Economics (6th Edition)
6th Edition
ISBN: 9780134105840
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Question
Chapter 24, Problem 24.4.9PA
To determine
The housing bubble and how it caused a recession.
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After a series of measures to remedy the mortgage crisis that has beset the US economy, Ben Bernanke, chairman of the Board of Governors of the Federal Reserve and his colleagues are once again looking at cutting the central bank’s key interest rate as they hope that lowering the interest rates will give the economy a boost by encouraging investors and consumers to borrow and spend (Associated Press, n. pag.). The Fed is looking at slashing the interest rate by a full percent however, many economist believe that this is not the appropriate remedy for economic conundrum (Gavin, n. pag).
According to many analysts, the issue of the economy regarding the mortgage is the lack of confidence by both the lender and the borrower. Even as the Fed resorts to drastic interest cuts, the first time the central bank has cut a full percentage point in one shot since 1982, this provides little help if lenders are not loaning money out of fear they will not be repaid and the borrowers…
2. Briefly explain why the following would cause the Aggregate Demand curve to shift to the right(an increase), or to the left(a decrease):an increase in interest rates
Identify and briefly discuss the three reasons the aggregate demand curve slopes downward. Are these reasons the same as the reasons that the demand curve for an individual product, such as bananas, slopes downward? Briefly explain.
Chapter 24 Solutions
Economics (6th Edition)
Ch. 24 - Prob. 24.1.1RQCh. 24 - Prob. 24.1.2RQCh. 24 - Prob. 24.1.3RQCh. 24 - Prob. 24.1.4RQCh. 24 - Prob. 24.1.5PACh. 24 - Prob. 24.1.6PACh. 24 - Prob. 24.1.7PACh. 24 - Prob. 24.1.8PACh. 24 - Prob. 24.1.9PACh. 24 - Prob. 24.1.10PA
Ch. 24 - Prob. 24.1.11PACh. 24 - Prob. 24.2.1RQCh. 24 - Prob. 24.2.2RQCh. 24 - Prob. 24.2.3RQCh. 24 - Prob. 24.2.4RQCh. 24 - Prob. 24.2.5PACh. 24 - Prob. 24.2.6PACh. 24 - Prob. 24.2.7PACh. 24 - Prob. 24.2.8PACh. 24 - Prob. 24.2.9PACh. 24 - Prob. 24.2.10PACh. 24 - Prob. 24.2.11PACh. 24 - Prob. 24.2.12PACh. 24 - Prob. 24.2.13PACh. 24 - Prob. 24.2.14PACh. 24 - Prob. 24.3.1RQCh. 24 - Prob. 24.3.2RQCh. 24 - Prob. 24.3.3RQCh. 24 - Prob. 24.3.4PACh. 24 - Prob. 24.3.5PACh. 24 - Prob. 24.3.6PACh. 24 - Prob. 24.3.7PACh. 24 - Prob. 24.3.8PACh. 24 - Prob. 24.3.9PACh. 24 - Prob. 24.3.10PACh. 24 - Prob. 24.4.1RQCh. 24 - Prob. 24.4.2RQCh. 24 - Prob. 24.4.3RQCh. 24 - Prob. 24.4.4PACh. 24 - Prob. 24.4.5PACh. 24 - Prob. 24.4.6PACh. 24 - Prob. 24.4.7PACh. 24 - Prob. 24.4.8PACh. 24 - Prob. 24.4.9PACh. 24 - Prob. 24.4.10PACh. 24 - Prob. 24.1RDECh. 24 - Prob. 24.2RDECh. 24 - Prob. 24.3RDE
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- 3. Briefly explain why the following would cause the Aggregate Demand curve to shift to the right(an increase), or to the left(a decrease): expectations that the economy will perform very well in the near futurearrow_forwardBriefly explain in a paragraph or two why you would rather be a borrower during a period of unexpected rising inflation, and a lender during a period of unexpected declining inflation.arrow_forwardBriefly explain how each of the following events would affect the aggregate demand curve a) higher interest rates b) faster income growth in other countries c) an increase in the value of the U.S dollar relative to foreign currenciesarrow_forward
- how do you define Aggregate Demand? Give a few example in our current economy. (Paragraphs)arrow_forwardIn 2010 the Greek government had to inform the European Commission on how it would control its budget deficit and improve the performance of its economy. The government’s debt is so high that agencies assessing the creditworthiness of the government downgraded it (which would mean more interest has to be paid to raise finance). Proposals were likely to include a 10% cut in government spending. What actions can the government take to increase national income growth in Greece? If the Greek economy is in recession what would you expect to be the effect on: a) Inflation? b) Unemployment? c) Imports? Explain your answers.arrow_forwardWhat is generally true of consumers in a recession? a. The rich suffer as the poor cut back on spending Ob. Everyone cuts back on spending, but only the low income consumer segments suffer. Everyone suffers and cuts back on spending c Od Many reallocate spending and buy less-on credit cards.arrow_forward
- What is the impact of recession in our economy?(please do not copy answers on the internet, thank you)arrow_forwardWhat are the key indicators and factors that contribute to the onset of a recession in an economy?arrow_forwardDraw an aggregate demand and supply graph to show the effects of a decrease in interest rates in the short run and long runarrow_forward
- According to graph1 why and how a decrease in the blue line could cause a decrease in the orange line? Explain with two sentences. Graph2 displays a sharper decrease on the black line than the green line at the beginning of the recession. Why? 200 190 180 170 160 150 140 Graph 1: 130 120 2003:01 2003:02 2003:03 2003:04 2004:01 2004:02 2004:Q3 2004:04 2005:01 2005:02 2005:03 2005:04 Recession TO:900Z 2006:02 2006:03 2006:04 2007:01 2007:02 2007:03 2007:04 2008:01 2008:02 2008:03 2008:04 2009:01 2009:02 2009:0Q3 2009:04 2010:01 S&P/Case-Shiller U.S. National Home Price Index (left) Personal Consumption Expenditures (right) 10500 10000 9500 9000 8500 8000 7500 Carrow_forwardWhat caused the Great Recession of 2008 in the United States?arrow_forwardConsider the following dialogue about the crash of the housing market and the Great Recession of 2007–2009 between two students in a economics class. Fill in the blank ALEX: Hi, Becky. I’m intrigued to see how macroeconomics allows us to explain recent economic events such as the Great Recession that affected so many people. But there’s one thing I don’t understand. Was the collapse of the housing bubble the only cause of the recession, or were there other factors as well? BECKY: Hi, Alex. I agree that macroeconomic theory offers an entirely new perspective on how the economy works. To answer your question, the crash of the housing market was a major factor but not the only cause of the Great Recession. The professor mentioned that the __________ (options: financial, fiscal, government) system deteriorated as well, an event that deepened the economic downturn even further. ALEX: I see. So the bursting of the housing bubble caused the initial decline in aggregate demand. Then the…arrow_forward
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