Chapter 11 The Federal Reserve System, the Housing Bubble and the Subsequent Recession

Size: px
Start display at page:

Download "Chapter 11 The Federal Reserve System, the Housing Bubble and the Subsequent Recession"

Transcription

1 Chapter 11 The Federal Reserve System, the Housing Bubble and the Subsequent Recession The Federal Reserve System (Fed) is the U.S. central bank. The governing body of the Fed is the Board of Governors, headed by the Chairman of the Board of Governors (Ben Bernanke). Functions of the Fed: 1. Control the money supply. 2. Supervise and regulate banking institutions. 3. Serve as the lender of last resort. 4. Hold banks reserves. 5. Supply the economy with currency. 6. Provide check-clearing services. Monetary base currency in circulation plus bank reserves (vault cash plus bank deposits with the Fed). When the Fed makes a purchase or a sale, the monetary base changes. Note: Refer to Examples 1A and 1B in the textbook. When the monetary base changes, the money supply changes by a multiplied amount. The actual money multiplier measures the change in the money supply for a given dollar change in monetary base. Actual money multiplier = Change in Money Supply Change in Monetary Base For example: The Fed increases the monetary base by $150 million. The money supply increases by $375 million. The actual money multiplier is 2.5 ($375 million $150 million = 2.5). Tools for controlling the money supply: 1. Open market operations the Fed buying and selling U.S. govt. securities in the open market. If the Fed buys securities in the open market, bank reserves increase, which leads to money creation. To reduce the money supply, the Fed would sell securities. Most important monetary policy tool. Note: Refer to Example 3 in the textbook or make up your own example. 2. Changing the reserve requirement. Lowering the reserve ratio would increase the money supply. Note: Refer to Example 4 in the textbook or make up your own example. Instructor s Manual 11-1

2 3. Changing the discount rate (the interest rate the Fed charges banks that borrow reserves from it). A bank in need of reserves can borrow from other banks (federal funds market) or from the Fed. Borrowing from the Fed will increase the money supply. Lowering the discount rate will increase the money supply. The economy entered into a recession in December of Note: Refer to the statistical data about Real GDP, the unemployment rate, the DJIA, and the budget deficit. The primary cause of the recession was the credit crisis arising from the bursting of the housing bubble. Note: Refer to the statistical data about home prices and to Example 5 on page Mortgage interest rates generally fell from 1982 through Note: Refer to Example 6 on page Mortgage interest rates in the U.S. were kept low by an influx of savings from other countries. Much of this saving was invested in mortgage-backed securities issued by Wall Street firms. The low mortgage interest rates contributed to the housing bubble by keeping monthly mortgage payments affordable for more buyers even as home prices rose. Fed policies caused short-term interest rates to be extremely low from 2002 to The low short-term interest rates contributed to the housing bubble by: (1) Encouraging the use of adjustable rate mortgages. ARMs made mortgage payments affordable for more buyers and thus contributed to rising home prices. For example: The monthly principal and interest payment on a $200, year fixed rate mortgage with an interest rate of 6% would be about $1200. The monthly principal and interest payment on a $200, year ARM with an initial interest rate of 4% would initially be only about $950. (2) Encouraging leveraging (investing with borrowed money). Leveraging could increase investors returns. For example: XYZ Company invests $10 million in mortgage-backed securities paying 7% interest. XYZ s return on equity is 7%. If XYZ borrows $100 million on short-term loans at 4% interest in order to invest an additional $100 million in mortgage-backed securities paying 7% interest, XYZ is now leveraged at 10 to 1 ($10 in debt for every $1 in equity). XYZ s return on equity will now be 37% (profit of $3.7 million on equity of $10 million). Leveraging increased the financing available for mortgage lending and thus contributed to rising home prices. Instructor s Manual 11-2

3 The impact of the bursting of the housing bubble was increased by the degree of leverage in the economy. For example: The bursting of the housing bubble led to increased mortgage foreclosures and caused the value of mortgage-backed securities to fall. If the value of the mortgagebacked securities held by XYZ Company from Example 8A falls by more than $10 million, XYZ Company becomes insolvent and will be unable to obtain new short-term financing. XYZ is forced to deleverage by selling some of its holdings of mortgagebacked securities. Many other highly-leveraged firms are going through the same deleveraging process, driving the price of mortgage-backed securities still lower. In the mid 1990s, new governmental policies were enacted that contributed to a relaxing of standards for mortgage loans. Note: Refer to the changes in the Community Reinvestment Act and the changes in the standards for Fannie Mae and Freddie Mac. With the internet came greater competition in the mortgage loan market. The greater competition contributed to relaxed mortgage standards. As the housing market heated up, lenders relaxed their mortgage standards even further. Loan originators who practiced originate to sell felt little concern for the longterm credit-worthiness of borrowers. Mortgage loans were originated and then quickly sold to investment banks, who issued mortgage-backed securities. The relaxing of mortgage standards is exemplified by the increase in subprime mortgages. Subprime mortgages increased from 5% of new home loans in 1994 to 20% in Irrational exuberance (a heightened state of speculative fervor) played a key role in the housing bubble. All the participants who contributed to the housing bubble acted on the assumption that home prices would continue to rise. Note: Refer to Example 11 on page Home prices kept rising for a long time, rewarding those who contributed to the housing bubble. For example: If the average homeowner had sold their home in the 1 st quarter of 2003, for fear of the housing bubble bursting, they would have sold it for 28% less than they could have received in the 2 nd quarter of 2007, one year after home prices peaked. The S&P/Case-Shiller Index was at in the 1 st quarter of 2003 and was at in the 2 nd quarter of It is not necessarily good to avoid irrational exuberance. Instructor s Manual 11-3

