Reason for the great recession of 2008-2009.
Explanation of Solution
The recession of 2001 induces the Fed to adopt highly expansionary
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- You are the chair of the president’s Council of Economic Advisers. There has been an extremely hot and dry summer due to climate change. As a result, crop production has fallen drastically. The president calls you to the White House to discuss the impact on the economy. Would you explain to the president that a sharp drop in U.S. crop production would cause inflation, unemployment, or both?arrow_forwardIf mortgage rates fell to 0 percent ("free money"), why might consumers still hesitate to borrow money to buy a home?arrow_forwardThe financial system in Jamaica has been the subject of much attention since the news broke of the alleged fraud at Stocks and Securities Limited (SSL). The governor of the Bank of Jamaica (BOJ) has been fielding calls from concerned investors, international financial institutions, and even other regional regulators concerning the impact of this situation and the negative media reporting would have on the stability of the financial system in Jamaica and the Caribbean region.The governor would like to preserve confidence in the financial markets and institutions and has decided to embark on a series of educational “road-shows” where he will address targeted stakeholders such as the American Chamber of Commerce (AMCHAM), investor groups and the media.In this regard, the governor has assigned your team of senior professionals employed at the Bank of Jamaica to prepare a presentation slide deck for his address. Give an overview of the structure of the Jamaica financial systemThe role of…arrow_forward
- When the United States economy goes through a period of extended growth, the economy is said to be heating up! Unemployment is low and companies are increasing workers’ wages above the national minimum wage. The Federal Reserve (FED) is concerned that these wage increases will result in inflation; higher prices throughout the economy. What can the FED do?arrow_forwardPredict how possible changes in monetary and/or fiscal policy may impact the supply and demand of the iPhone.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_forward
- 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 banks 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…arrow_forwardSuppose that people in France decide to permanently increase their savings rate. Predict what will happen to the French bond market in the future. Please answer the question by drawing the appropriate supply-and-demand diagram.arrow_forwardWhat is a mortgage? What were the important developments in the mortgage market during the years after 1970?arrow_forward
- For the following questions, make use of provided information. Since the peak of the pandemic shutdowns, employment has been increasing. Unemployment peaked around 15% in April 2020, and was down to approximately 4% in February 2022. At the same time, estimated inflation rates have increased from approximately 1.5% in January 2021 to nearly 8% in February 2022. The Federal Open Market Committee (FOMC) is meeting this week (March 15-16). It is widely expected that they will increase interest rates by 0.25% (25 basis points). Explain why the FOMC is expected to increase its target overnight interest rate.arrow_forwardFor the following questions, make use of provided information. Since the peak of the pandemic shutdowns, employment has been increasing. Unemployment peaked around 15% in April 2020, and was down to approximately 4% in February 2022. At the same time, estimated inflation rates have increased from approximately 1.5% in January 2021 to nearly 8% in February 2022. The Federal Open Market Committee (FOMC) is meeting this week (March 15-16). It is widely expected that they will increase interest rates by 0.25%. Explain why the FOMC is expected to increase its target overnight interest rate.arrow_forwardInflation during the 1970s was much higher than most people had expected when the decade began. How did this affect homeowners who obtained fixed-rate mortgages during the 1960s? How did it affect the banks that lent the money?arrow_forward
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