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Question 7 (3 points) In September 2008, GSEs were on the verge on insolvency because... (One answer is correct) Investors that held the MBSs securitized by the GSEs had to be compensated for large default losses They lost a lot of money on the mortgage products they directly held on their balance sheet They originated a lot of suprime loans Of all of the above Question 8 (3 points) Suppose that the demand for reserves is strictly downward sloping. When the Fed performs an open market sale, the size of the Fed balance sheet____, and the Fed fund rate_-__-- (One answer is correct) Increases; increases Increases; decreases Decreases; increases Decreases; decreases Question 9 (3 points) Suppose that a default-free bond pays a coupon of 3% per year and that the interest rate is equal to 5% per year. If, at the end of the year, the interest rate required by investors unexpectedly increases, the annual rate of capital gain, (Pt+1-Pt)/Pt... (One answer is correct) Must be positive Must be negative Must be equal to zero Can be positive, negative, or equal to zero