4 For example: At the time Alan Greenspan made his irrational exuberance comment, the Dow Jones Industrial Average had risen by an incredible 364% over the previous nine years, and stood at However, this would not have been a good time for an investor to bail out of the stock market. The DJIA would increase by another 75% over the next three years. When the housing bubble burst, mortgage default rates began to rise. For example: Home prices fell by less than 2% from the 2 nd quarter of 2006 to the 4 th quarter of Foreclosure start rates increased by 43% over these two quarters, and increased by 75% in 2007 compared to Falling home prices meant that ARMs could not be refinanced. For example: Foreclosure rates for adjustable rate mortgages increased much more than foreclosure rates for fixed rate mortgages. From the 2 nd quarter of 2006 to the end of 2007, foreclosure rates for fixed rate mortgages increased by about 55% (prime) and about 80% (subprime). During this same time period, foreclosure rates for ARMs increased by about 400% (prime) and about 200% (subprime). Falling home prices reinforced the continuing fall in home prices: (1) The increase in foreclosures added to the inventory of homes available for sale. (2) The increase in foreclosures made it difficult for investment banks to issue new mortgage-backed securities. Most of the losses caused by the bursting of the housing bubble fell not on homeowners but on the financial system, especially investment banks, mortgage lenders, foreign investors, and insurance companies. The bursting of any housing bubble would hurt the economy: (1) The decline in home building would reduce GDP. (2) The decrease in home prices would reduce consumption due to the wealth effect. The bursting of this housing bubble sent a shock through the entire financial system, increasing the perceived credit risk. For example: The TED spread is the difference between the interest rate on three-month U.S. treasury bills and the interest rate on three-month interbank loans as measured by the London Interbank Offered Rate (LIBOR). The TED spread is considered a good indicator of the perceived credit risk in the economy. Historically, the TED spread has ranged between.2% and.5%. In August of 2007, the TED spread jumped above 1% and generally stayed between 1% and 2% until mid-september of 2008, when it began spiking upward, reaching a record level of over 4.5% on October 10, The TED spread finally fell back below.5% in June of The increased perceived credit risk decreased investment spending. For example: Real investment spending decreased by 33% from the third quarter of 2007 to the second quarter of By contrast, real consumption spending decreased by only 2% over this time period. Instructor s Manual 11-4

5 When the credit crisis arose, the federal government began to intervene in the economy in unprecedented ways. The Fed lowered the federal funds rate and greatly increased the money supply. The Fed loaned billions of dollars to financial institutions. The Fed provided loans to facilitate the purchase of Bear Stearns and to prevent the bankruptcy of AIG. The federal government placed Fannie Mae and Freddie Mac into conservatorship and injected new capital into the GSEs. The federal government enacted four stimulus plans, in February of 2008, in October of 2008, in February of 2009, and in December of The one essential cause of the housing bubble was irrational exuberance. The housing bubble would not have occurred without the widespread belief that home prices would continue to rise. Questions for Chapter 11 Fill-in-the-blanks: 1. The Federal Reserve System is the U.S. central bank. 2. The most important function of the Fed is controlling the money supply. 3. The federal funds rate is the interest rate one bank charges another bank to borrow reserves. 4. The discount rate is the interest rate the Fed charges banks that borrow reserves from it. 5. _Leveraging is investing with borrowed money. 6. _Subprime mortgages are home loans given to persons who are considered a poor credit risk. 7. _Irrational _exuberance is a heightened state of speculative fervor. Multiple Choice: d. 1. The functions of the Fed include: a. holding banks reserves b. supplying the economy with currency c. controlling the money supply a. Holding banks reserves is one of the functions of the Fed. b. Supplying the economy with currency is one of the functions of the Fed. c. Controlling the money supply is one of the functions of the Fed. d. All of the answers are correct. Instructor s Manual 11-5

6 c. 2. A bank in need of reserves: a. will usually borrow reserves from other banks b. as a last resort, may borrow from the Fed a. The usual practice for a bank in need of reserves would be to borrow from other banks in the federal funds market. b. As a last resort, a bank in need of reserves may borrow from the Fed. c. Both answers a. and b. are correct. d. Both answers a. and b. are correct. d. 3. Monetary base consists of: a. currency in circulation b. bank reserves c. checkable deposits d. Both a. and b. above a. See answer d. b. See answer d. c. See answer d. d. Monetary base consists of currency in circulation plus bank reserves. c. 4. If the monetary base increases by $200 million and the money supply increases by $550 million, the actual money multiplier is: a..36 b c d. 5.5 a. See answer c. b. See answer c. c. Actual money multiplier = Change in Money Supply Change in Monetary Base = $550 million $200 million = 2.75 d. See answer c. c. 5. Open market operations refers to the Fed: a. acting as lender of last resort for banks b. changing the required-reserve ratio c. buying and selling U.S. government securities in the open market a. See answer c. b. See answer c. c. When the Fed buys and sells U.S. government securities in the open market this is open market operations. d. 6. If the Fed buys U.S. government securities in the open market: a. bank reserves will increase b. monetary base will increase c. the money supply will increase by a multiplied amount Instructor s Manual 11-6

