest.

Transcontinental Railroad

The railway system completed in 1869 that connected the east and west coasts of the United States, greatly facilitating travel and commerce.

Wilmot Proviso

A proposed, but never enacted, amendment in 1846 that aimed to prohibit slavery in any territory acquired from Mexico, intensifying the pre-Civil War debates over slavery.

Missouri Compromise

Deal proposed by Kentucky senator Henry Clay in 1820 to resolve the slave/free imbalance in Congress that would result from Missouri’s admission as a slave state; Maine’s admission as a free state offset Missouri, and slavery was prohibited in the remainder of the Louisiana Territory north of the southern border of Missouri.