Reason for the great recession of 2008-2009.
Explanation of Solution
The recession of 2001 induces the Fed to adopt highly expansionary
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Chapter ST5 Solutions
Microeconomics: Private and Public Choice (MindTap Course List)
- What impact does the Federal Reserve's decision to raise interest rates have on the domestic housing market in the long term?arrow_forwardIn terms of the financial crisis of 2007 and 2008, what were the factors that led to the mortgage default crisis and how did mortgage defaults affect banks involved in mortgage lending and mortgage investing? .arrow_forwardIn the years leading up to the financial crisis of 2008–2009, the market for housing can be best described as booming, driven by rising prices and increased demand due to low interest rates. stagnant, with no large variation in growth rates. booming, driven primarily by increased demand due to rising interest rates. crashing, as housing demand had declined severely since the early 1990s.arrow_forward
- If the Federal Reserve decides to raise the interest rate to solve a potential inflation problem, how will this policy decision affect your company? Don't copy pastearrow_forwardSome form of financial distress can become a full-blown recession if risk lead to ____ interest rates and ____ aggregate demand. a. lower; increased b. higher; increased c. lower; decreased d. higher; decreasedarrow_forwardWhat will happen in the bond market if the government imposes a limit on the amount of daily transactions?Which characteristic of an asset would be affected? How might it affect the interest rates?arrow_forward
- Why did the Federal Reserve lower interest rates? What other measures can the Federal Reserve take to help the economy? What is the impact of lowering interest rates on the economy?arrow_forwardWould it be advantageous to borrow money if you expected prices to rise? Would you want a fixed-rate loan or one with an adjustable interest rate?arrow_forwardExplain how financial crises lead to a credit crunch and a recession.arrow_forward
- What is the difference between real vs. nominal interest rates? What is the ‘term structure’ of interest rates? What is the current level of interest rates, and what does the Fed say will happen to interest rates in the near future?arrow_forwardThe reduction in interest rates by the Reserve Bank also stimulated the demand for housing, and some people argue there is now a house price bubble. Using a graph, explain how asset price bubbles occur and why they are inconsistent with the ‘efficient markets hypothesis.’arrow_forwardIllustrate graphically the effect the credit market crisis in the United States in 2008 had in the market for existing single-family homes. Assuming the demand for existing single-family homes is relatively inelastic, what is likely to happen to the total revenues of home sellers as a result of the credit market crisis?arrow_forward
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