7 a. If the Fed buys U.S. government securities in the open market, bank reserves will increase. b. If the Fed buys U.S. government securities in the open market, monetary base (which includes bank reserves) will increase. c. If the Fed buys U.S. government securities in the open market, the increase in monetary base will set off the money creation process, resulting in a multiplied increase in the money supply. d. All of the answers are correct. d. 7. If the Fed lowers the reserve ratio: a. banks will be short on reserves b. the money supply will decrease a. If the Fed lowers the reserve ratio, banks will have excess reserves. b. If the Fed lowers the reserve ratio, the money supply will increase. c. Neither of the answers is correct. d. Neither of the answers is correct. d. 8. When a bank borrows from the Fed: a. the interest rate paid is the discount rate b. the Fed is injecting new reserves into the financial system c. the money supply increases a. When a bank borrows from the Fed, the interest rate the Fed charges the bank is called the discount rate. b. When a bank borrows from the Fed, the reserves in the financial system increase. c. When a bank borrows from the Fed, the increase in reserves causes the money supply to increase by a multiplied amount. d. All of the answers are correct. b. 9. The Fed can decrease the money supply by: a. lowering the required-reserve ratio b. selling U.S. government securities in the open market c. lowering the discount rate a. Lowering the required-reserve ratio would increase the money supply. b. Selling U.S. government securities in the open market would decrease the money supply. c. Lowering the discount rate would increase the money supply. d. Only answer b. is correct. c. 10. The Fed s most important tool for controlling the money supply is: a. printing more currency b. changing the discount rate c. open market operations d. changing the required-reserve ratio Instructor s Manual 11-7

8 a. See answer c. b. See answer c. c. The Fed s most important tool for controlling the money supply is open market operations. d. See answer c. _b._ 11. During the recession caused by the bursting of the housing bubble: a. Real GDP decreased by over 5% for the year 2008 b. the unemployment rate more than doubled from November of 2007 to October of 2009 a. Real GDP was flat for the year b. The unemployment rate did more than double, from 4.7% to 9.7%. c. Only answer b. is correct. d. Answer b. is correct. _d._ 12. From the 1 st quarter of 1997 to the 1 st quarter of 2009: a. home prices increased by a steady 5% per year b. home prices increased by over 132% and then decreased by over 32% c. home prices increased by about 57% d. Both b. and c. above a. This is incorrect. b. The home price index increased by over 132% from the 1 st quarter of 1997 to the 2 nd quarter of 2006, and then decreased by over 32% from the 2 nd quarter of 2006 to the 1 st quarter of c. Home prices increased by about 57% over this entire period. d. Both b. and c. are correct. _b._ 13. During the housing bubble, mortgage interest rates were low: a. because of the high savings rate in the U.S. b. because of an influx of savings entering the U.S. from other countries a. The savings rate in the U.S. was low. b. The influx of savings entering the U.S. from other countries helped to keep mortgage rates low. c. Only answer b. is correct. d. Answer b. is correct. _a._ 14. The low short-term interest rates from 2002 to 2004: a. encouraged the use of adjustable rate mortgages b. forced mortgage lenders to deleverage, thus triggering the bursting of the housing bubble Instructor s Manual 11-8

9 a. The low short-term interest rates encouraged the use of ARMs. b. The low short-term interest rates encouraged leveraging not deleveraging. c. Only answer a. is correct. d. Answer a. is correct. _c._ 15. Leveraging: a. increased the financing available for mortgage lending and thus contributed to rising home prices b. increased the impact of the bursting of the housing bubble because the deleveraging contributed to falling home prices a. This is correct. b. This is correct. are correct. d. Both of the above are correct. _c._ 16. Beginning in 1996, Fannie Mae and Freddie Mac: a. were required to hold an increasing percentage of mortgage loans to lower-income households in their portfolios b. began to relax the standards that mortgages had to meet to be classified as conforming a. HUD required this for Fannie Mae and Freddie Mac. b. To meet the requirement, Fannie and Freddie relaxed the standards for conforming mortgages. are correct. d. Both of the above are correct. _a._ 17. The greater competition in the mortgage market caused by the internet: a. meant that home buyers were no longer limited to borrowing locally b. led to an increase in the average fee on a mortgage loan c. forced all mortgage lenders to adopt stricter standards for their loans a. This is correct. b. The greater competition led to a decrease in the average fee on a mortgage loan. c. The greater competition led to a relaxing of standards. d. Only answer a. is correct. _a._ 18. Subprime mortgages: a. are home loans given to persons who are considered a poor credit risk b. historically, have had a foreclosure rate almost twice as high as prime mortgages c. charge a lower interest rate than conventional mortgages in order to encourage home ownership by lower-income borrowers Instructor s Manual 11-9

10 a. This is correct. b. Subprime mortgages have had a foreclosure rate 10 times as high c. Subprime mortgages charge a higher interest rate to offset the greater risk of default. d. Only answer a. is correct. _b._ 19. The term irrational exuberance was first used by Alan Greenspan as he: a. hinted in 1991 that a little irrational exuberance might help the economy recover from the recession of 1991 b. hinted in 1996 that stock prices might be unduly escalated due to irrational exuberance c. hinted in 1999 that irrational exuberance would carry the economy to continued rapid growth d. described in 1997 how he felt about marrying the much-younger Andrea Mitchell a. See answer b. b. This is the correct answer. c. See answer b. d. See answer b. _b._ 20. If a homeowner could have foreseen the bursting of the housing bubble and had sold their home in 2003: a. they would have been better off than if they had sold their home in 2007, one year after the bubble burst b. they would have been worse off than if they had sold their home in 2007, one year after the bubble burst c. they would have been about as well off as they would have been if they sold their home in 2007, one year after the bubble burst a. See answer b. b. The home price index was higher in 2007 than in c. See answer b. _d._ 21. After Alan Greenspan made his irrational exuberance comment, the Dow Jones Industrial Average: a. fell 2% at the opening of trading the next day b. went into a long-term decline c. increased by another 75% over the next three years d. Both a. and c. above a. This is correct. b. See answer c. c. This is correct. d. Both a. and c. are correct. Instructor s Manual 11-10

