Illustrate and explain what is meant by a liquidity trap, and analyse how the 2007/8 financial crisis may have pushed many rich countries into this situation. What factors led to a gradual recovery?
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Illustrate and explain what is meant by a liquidity trap, and analyse how the 2007/8 financial crisis may have pushed many rich countries into this situation. What factors led to a gradual recovery?
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- Explain in words what you understand by the liquidity trap.With reference to data, statistics and graphs, would you conclude that over the past 20 years Slovenia experienced instances of ‘liquidity trap’? Explain.In economics, what does the term liquidity refer to? A. The ease with which an asset can be converted into cash without loss of value B. The level of profitability of a firm C. The degree of government intervention in the market D. The price of goods and services in an economy
- Under what circumstances does a liquidity trap arise and why does it lead to a failure in the above mechanisms?Briefly explain whether each of the following statements is true or false 4. The Tobin speculative demand model predicts that cash holdings decline when there is an increase in uncertainty about returns on other assets.Right now, the Federal Reserve is trying to reduce its balance sheet by making open marketsales. Use the market for reserves supply and demand model to show what would happen to thefederal funds rate, non-borrowed reserves, and borrowed reserves. (Assume that in the initialequilibrium, the downward-sloping part of the demand curve intersects the vertical part of thesupply curve. Be sure to label your graph and clearly state what happens to the federal fundsrate, borrowed reserves, and non-borrowed reserves.)b) Now, let's suppose that the Federal Reserve doesn't want to change the federal funds rate andwants to counteract the policy explained in the previous graph. What can the Federal Reserve doto keep the federal funds rate at its initial value (before the open market sale)? Clearly state apolicy different from open market operations to achieve this
- Briefly outline how each of the following theories explain the shape of the yield curve.A. Liquidity preference theoryB. Expectations theoryC. Preferred habitat theoryD. Market segmentation theoryWhat is the best explanation of liquidity premium? What is suggested by an upward sloping yield according to segmented market theory? ExplainThe Minsky Model of a Financial Crisis . Economist Hyman Minsky believed “…the financial system in a market economy is unstable, fragile, and prone to crisis.” Explain in some detail how the financial system is “unstable, fragile and prone to crisis,” according to Minsky What did the psychological term euphoria mean to Hyman Minsky? In other words, define the term as Minsky would define it Briefly specify (but do not explain) the primary case against the market system of economic organization
- In a few clear sentences; explain what liquidity trap is and under what conditions liquidity trap occurs?According to liquidity preference theory, if the price level increases, then the equilibrium interest rate Answer rises and the aggregate quantity of goods demanded rises. rises and the aggregate quantity of goods demanded falls. falls and the aggregate quantity of goods demanded rises. falls and the aggregate quantity of goods demanded falls.Read the following premise carefully and answer the questions specifically and in detail: "Financial institutions such as banks, mortgage companies and finance companies serve as intermediaries between those who have a surplus versus those who have a deficit creating a capital injection market." Explain in detail the function of the financial market and its influence on capital injection. Analyze the responsibility of the financial system in the demand for investment versus the supply of savings.
