Which of the following is different between the great depression and the 2007-2009 financial crisis?
a. only the financial crisis was caused by an asset bubble
b. only during the 2007-2009 crisis, were expansionary policies employed
c. only the great depression was characterized by unacceptably high
d. during only the great depression was demand so weak that deflation was a concern
From 1929 through 1939, there was a serious economic downturn on a global scale known as the Great Depression. The depression of the 20th century was the longest, deepest, and most pervasive one ever.
The worldwide financial crisis of 2007–2009 started in 2007 and continued until 2009. The housing and mortgage asset bubble, excessive risk-taking by banks and financial institutions, and a lack of regulation were some of the causes that contributed to its origin.
Step by stepSolved in 3 steps
- Aggregate demand and supply curves have been widely used to analyze the performance of the macroeconomy. Figure 6-3 shows four diagrams that represent different changes in the macroeconomy. Choose the diagram that best represents the situations described in the following questions. FIGURE 6-3 Real GDP (1) Real GDP (2) Real GDP (3) Real GDP (4) 19. Which graph best represents a government stabilization policy to counteract inflation? a. 1 b. 2 c. 3 d. 4arrow_forwardQuantitative easing can be described as A, B, C OR D ONE ANSWER A the purchase of long-term government and private mortgage backed securities by central banks to make credit available so as to stimulate aggregate demand. B the purchase of long-term government and private mortgage backed securities by central banks to make credit less available so as to stimulate aggregate demand. C the buy back long-term government and private mortgage backed securities by central banks to make credit available so as to decrease aggregate demand. D the buy back long-term government and private mortgage backed securities by central banks to make credit less available so as to decrease aggregate demand.arrow_forwardA nation's economy is in short run equilibrium. The actual unemployment rate is lower than the natural rate of unemployment. A. Show each of the following using a correctly labeled graph of the long run aggregate supply curve, short run aggregate supply curve, and aggregate demand curve: i. Current price level, labeled PL1, and current output level, labeled Y1 ii. The full employment output level, labeled Yf. B. Use a correctly labeled money market graph to show how the country's central bank action can move the economy toward its long run equilibrium. Indicate how this affects the equilibrium nominal interest rate in the short run. incarrow_forward
- 11. Applying the AD-AS model Aa Aa Financial crises, such as the one that impacted many developed countries starting in 2007, decrease banks' ability and willingness to make loans. Decreased availability of credit decreases businesses' ability to make investment purchases and consumers' ability to buy goods and services. As a result, a financial crisis is a negative shock for an economy. The following graph shows an economy's aggregate demand curve and its short-run and long-run aggregate supply curves after a financial crisis has pushed it into recession. Suppose that the government decides not to use stabilization policy and allows the economy to adjust on its own. Determine which curve, the aggregate demand curve or the short-run aggregate supply curve, shifts when the economy adjusts in the long run. Use either the purple line (triangle symbols) to plot a new aggregate demand curve or the tan line (dash symbols) to plot a new short-run aggregate supply curve, to show the economy in…arrow_forward4. Let ́s suppose the economy needs to be more dynamic. Propose a policy that will achieve low levels of inflation without provoking too much unemployment: 4.a. How effective is going to be this policy under the general model of AD-AS with rigidities in the labor market. Explain and use graphs. 4.b. If the AS is based on expectations over inflation, when this policy can be fully effective? Explain and use graphs.arrow_forwardThe business cycle occurs because A. the government is constantly trying to produce an inflationary gap, but expenditures in the economy cannot keep pace with the government's agenda B. aggregate demand and short-run aggregate supply fluctuate, but the money wage rate does not adjust quickly enough to keep real GDP at potential GDP C. potential GDP is increasing, and increases in aggregate demand cannot keep pace with increases in long-run aggregate supply D. the Bank of Canada is constantly increasing the quantity of money.arrow_forward
- Which problem should ALWAYS be addressed by the Fed or by the government as a matter of priority when there is a temporary supply shock?Group of answer choices 1It is impossible to know which of the two should be addressed in all cases. 2The output problem. 3The inflation problem. 4The unemployment problem.arrow_forwardון רבSuip Reset the graph and click on the blue square to apply a negative supply shock the the economy. Then adjust the movable point to view the effects of potential policy responses to the negative supply shock. Use what you observe to answer the questions that follow. a. In response to the effects of a negative supply shock, policymakers decide to decrease aggregate demand. What are the effects of this choice? O an increase in aggregate output, and an increase in the aggregate price level an decrease in aggregate output, and an decrease in the aggregate price level an increase in aggregate output, and an decrease in the aggregate price level an decrease in aggregate output, and an increase in the aggregate price level b. What are the overall tradeoffs with regard to this choice? Policymakers have chosen to fight inflation by increasing AD, but this further reduces aggregate output and makes the recession worse. Policymakers have chosen to fight inflation by decreasing AD, but this…arrow_forwardClassify each of the following as a supply shock or a demand shock. Use a graph to show the effects on inflation and output in the short run and in the long run: a. Households and firms become more optimistic about the economy. b. Favorable weather causes an increase in crude palm oil production in Malaysia. c. Typhoon Rai hit Philippines and caused a massive destruction of houses and 400 death tolls.arrow_forward
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education