11 _b._ 22. When the housing bubble burst and home prices began to fall: a. the increase in foreclosures brought new buyers into the market, helping to slow the fall in home prices b. the increase in foreclosures decreased the value of mortgage-backed securities, making it difficult for investment banks to issue new mortgagebacked securities a. This is correct. b. See answer a. c. Foreclosure rates increased much more for ARMs than for fixed rate mortgages. d. Only answer a. is correct. _b._ 23. The bursting of any housing bubble would be expected to have an impact on the economy because: a. the decrease in home prices would free up more discretionary income leading to an increase in consumption b. the decline in home construction would reduce GDP a. The decrease in home prices would lead to a decrease in consumption due to the wealth effect. b. This is correct. c. Only answer b. is correct. d. Answer b. is correct. _d._ 24. The increased perceived credit risk caused by the bursting of the housing bubble: a. caused the TED spread to increase to a record level of over 10% in October of 2008 b. caused real investment spending to decrease by over 80% from the third quarter of 2007 to the second quarter of 2009 a. The TED spread increased to over 4.5%. b. Real investment spending decreased by 33%. c. Neither of the above is correct. is correct. _a._ 25. In response to the recession caused by the bursting of the housing bubble, the federal government: a. has enacted four economic stimulus plans b. has imposed strict import restrictions to protect domestic jobs c. has created jobs programs employing millions of workers and has deported millions of illegal immigrants Instructor s Manual 11-11

12 a. This is correct. b. This hasn t happened. c. This hasn t happened. d. Only answer a. is correct. _d._ 26. The essential cause of the housing bubble was: a. greed and corruption among investment bankers b. weak oversight by government regulators c. irresponsible borrowing by speculative homebuyers d. irrational exuberance a. See answer d. b. See answer d. c. See answer d. d. This is the correct answer. Problems: 1. Explain how the Fed buying U.S. government securities in the open market will increase the money supply. When the Fed buys U.S. government securities in the open market, bank reserves increase. When banks have excess reserves, they make new loans. This triggers the money creation process, leading to a multiplied expansion of the money supply. 2. List the four causes of the housing bubble. (1) Low mortgage interest rates (2) Low short-term interest rates (3) Relaxed standards for mortgage loans (4) Irrational exuberance 3. List three factors that contributed to the relaxed standards for mortgage loans. (1) Governmental policies aimed at fostering an increase in home-ownership rates, particularly among lower-income households. (2) Greater competition in the mortgage loan market. (3) The irrational exuberance of all parties involved in the mortgage lending process. 4. Explain how the increase in foreclosures after the bursting of the housing bubble led to further increases in foreclosures. The fall in home prices with the bursting of the housing bubble caused an increase in foreclosures. The increase in foreclosures added to the inventory of homes available for sale. This further decreased home prices, putting more homeowners in a negative equity position and leading to more foreclosures. Instructor s Manual 11-12

Chapter 11 The Federal Reserve System and the Housing Bubble and Subsequent Recession

Chapter 11 The Federal Reserve System and the Housing Bubble and Subsequent Recession Chapter 11 The Federal Reserve System and the Housing Bubble and Subsequent Recession The basic economic problem is scarcity Human wants are unlimited Resources are limited The basic goal in dealing with

More information

A Summary of the Primary Causes of the Housing Bubble and the Resulting Credit Crisis: A Non-Technical Paper

A Summary of the Primary Causes of the Housing Bubble and the Resulting Credit Crisis: A Non-Technical Paper The Journal of Business Inquiry 2009, 8, 1, 120-129 http:www.uvu.edu/woodbury/jbi/articles A Summary of the Primary Causes of the Housing Bubble and the Resulting Credit Crisis: A Non-Technical Paper By

More information

MACROECONOMICS I. Class 11. Inflation. May 16 th, 2014

MACROECONOMICS I. Class 11. Inflation. May 16 th, 2014 MACROECONOMICS I Class 11. Inflation May 16 th, 2014 Announcements Final Exam: May 30 th, 10:30 12:30, S6 HW Assignment #4 is due: May 23 rd Project deadline: May 30 th, before exam N!B! Project is an

More information

The banking crisis: The housing bubble and its causes. The financial crisis during was the worst financial crisis since the Great

The banking crisis: The housing bubble and its causes. The financial crisis during was the worst financial crisis since the Great Pham 1 Ngoc Pham (Nathan) Professor Bernstein ECON 1901 November 23, 2015 The 2008-2009 banking crisis: The housing bubble and its causes The financial crisis during 2008-2009 was the worst financial crisis

More information

The Causes of the Financial Crisis and its Consequences

The Causes of the Financial Crisis and its Consequences The Causes of the Financial Crisis and its Consequences Peter J. Wallison June 18, 2010 Presentation to the IPAA, Colorado Springs What Happened Timeline of the Financial Crisis Timeline of Financial

More information

Basic Macroeconomics Chapter 9 Review Questions Solutions

Basic Macroeconomics Chapter 9 Review Questions Solutions Basic Macroeconomics Chapter 9 Review Questions Solutions Multiple Choice Questions 1. By 2006, about of all U.S mortgages were subprimes. A. 10% B. 20% C. 30% D. 25% 2. The mortgage is said to be underwater

More information

Lecture 16: Financial Crisis

Lecture 16: Financial Crisis Lecture 16: Financial Crisis What is a Financial Crisis? A financial crisis occurs when there is a particularly large disruption to information flows in financial markets, with the result that financial

More information

Homeowner Affordability and Stability Plan Fact Sheet

Homeowner Affordability and Stability Plan Fact Sheet Homeowner Affordability and Stability Plan Fact Sheet The deep contraction in the economy and in the housing market has created devastating consequences for homeowners and communities throughout the country.

