Financial Instability: Leverage, Risk & Public Responses — Drills · Grade 12 Social Studies
Chapter: Global Connections, Risk & Economic InquiryWhat these drills covers
By the end of Financial Instability: Leverage, Risk & Public Responses you should be able to:
- I can explain leverage with a balance sheet.
- I can explain a civic or economic mechanism using evidence, assumptions, and a qualified conclusion.
4 questions, written answer, each with a worked explanation.
Vocabulary used: leverage, equity, maturity mismatch, securitization, correlation.
Problem 1
Answer and explanation
Equity is the smaller residual after debt. The same $10 asset loss removes half the original $20 equity while reducing $100 assets by ten percent. Fixed debt in the example concentrates the change on the residual.
Problem 2
Answer and explanation
Liquidity concerns payment timing and available resources; insolvency concerns insufficient asset value relative to obligations. Temporary funding may address timing while losses remain. Identify both balance-sheet and cash-flow evidence.
Problem 3
Answer and explanation
Its underlying claims may share borrowers’ conditions, collateral markets, or other exposures. Pooling changes allocation and may reduce some idiosyncratic risk, but correlated losses remain. Examine the actual connections and model assumptions.
Problem 4
Answer and explanation
They are different outcomes measured through different records and periods. Financial conditions can improve while employment, debt, or housing hardships persist. Compare channels and distribution without transferring one indicator to every household.