THEBIGSHORTTHIS IS A TRUE STORYCHRISTIANBALENTEVECARELLMYANGOSLINGPITTThe Big ShortCoordinatingComprehensionQuestions1. What happened in the 1970s that would lead to the 2008 financial cri-sis?Market2. Why did Mark Baum criticize big banks?ral Debt3. What did Micheal Burry discover?4. What does it mean to "short"?5. What was the primary problem with mortgage bonds?

The objective of these questions is to understand the key events and concepts related to the 2008…

Answered: THE BIG SHORT THIS IS A TRUE STORY…

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter17: The Trade-off Between Inflation And Unemploy

Section: Chapter Questions

Problem 7DQ

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Assuming an economy have only two commercial banks in it banking system, Classic Bank and Prudent Bank. The following shows the balance sheet of the two banks as at 2019.Classic BankBalance sheet as at December, 2019GHSm GHSmAssets: Liabilities & Equity:Reserves 1,000 Deposits 3,000Securities 2,000 Equity 7,000Loans & Advances 1,000Property, Plant and Equipment 6,000 .10,000 10,000 Prudent BankBalance sheet as at December, 2019GHSm GHSmAssets: Liabilities & Equity:Reserves 600 Deposits 2,500Securities 1,500 Equity 4,400Loans & Advances 800Property, Plant and Equipment 4,000 .6,900 6,900Assume a required reserve ratio of 10%.(a) What is the amount of excess reserves in this commercial banking system? (b)What is the maximum amount that the money supply can be expanded? What would be the effect of a fall in reserve ratio to 5%, on the maximum amount that the money supply can be expanded? (c) Determine the stock of broad money supply assuming the non-bank public holds…
“Since financial crises can impart severe damage to theeconomy, a central bank’s primary goal should be toensure stability in financial markets.” Is this statementtrue, false, or uncertain? Explain.
Why is credit so important to our economy? Can the economy function without credit? https://www.imf.org/external/pubs/ft/fandd/basics/bank.htm https://www.brookings.edu/research/the-role-of-finance-in-the-economy-implications-for-structural-reform-of-the-financial-sector/ https://www.economicsdiscussion.net/banking/role-of-banks-in-the-economic-development-of-a-country/26094
During The 2007-2008 financial crisis, Sould government purchase the devalued paper, so that financial institution can clean up their balance sheet and prevent a collapse of the financial system?
Suppose a researcher discovers that a measure of thetotal amount of debt in the U.S. economy over thepast 20 years was a better predictor of inflation andthe business cycle than M1 or M2. Does this discoverymean that we should define money as equal to the totalamount of debt in the economy?
Over the last 10 years the Federal Reserve has substantially changed the way itoperates. What is different about how the Federal Reserve now conducts policy? a) It is more secretive about interest rate and other policy changes b) it gives the public forward guidance on what it will do c) it places fewer regulations on commercial banks d) it discuesses its policy in public and asks for guidance from Congress
Suppose the U.S. economy began to grow morerapidly than other countries in the world. What would bethe likely impact on U.S. financial markets as part of theglobal economy?
Goods Market: Money Market:C=50 + 0.8(Y-T) MS=490I=120-400r MD=.5y-100rG=110T=50 Suppose there is an increased risk in the financial markets. Show graphically what happens tor, Y, and P in the SR and LR using both IS/LM/FE and AD/AS. Suppose there is a huge drop in consumer confidence. Show graphically what happens to r, Y,and P in the SR and LR using both IS/LM/FE and AD/AS.
The 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
Suppose a given country experienced low and stableinflation rates for quite some time, but then inflation picked up and over the past decade had beenrelatively high and quite unpredictable. Explain howthis new inflationary environment would affect thedemand for money according to portfolio theories ofmoney demand. What would happen if the governmentdecided to issue inflation-protected securities?
In the time of Covid 19 pandemic, should central bank buy more government securities or sell more govenunent securities? Justify your answer with appropriate a diagram(s). Is this an expansion, or connactionary policy?
1. Should the biggest financial institutions be allowed to make as much revenue and profit as they want with little oversight from the U.S. Government? Why or Why not? Explain. 2. Please state your agreement or disagreement and explain why you agree or disagree for EACH statement below: A) The financial institutions understood the magnitude of the crisis B) The financial institutions understood that it was their practices that created the situation? C) The financial institutions cared and felt remorseful about the situation

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