More information

Lecture 11: How Banks Make Money

Lecture 11: How Banks Make Money Lecture 11: How Banks Make Money October 13, 2016 Prof. Wyatt Brooks THE BASIC TOOLS OF FINANCE 0 Overview Pick up from last time Where does money come from? How does the Fed control it? The Fed lives

More information

Chapter 16 The Federal Reserve and Monetary Policy

Chapter 16 The Federal Reserve and Monetary Policy Chapter 16 The Federal Reserve and Monetary Policy 1. The Federal Reserve System 2. Federal Reserve Functions 3. Monetary Policy Tools 4. Monetary Policy and Macroeconomics Stabilization How effective

More information

13 MONETARY POLICY* Chapter. Key Concepts

13 MONETARY POLICY* Chapter. Key Concepts Chapter 13 MONETARY POLICY* Key Concepts The Federal Reserve System The Federal Reserve System (or the Fed) is the central bank for the United States. A central bank is a bank for banks and a public authority

More information

In 1990, Japan was on track to become the #1 economy

In 1990, Japan was on track to become the #1 economy In 1990, Japan was on track to become the #1 economy Average Real Growth was exceptionally high in postwar period 1950-1970: 8.4% annual per-capita 1970-1990: 3.4% annual per-capita (4.1% unadjusted) Large

More information

Answers to Questions: Chapter 6

Answers to Questions: Chapter 6 Answers to Questions in Textbook 1 Answers to Questions: Chapter 6 1. No definitive conclusion on the government s fiscal policy can be made with the information given in the question because the actual

More information

Private Mortgage Insurance. May 29, 2013

Private Mortgage Insurance. May 29, 2013 Private Mortgage Insurance May 29, 2013 Background Private Mortgage Insurance PMI Basics Pays the lender if the borrower defaults on a mortgage loan Typically required when down payments are below 20%

More information

Historical Context. Prior to Great Depression mortgages were short term 5 years. o Households rolled them over

Historical Context. Prior to Great Depression mortgages were short term 5 years. o Households rolled them over Historical Context Prior to Great Depression mortgages were short term 5 years o Households rolled them over o Worked well if financial markets were calm, Leads to rollover crisis and mass evictions if

More information

Money, Banking, and the Federal Reserve System

Money, Banking, and the Federal Reserve System chapter 14 (30) Money, Banking, and the Federal Reserve System Chapter Objectives Students will learn in this chapter: The various roles money plays and the many forms it takes in the economy. How the

More information

The Federal Reserve and Monetary Policy

The Federal Reserve and Monetary Policy The Federal Reserve and Monetary Policy Part I The Federal Reserve System Banking History: A Central Bank? Debated since 1790 Following the Panic of 1907, Congress decided that a central bank was needed.

More information

Outlook. for theus Dollar

Outlook. for theus Dollar Outlook for theus Dollar The US dollar staged one of its most powerful rallies in August, with the 1 rising nearly 6% 2 that month. The breadth of the rally was also impressive, with the currency rising

More information

Econ 202 Section 4 Final Exam

Econ 202 Section 4 Final Exam Douglas, Fall 2009 December 15, 2009 A: Special Code 00004 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Section 4 Final Exam 1. Oceania buys $40

More information

PRACTICE- Unit 6 AP Economics

PRACTICE- Unit 6 AP Economics PRACTICE- Unit 6 AP Economics Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The term liquid asset means: A. that the asset is used in a barter exchange.

More information

OUTLINE November 8, Review: PPF & AD. How close an output gap? Output Gap & Multiplier 11/8/2016 1:49 PM

OUTLINE November 8, Review: PPF & AD. How close an output gap? Output Gap & Multiplier 11/8/2016 1:49 PM OUTLINE November 8, 2016 Interest Rates & Aggregate Demand Overview of Policy Contractionary and Expansionary Policy Fiscal and Monetary Policy The Financial Crisis of 2007-09 Great Recession PS4 due Mon/Tues

More information

ECO202: PRINCIPLES OF MACROECONOMICS SECOND MIDTERM EXAM SPRING Prof. Bill Even FORM 1. Directions

ECO202: PRINCIPLES OF MACROECONOMICS SECOND MIDTERM EXAM SPRING Prof. Bill Even FORM 1. Directions 1 ECO202: PRINCIPLES OF MACROECONOMICS SECOND MIDTERM EXAM SPRING 2013 Prof. Bill Even FORM 1 Directions 1. Fill in your scantron with your unique id and form number. Doing this properly is worth the equivalent

More information

The U.S. Economic Outlook: The Economy Has Weakened

The U.S. Economic Outlook: The Economy Has Weakened The U.S. Economic Outlook: The Economy Has Weakened Robert J. Shapiro September 30, 2004 Center for American Progress 1333 H Street, 10 th Floor, NW Washington, D.C. 20005 www.americanprogress.org SUMMARY

More information

Chapter 5. Money and the Federal Reserve. These slides supplement the textbook, but should not replace reading the textbook

Chapter 5. Money and the Federal Reserve. These slides supplement the textbook, but should not replace reading the textbook Chapter 5 Money and the Federal Reserve These slides supplement the textbook, but should not replace reading the textbook 1 What is barter? The practice of trading one good or service for another 2 What

More information

The default rate leapt up because:

The default rate leapt up because: The financial crisis What led up to the crisis? Short-term interest rates were very low, starting as a policy by the federal reserve, and stayed low in 2000-2005 partly due to policy, partly to expanding

More information

Lecture 4: The Aftermath of the Crisis

Lecture 4: The Aftermath of the Crisis Lecture 4: The Aftermath of the Crisis 2 The Fed s Efforts to Restore Financial Stability A financial panic in fall 2008 threatened the stability of the global financial system. In its lender-of-last-resort

More information

Support Under the Homeowner Affordability and Stability Plan: Three Cases

Support Under the Homeowner Affordability and Stability Plan: Three Cases Support Under the Homeowner Affordability and Stability Plan: Three Cases Family A: Access to Refinancing In 2006: Family A took a 30-year fixed rate mortgage of $207,000 on a house worth $260,000 at the

More information

CHAPTER 14 How Banks and Thrifts Create Money

CHAPTER 14 How Banks and Thrifts Create Money CHAPTER 14 How Banks and Thrifts Create Money Topic Question numbers 1. Bank balance sheets 1-9 2. Banks and money creation 10-91 3. Monetary multiplier 92-102 4. Combined topics 103-109 Last Word 110-113

More information

VA Short-Term Fixed Portfolio

VA Short-Term Fixed Portfolio VA Short-Term Fixed Portfolio SHARE CLASS: INSTITUTIONAL CLASS Summary Prospectus February 28, 2016 Before you invest, you may want to review the Portfolio s Prospectus, which contains more information

More information

Econ 20B: Basic Economics II Fall 2013: Jenkins November 13, Exam 2: Version A

Econ 20B: Basic Economics II Fall 2013: Jenkins November 13, Exam 2: Version A Econ 20B: Basic Economics II Name: Fall 2013: Jenkins November 13, 2014 Exam 2: Version A Instructions: Choose the best answer for each question. Mark your answers on this exam and on your scantron sheet.

More information

The Global Financial Crisis: Causes and Solutions

The Global Financial Crisis: Causes and Solutions The Global Financial Crisis: Causes and Solutions Mohammad Ramadhan and Adel Naseeb This paper describes the process that caused the financial credit crisis. It also analyzes the factors that led to the

More information

CNN Student News - Financial Glossary

CNN Student News - Financial Glossary CNN Student News - Financial Glossary Introduction: Use this CNN Student News financial glossary to help students understand concepts about today's U.S. economy that are currently in the news. Personal

More information

2. Which of the three functions of money are commonly met by each of the following assets in the U.S. economy?

2. Which of the three functions of money are commonly met by each of the following assets in the U.S. economy? Econ110: Principles of Economics TEST YOUR UNDERSTANDING PART I: Definitions Commodity money Fiat money Liquidity M1 M2 Reserve Requirement Ratio Money Multiplier Aggregate Demand Aggregate Supply Full

More information

ASX Schools Sharemarket Game. Student Lesson: BOOMS & BUSTS THE WALL STREET CRASH OF 1929

ASX Schools Sharemarket Game. Student Lesson: BOOMS & BUSTS THE WALL STREET CRASH OF 1929 Booms & busts Markets tend to move in cycles this means there will be times when the markets are up and the economy is booming, there are plenty of jobs, people are making money, they spend more money

More information

Macroeconomics, 10e, Global Edition (Parkin) Chapter 24 Finance, Saving, and Investment. 1 Financial Institutions and Financial Markets

Macroeconomics, 10e, Global Edition (Parkin) Chapter 24 Finance, Saving, and Investment. 1 Financial Institutions and Financial Markets Macroeconomics, 10e, Global Edition (Parkin) Chapter 24 Finance, Saving, and Investment 1 Financial Institutions and Financial Markets 1) The term "capital," as used in macroeconomics, refers to A) the

More information

Interest Rate Tension

Interest Rate Tension February 2015 U.S. Economic & Housing Market Outlook Interest Rate Tension Summary (page 2)» Long-term interest rates have fallen since last year. While we expect interest rates to rise, the rise should

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The government agency that oversees the banking system and is responsible for the conduct

More information

A DECLINING U.S. BUDGET DEFICIT

A DECLINING U.S. BUDGET DEFICIT A DECLINING U.S. BUDGET DEFICIT Fiscal changes cause record highs and lows ver the last 50 years, federal deficits have widened during and after economic crises. Federal government policies, such as temporary

More information

Money and the Banking System. 1 of 28. Economics: Principles, Applications, and Tools O Sullivan, Sheffrin, Perez 6/e.

Money and the Banking System. 1 of 28. Economics: Principles, Applications, and Tools O Sullivan, Sheffrin, Perez 6/e. 1 of 28 2 of 28 As long as there has been paper money, there have been counterfeiters. P R E P A R E D B Y FERNANDO QUIJANO, YVONN QUIJANO, AND XIAO XUAN XU 3 of 28 1 A P P L Y I N G T H E C O N C E P

More information

Opening Doors For Muslim Families In America

Opening Doors For Muslim Families In America Fe r d de i M a c We Open Doors Opening Doors For Muslim Families In America Saber Salam Vice President, Freddie Mac April 2002 Introduction The dream of homeownership is at the core of American society.

More information

Federal Reserve Monetary Policy

Federal Reserve Monetary Policy Federal Reserve Monetary Policy To prevent recession, earlier this decade the Federal Reserve s monetary policy pushed down the short-term interest rate to just 1%, the lowest level for many decades. Long-term

More information

Financial Market Instruments

Financial Market Instruments appendix to chapter 2 Financial Market Instruments Here we examine the securities (instruments) traded in financial markets. We first focus on the instruments traded in the money market and then turn to

More information

1 of 28. Survey of Economics: Principles, Applications, and Tools O Sullivan, Sheffrin, Perez 4/e.

