Impact of stock market crash on different economies.
Explanation of Solution
Asia experienced stock markets crash in 1997, as a result, Hong Kong’s was down nearly 30 percent, Thailand’s was down nearly 62 percent and Malaysia was also down around 60 percent. Situation was same in Japan and Korea. Such large drops negatively affect the wealth of households in these countries. Therefore people starts to spend less. As a result consumption decreases which leads to decrease in
These events also affect U.S economy very badly. Mainly, there are several Americans are invested in foreign countries. Therefore when the stock markets collapsed in Asia, would create a modest wealth effect in the U.S market. Another problem faced by the U.S economy was, when the recession occurs in the foreign countries mean that, they would reduce the consumption from the U.S economy as a result, the export demand of U.S falls. Finally, one of the main problem was import prices from Asian countries would fall when these countries compete with U.S firms.
Concept introduction:
Stock market: Stock market can be defined as the place where the buying and selling of equities or stocks of publically held companies.
Want to see more full solutions like this?
Chapter 15 Solutions
EBK PRINCIPLES OF MACROECONOMICS
- Activities in financial markets have direct effects on individual wealth, the behavior of business, and the efficiency of the economy. Three financial markets deserve particular attention: the bond market, the stock market, and the foreign exchange market. Can you explain how each one of these markets affects people's wealth, business behavior, and efficiency of the economy? Be specific about the relationship between these markets and their impact on the above-mentioned variables.arrow_forwardWhich of these are characteristics of the economy that led to the Crash of 1929? New roads and electricity grids are built. New roads and electricity grids are built. Store credit becomes available. Store credit becomes available. New technologies like television are introduced. New technologies like television are introduced. The end of World War II leads to the opening of new markets. The end of World War II leads to the opening of new markets. More companies offer stocks. More companies offer stocks. Low interest rates are available. Low interest rates are available. Growth in the stock market encourages new investors. Growth in the stock market encourages new investors.arrow_forwardIn the long run, what happens to interest rates when the government increases taxes in closed economy? Could you help me provide insight on how interest rates are effected by increased taxed in closed economy.arrow_forward
- Governments closely monitor the growth and contraction of their economies in order to manage the well-being of their citizens. When economies grow, well-being generally increases. When economies contract, the resulting reduced consumption usually causes hardship. To avoid contraction (also called recession), governments use fiscal and monetary policies to stimulate the economy. Fiscal policy operates based on government budgets, spending, and tax rates. Monetary policy is a tool of central banks and consists of changes to monetary supply and interbank lending rates. For this activity, What is today’s U.S. Federal Reserve Bank’s discount rate? When did the discount rate last change and why? Look for trends and predictions. What is the consensus? What about this consensus should make people feel secure or anxious?arrow_forwardSuppose that the central bank in the UK (The Bank of England) decides to raise interest rates because it is worried about high inflation. As a result, interest rates in the UK become higher than interest rates in the REST OF EUROPE. This acts as an incentive for EUROPEAN investors to increase the amount of funds they invest in British (UK) interest bearing assets. In order to increase their purchases of those UK assets, which are priced in PST, EUROPEAN investors have to convert EUR into PST. This conversion, in turn, increases the demand for PST. Based on the above information, please explain what will happen to the EUR–‐‑PST exchange rate. In other words, will the increased demand for PST, make PST gain value (appreciatearrow_forwardwhich of the following is NOT correct with respect to the Efficient Market Hypothesis? If markets are semi-strong form efficient, then fundamental analysts would not be able to earn abnormally good returns, after considering the risk they assume Semi-strong form efficiency says that if a company announces a labor strike, the stock price very quickly adjusts downward Evidence suggests that markets are NOT strong form efficient, since insiders could make abnormally good returns trading on private information. However, that is illegal Semi-strong form efficiency says that when Stryker makes an earning announcement, the stock price quickly reflects the new information Weak form efficiency says that technical analysts who study charts of stock prices and volumes can regularly make abnormally good returns, after considering the risk the assumearrow_forward
- Suppose the price of a basket of goods costs $25 in country x and ¥300 in country y. suppose the price level in country x and y is expected to rise by 5% and 10%,respectively, in next year. If the current interest rate in country X is 10%, what would you expect the interest rate to be in country y?arrow_forwardAssume that the housing market is in equilibrium in year 1. In year 2, the mortgage rate that banks charge consumers decreases, but producers are not affected. Which of the following is most likely to be the equilibrium change? a The equilibrium will be at point C before the change in expectations and point A after the change b The equilibrium will be at point A before the change in expectations and point B after the change c The equilibrium will be at point A before the change in expectations and point C after the change d The equilibrium will be at point E before the change in expectations and point C after the changearrow_forwardIf speculators bid up the value of the U.S. dollar in the market for foreign exchange, then U.S. goods become more expensive relative to foreign goods so aggregate demand shifts right. U.S. goods become less expensive relative to foreign goods so aggregate demand shifts right. U.S. goods become more expensive relative to foreign goods so aggregate demand shifts left. U.S. goods become less expensive relative to foreign goods so aggregate demand shifts left.arrow_forward
- Describe the Chadwick report.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_forwardDuring 2015, there was a substantial increase in stock prices, as well as a reduction in the world price of crude oil. How did the stock and oil price changes influence aggregate demand and aggregate supply in the United States? Check all that apply. These two changes would result in a temporary increase in output. The decrease in the world price of crude oil would cause the SRAS curve to shift to the right. The decrease in the world price of crude oil would cause the LRAS curve to shift to the left. The increase in stock prices would cause the AD curve to shift to the right.arrow_forward
- Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning