Question 1

What were the political and social costs of the bailout of the U.S. financial industry?

Accepted Answer

Most of the people who benefited from the bailout were wealthy- certainly wealthier than average. The wealth that didn't fall because of the bailout was mostly wealth of high-income people-people holding the bonds of the financial institutions. Also, the jobs in the financial institutions that were saved were mostly jobs of high-income earners. People who will pay for the bailout in the long run are the U.S. taxpayers, who are on average less wealthy than those who benefited from the bailout. The bailout thus likely had, or at least was perceived by many to have had, bad income distribution consequences, which put a strain on the body politic.

Question 2

-Using the graph above, suppose it takes policy makers from time t2 to time t4 to take an action to stimulate the economy. What kind of policy lag is this and why does it happen?

Accepted Answer

This is an example of an implementation lag. It take Congress time to react. After all, it's a 535 member body with the House and the Senate having to pass legislation for eventual signing by the president.

Question 3

What is the Standard and Poor's 500?

Accepted Answer

It is an index based on the stock prices of 500 of the largest firms by market value.

Question 4

How might an increase in stock prices lead to increases in investment?

Accepted Answer

The answer of How might an increase in stock prices...

Question 5

When is the Fed more likely to decrease the money supply and why?

Accepted Answer

The answer of When is the Fed more likely to...

Question 6

Use the Economics in Practice titled "Financial Reform Bill" to answer the following question. What were the primary provisions of the Financial Reform Bill as described in the article as it applied to consumers and borrowers?

Accepted Answer

The answer of Use the Economics in Practice titled "Financial...

Question 7

How is the Fed likely to respond during periods of excessive expansionary growth that is characterized by strong inflationary pressures? Make sure to include in your answer the change in the money supply and interest rates.

Accepted Answer

The answer of How is the Fed likely to respond...

Question 8

Suppose that there is a stock market crash in which the market loses twenty percent of its value in one day. Furthermore, assume that the crash leads to further pessimism that the market will crash again. What likely impact will this have on GDP and why?

Accepted Answer

The answer of Suppose that there is a stock market...

Question 9

How and why does the stock market and housing market affect consumption?

Accepted Answer

The answer of How and why does the stock market...

Question 10

-Using the graph above, if policy makers decide on a policy at point t3 but it does not affect the economy until period t6, then how might this be a problem?

Accepted Answer

The answer of 
-Using the graph above, if policy makers...

Question 11

Use the Economics in Practice titled "Financial Reform Bill" to answer the following question. What were the provisions of the Financial Reform Bill as described in the article as it applied to the use of market derivatives?

Accepted Answer

The answer of Use the Economics in Practice titled "Financial...

Question 12

When is the Fed more likely to increase the money supply and why?

Accepted Answer

The answer of When is the Fed more likely to...

Question 13

What is the NASDAQ composite?

Accepted Answer

The answer of What is the NASDAQ composite?...

Question 14

What is meant by the use of the phrase "financial crisis" and how is it used?

Accepted Answer

The answer of What is meant by the use of...

Question 15

What is the Dow Jones Industrial Average?

Accepted Answer

The answer of What is the Dow Jones Industrial Average?...

Question 16

-Using the graph above, if the economy is actually at Point C but policy makers think that it is still at Point B, what kind of lag problem is this? Why might this happen?

Accepted Answer

The answer of 
-Using the graph above, if the economy...

Question 17

What might have happened had the U.S. financial system not been "bailed out" by the federal government?

Accepted Answer

The answer of What might have happened had the U.S....

Question 18

How is the Fed likely to respond during periods of recessionary decline? Make sure to include in your answer the change in the money supply and interest rates.

Accepted Answer

The answer of How is the Fed likely to respond...

Question 19

Use the Economics in Practice titled "Bernanke's Bubble Laboratory: Princeton Protégés of Fed Chief Study the Economics of Manias" to answer the following question. According to the article what is the explanation for why bubbles emerge?

Accepted Answer

The answer of Use the Economics in Practice titled "Bernanke's...

Question 20

-Using the graph above, if the economy is currently at Point B and policy makers implement a policy which shifts the aggregate demand curve to AD1, identify the lag that refers the amount of time necessary for the economy to react to this change.

Accepted Answer

The answer of 
-Using the graph above, if the economy...

Quiz 15: Financial Crises, Stabilization, and Deficits

What were the political and social costs of the bailout of the U.S. financial industry?

-Using the graph above, suppose it takes policy makers from time t2 to time t4 to take an action to stimulate the economy. What kind of policy lag is this and why does it happen?

What is the Standard and Poor's 500?

How might an increase in stock prices lead to increases in investment?

When is the Fed more likely to decrease the money supply and why?

Use the Economics in Practice titled "Financial Reform Bill" to answer the following question. What were the primary provisions of the Financial Reform Bill as described in the article as it applied to consumers and borrowers?

How is the Fed likely to respond during periods of excessive expansionary growth that is characterized by strong inflationary pressures? Make sure to include in your answer the change in the money supply and interest rates.

Suppose that there is a stock market crash in which the market loses twenty percent of its value in one day. Furthermore, assume that the crash leads to further pessimism that the market will crash again. What likely impact will this have on GDP and why?

How and why does the stock market and housing market affect consumption?

-Using the graph above, if policy makers decide on a policy at point t3 but it does not affect the economy until period t6, then how might this be a problem?

Use the Economics in Practice titled "Financial Reform Bill" to answer the following question. What were the provisions of the Financial Reform Bill as described in the article as it applied to the use of market derivatives?

When is the Fed more likely to increase the money supply and why?

What is the NASDAQ composite?

What is meant by the use of the phrase "financial crisis" and how is it used?

What is the Dow Jones Industrial Average?

-Using the graph above, if the economy is actually at Point C but policy makers think that it is still at Point B, what kind of lag problem is this? Why might this happen?

What might have happened had the U.S. financial system not been "bailed out" by the federal government?

How is the Fed likely to respond during periods of recessionary decline? Make sure to include in your answer the change in the money supply and interest rates.

Use the Economics in Practice titled "Bernanke's Bubble Laboratory: Princeton Protégés of Fed Chief Study the Economics of Manias" to answer the following question. According to the article what is the explanation for why bubbles emerge?

-Using the graph above, if the economy is currently at Point B and policy makers implement a policy which shifts the aggregate demand curve to AD1, identify the lag that refers the amount of time necessary for the economy to react to this change.