1 of 28. Survey of Economics: Principles, Applications, and Tools O Sullivan, Sheffrin, Perez 4/e. 1 of 28 2 of 28 As long as there has been paper money, there have been counterfeiters. P R E P A R E D B Y FERNANDO QUIJANO, YVONN QUIJANO, AND XIAO XUAN XU 3 of 28 A P P L Y I N G T H E C O N C E P T

More information

EXECUTIVE OFFICE OF THE PRESIDENT COUNCIL OF ECONOMIC ADVISERS CEA NOTES ON REFINANCING ACTIVITY AND MORTGAGE RATES

EXECUTIVE OFFICE OF THE PRESIDENT COUNCIL OF ECONOMIC ADVISERS CEA NOTES ON REFINANCING ACTIVITY AND MORTGAGE RATES EXECUTIVE OFFICE OF THE PRESIDENT COUNCIL OF ECONOMIC ADVISERS CEA NOTES ON REFINANCING ACTIVITY AND MORTGAGE RATES April 9, 2009 EXECUTIVE OFFICE OF THE PRESIDENT COUNCIL OF ECONOMIC ADVISERS WASHINGTON,

More information

Monetary Policy and the Recent Extraordinary Measures Taken by the Federal Reserve

Monetary Policy and the Recent Extraordinary Measures Taken by the Federal Reserve Monetary Policy and the Recent Extraordinary Measures Taken by the Federal Reserve Testimony before the Committee on Financial Services U.S. House of Representatives John B. Taylor Professor of Economics

More information

Chapter 1. Practice Problems. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Chapter 1. Practice Problems. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Chapter 1 Practice Problems MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Financial markets promote economic efficiency by A) creating inflation.

More information

Housing and Mortgage Market Update

Housing and Mortgage Market Update Housing and Mortgage Market Update Washington Association of Money Managers Washington, DC October 7, 2009 Frank E. Nothaft Chief Economist Housing Near Bottom, but Mortgage Defaults Rising Housing activity

More information

CHAPTER 10: MONEY, BANKS AND THE FEDERAL RESERVE

CHAPTER 10: MONEY, BANKS AND THE FEDERAL RESERVE CHAPTER 10: MONEY, BANKS AND THE FEDERAL RESERVE Learning Goals To know what is money To know how banks create money To know the structure of the Federal Reserve System To know how the Fed controls the

More information

THE FINANCIAL CRISIS: Is This a REPEAT OF THE 80 S FOR AGRICULTURE? Mike Boehlje and Chris Hurt, Department of Agricultural Economics

THE FINANCIAL CRISIS: Is This a REPEAT OF THE 80 S FOR AGRICULTURE? Mike Boehlje and Chris Hurt, Department of Agricultural Economics THE FINANCIAL CRISIS: Is This a REPEAT OF THE 80 S FOR AGRICULTURE? Mike Boehlje and Chris Hurt, Department of Agricultural Economics The current financial crisis in the capital markets combined with recession

More information

Econ 202 Section H01 Midterm 2

Econ 202 Section H01 Midterm 2 , Spring 2010 March 16, 2010 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Section H01 Midterm 2 Multiple Choice. 2.5 points each. 1. What would

More information

Homeownership HOMEOWNERSHIP TRENDS JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY

Homeownership HOMEOWNERSHIP TRENDS JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY 4 Homeownership After years of decline, both homeownership rates and the number of owner households turned down again in 212. Minority homeownership rates fell even further than white rates, widening the

More information

Making Home Affordable Updated Detailed Program Description

Making Home Affordable Updated Detailed Program Description Making Home Affordable Updated Detailed Program Description The deep contraction in the economy and in the housing market has created devastating consequences for homeowners and communities throughout

More information

Macro Chapter 13 study guide questions

Macro Chapter 13 study guide questions Macro Chapter 13 study guide questions Multiple Choice Identify the choice that best completes the statement or answers the question. 1. If the Fed wants to use "open market operations" to decrease the

More information

What three main functions do they have? Reducing transaction costs, reducing financial risk, providing liquidity

What three main functions do they have? Reducing transaction costs, reducing financial risk, providing liquidity Unit 4 Test Review KEY Savings, Investment and the Financial System 1. What is a financial intermediary? Explain how each of the following fulfills that role: Financial Intermediary: Transforms funds into

More information

Write your answers on the exam paper. You are encouraged to write comments on the exam paper as well.

Write your answers on the exam paper. You are encouraged to write comments on the exam paper as well. Econ 353 Money, Banking and Financial Markets Summer 2008 Exam 4 Name ID # Note: Questions 1-19 worth 4 points each; Questions 20-22 each worth 8, 6, 10 points. Write your answers on the exam paper. You

More information

Chapter 13 Money and Banking

Chapter 13 Money and Banking Chapter 13 Money and Banking Multiple Choice Questions Choose the one alternative that best completes the statement or answers the question. 1. The most important function of money is (a) as a store of

More information

The Global Capital Market. Chapter 21

The Global Capital Market. Chapter 21 The Global Capital Market Chapter 21 1. Description of the global capital market 2. Gains from trade and global capital markets 3. International banking 1 Description of the global capital market 1.1 Interconnected

More information

Money & Banking (ECON 310) Final Exam Review Questions

Money & Banking (ECON 310) Final Exam Review Questions Money & Banking (ECON 310) Final Exam Review Questions True/False Questions: Determine whether the statement is true of false. 1. Economists define money as currency in circulation plus reserves. FALSE

More information

Unit 5 AP Macro Financial Sector

Unit 5 AP Macro Financial Sector Name: Date: ID: A Unit 5 AP Macro Financial Sector Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Which of the following is considered investment spending

More information

AP Macroeconomics Monetary Policy

AP Macroeconomics Monetary Policy AP Macroeconomics Monetary Policy 1. Under a fractional reserve banking system, banks are required to a. keep part of their demand deposits as reserves b. expand the money supply when requested by the

More information

Economics EOC Quiz Answer Key Macroeconomic Concepts - (SSEMA1) Economic Activity, (SSEMA2) Federal Reserve, (SSEMA3) Fiscal Policy

Economics EOC Quiz Answer Key Macroeconomic Concepts - (SSEMA1) Economic Activity, (SSEMA2) Federal Reserve, (SSEMA3) Fiscal Policy Economics EOC Quiz Answer Key Macroeconomic Concepts - (SSEMA1) Economic Activity, (SSEMA2) Federal Reserve, (SSEMA3) Fiscal Policy Student Name: Teacher Name: Heather Creamer Date: Score: 1) Inflation

