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11. A subprime loan is a loan made to a person who has a lower credit score and/or who is
borrowing a larger amount relative to the value of the home price. What incentive did banks have
to offer subprime loans to borrowers, and what role did subprime loans play in the 2008
economic crisis? 12. Loan-backed securities are pools of individual loans sold as shares. By
selling off loans in this way, lenders were able to regain the loaned amount quickly and share
their risk with others. How might this have created an incentive to offer subprime loans, and
what role did loan-backed securities (particularly mortgage-based securities) play in the 2008
economic crisis? 13. Leverage is defined as "using credit or borrowed money to increase the rate
of return for an investment." (This is applicable to putting down 10% or less on the purchase of a
home.) Leverage magnifies gains and can magnify losses. How did leverage contribute to the
2008 economic crisis? 14. Which decisions by the U.S. government (Federal Reserve or
Treasury) are in accordance with classical economics, and why?

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11. A subprime loan is a loan made to a person who has a lower credit.pdf

  • 1. 11. A subprime loan is a loan made to a person who has a lower credit score and/or who is borrowing a larger amount relative to the value of the home price. What incentive did banks have to offer subprime loans to borrowers, and what role did subprime loans play in the 2008 economic crisis? 12. Loan-backed securities are pools of individual loans sold as shares. By selling off loans in this way, lenders were able to regain the loaned amount quickly and share their risk with others. How might this have created an incentive to offer subprime loans, and what role did loan-backed securities (particularly mortgage-based securities) play in the 2008 economic crisis? 13. Leverage is defined as "using credit or borrowed money to increase the rate of return for an investment." (This is applicable to putting down 10% or less on the purchase of a home.) Leverage magnifies gains and can magnify losses. How did leverage contribute to the 2008 economic crisis? 14. Which decisions by the U.S. government (Federal Reserve or Treasury) are in accordance with classical economics, and why?