Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 18, Problem 8QP
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Explain how the bailouts are referred to “double-edged sword”.
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Why aren't more resources being allocated to sufficient prudential oversight of the financial system in order to rein in excessive risk-taking, when it is evident that such monitoring is necessary to avoid financial crises?
How a decline in housing prices can trigger the subprime financial crisis in advanced economics? Explain in detail.
Why aren't greater resources given to prudential regulation of the financial sector because it is obviously necessary to avert financial crises?
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- Define “financial frictions” in your own termsarrow_forwardWhy was the Term Auction Facility more widely used by financial institutions than the discount window during the global financial crisis?arrow_forwardWhich of the following is TRUE about financial regulations? *A. Financial regulations makes the financial system organized, stable and maintain its integrity.B. Financial regulations are not always required in the financial system because financial institutions are already regulated by designated government agencies.C. Financial who are privately trading inside information are highly acceptable in the financial system.D. Financial regulations are laws that are not necessarily need to be enforced.E. None of the choices.arrow_forward
- Suppose that Dmitri, an economist from a research institute in Texas, and Frances, an economist from a public television program, are arguing over government bailouts. The following dialogue shows an excerpt from their debate: Frances: Thanks to recent financial crises, the concept of bailouts is a hot topic for debate among everyone these days. Dmitri: Indeed, it's gotten crazy! A government bailout of severely distressed financial firms is unnecessary because free markets will properly price assets. Frances: I don't know about that. Without a bailout of severely distressed financial firms, the economy will experience a deep recession. The disagreement between these economists is most likely due to: differences between perception versus reality differences in scientific judgments differences in values Despite their differences, with which proposition are two economists chosen at random most likely to agree? a. Central banks should focus more on maintaining low…arrow_forwardWhy has the government pumped billions into bank bailouts to prevent them from collapsing?arrow_forwardCould you add more information regarding the below statement? "I do agree with the notion that the Federal Reserve is the most important financial institution in the world. The reason being that it plays such a pivotal role in the economy - for better or for worse. For example, the federal reserve supervises banking institutions and provides many financial services to the U.S government. In addition, the federal reserve has the power to regulate the economy when it is unstable. For example, the Federal Reserve has the ability to manipulate interest rates in order to stabilize the economy when it is needed most. Overall, without the Fed, the economy would have a much more difficult time maintaining itself. When it comes to inflation specifically, I do believe that the Federal Reserve should step in as it is their responsibility. I think that increasing interest rates could be a significant help, but I think that decreasing the money supply/circulation as well as selling bonds could help…arrow_forward
- How are monetary and fiscal government policies being affected by this corona virus pandemic ? And give examplesarrow_forwardHow does the “too big to fail” increase moral hazard? Can you cite an example from the 2007-2009 financial crisis? [Hint: The “too big to fail” denotes a situation where some financial institutions are significantly important to the whole financial and economic system, and these financial institutions will not be allowed to fail, as the cost to the economy due to their failure will be huge].arrow_forwardWhy aren't more resources dedicated to ensuring adequate prudential oversight of the financial system, given that it's clear that such monitoring is necessary to forestall financial crises?arrow_forward
- What is leverage, and why is it so important in understanding the financial crisis?arrow_forwardConsidering all the bailout money the public has been made responsible for, is the existence of banks and non-bank financial institutions worth it, or would it have been cheaper to the public to simply keep all our money under our mattresses?arrow_forwardWhy does stock market go down, when treasury yields go up?arrow_forward
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