Which of the following was a contributing factor to the economic crisis of 2008?
A. balanced budget and decreased federal deficits
B. lower taxes and more disposable income for families
C. indiscriminate and risky banking practices
D. increased federal funding tied to student academic success
C?
Right
Tank you so much
It's actually A.
Yes, you are correct. Option C, indiscriminate and risky banking practices, was a contributing factor to the economic crisis of 2008.
To arrive at this answer, we need to understand the context of the 2008 economic crisis. The crisis was primarily caused by the collapse of the housing market and the bursting of the housing bubble. One of the key factors that contributed to this collapse was the widespread adoption of risky and indiscriminate banking practices by financial institutions.
These practices included subprime lending, where mortgages were given to borrowers with low creditworthiness, and the securitization of these mortgages into complex financial products called mortgage-backed securities. These mortgage-backed securities were then sold to investors, disguising the underlying risks associated with them.
Additionally, financial institutions engaged in excessive leverage, taking on too much debt relative to their capital reserves. This increased their vulnerability to market shocks and reduced their ability to absorb losses. When the housing bubble burst and the value of these securities plummeted, financial institutions faced significant losses, leading to the collapse of several major banks and financial firms.
Therefore, C - indiscriminate and risky banking practices, was a key contributor to the economic crisis of 2008.