More information

Chapter 29: The Monetary System Principles of Economics, 7 th Edition N. Gregory Mankiw Page 1

Chapter 29: The Monetary System Principles of Economics, 7 th Edition N. Gregory Mankiw Page 1 Page 1 1. Introduction a. This is a fairly descriptive chapter, but it contains some important material for understanding the world that we live in. b. Money is important for facilitating trade. c. Paper

More information

Money, Federal Reserve, Monetary Policy

Money, Federal Reserve, Monetary Policy Money, Federal Reserve, Monetary Policy Previously Fiscal policy is the use of government spending [G] and taxes to influence the economy. Increases in [G] and tax cuts must be paid for by borrowing. Fiscal

More information

Exam II - Econ 252 Online Spring 2013

Exam II - Econ 252 Online Spring 2013 Exam II - Econ 252 Online Spring 2013 1. Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500, consumption equals 7,000, and government purchases equal 3,000. What are private

More information

12/6/2014 Introduction to Macroeconomics (11f14) - Graded Homework - Chapter 13

12/6/2014 Introduction to Macroeconomics (11f14) - Graded Homework - Chapter 13 12/6/2014 Introduction to Macroeconomics (11f14) - Graded Homework - Chapter 13 1. If the growth rate of the money supply in an economy is 5 percent, the growth rate of output is 2 percent, and the velocity

More information

Money Supply. Key point: if banks hold 100% reserves (i.e., make no loans), they do not change the money supply. 1. Who affects the money supply?

Money Supply. Key point: if banks hold 100% reserves (i.e., make no loans), they do not change the money supply. 1. Who affects the money supply? Money Supply 1. Who affects the money supply? 2. 100% reserve banking 3. Fractional reserve banking 4. Money Supply determination and the money multiplier 5. What causes money supply to change? 6. Instruments

More information

The GSEs Are Helping to Stabilize an Unstable Mortgage Market

The GSEs Are Helping to Stabilize an Unstable Mortgage Market Update on the Single-Family Credit Guarantee Business Rick Padilla Director, Corporate Relations & Housing Outreach The Changing Economy: The New Community Lending Environment June 1, 29 The GSEs Are Helping

More information

7) Provisions in loan contracts that prohibit borrowers from engaging in specified risky activities are called

7) Provisions in loan contracts that prohibit borrowers from engaging in specified risky activities are called Homework 3 I. Multiple Choices 1) Which of the following are reported as liabilities on a bank's balance sheet? A) Reserves B) Checkable deposits C) Loans D) Deposits with other banks 2) Which of the following

More information

Objectives MONEY, BANKS, AND THE FEDERAL RESERVE

Objectives MONEY, BANKS, AND THE FEDERAL RESERVE 10 MONEY, BANKS, AND CHAPTER THE FEDERAL RESERVE Objectives After studying this chapter, you will able to Define money and describe its functions Explain the economic functions of banks and other depository

More information

ISSUES OF OUR TIMES INFLATION AND DEFLATION. Mark G. Dotzour. Chief Economist. Gerald Klassen. Research Analyst REPORT1946 AT TEXAS A&M UNIVERSITY

ISSUES OF OUR TIMES INFLATION AND DEFLATION. Mark G. Dotzour. Chief Economist. Gerald Klassen. Research Analyst REPORT1946 AT TEXAS A&M UNIVERSITY ISSUES OF OUR TIMES INFLATION AND DEFLATION Mark G. Dotzour Chief Economist Gerald Klassen Research Analyst REPORT1946 AT TEXAS A&M UNIVERSITY Inflation and Deflation Dr. Mark G. Dotzour Chief Economist

More information

FIRST LOOK AT MACROECONOMICS

FIRST LOOK AT MACROECONOMICS Chapter 4 A FIRST LOOK AT MACROECONOMICS Origins and Issues of Macroeconomics * 1) Modern macroeconomics emerged A) in the 1750s. B) with the Great Depression. C) after World War II. D) during the Industrial

More information

Name: Days/Times Class Meets: Today s Date:

Name: Days/Times Class Meets: Today s Date: Name: _ Days/Times Class Meets: Today s Date: Macroeconomics, Spring 2009, Exam 3, several versions Read these Instructions carefully! You must follow them exactly! I) Answer on your Scantron card, using

More information

THE FEDERAL RESERVE AND MONETARY POLICY Macroeconomics In Context (Goodwin, et al.)

THE FEDERAL RESERVE AND MONETARY POLICY Macroeconomics In Context (Goodwin, et al.) Chapter 12 THE FEDERAL RESERVE AND MONETARY POLICY Macroeconomics In Context (Goodwin, et al.) Chapter Overview In this chapter, you will be introduced to a standard treatment of central banking and monetary

More information

5 Macroeconomics LESSON 1

5 Macroeconomics LESSON 1 5 Macroeconomics LESSON 1 Policy Lags and Crowding-Out Effect Introduction and Description This lesson discusses the lags associated with monetary and fiscal policy making and analyzes the direct and indirect

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Suvey of Macroeconomics, MBA 641 Fall 2006, Final Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Modern macroeconomics emerged from

More information

Monetary Theory and Policy Notes. David L. Kelly. Department of Economics University of Miami Box Coral Gables, FL

Monetary Theory and Policy Notes. David L. Kelly. Department of Economics University of Miami Box Coral Gables, FL Monetary Theory and Policy Notes David L. Kelly Department of Economics University of Miami Box 248126 Coral Gables, FL 33134 dkelly@miami.edu First Version: Fall, 1999 Current Version: Spring 2012 INTRODUCTION

More information

The Financial Crisis : Causes and Consequences

The Financial Crisis : Causes and Consequences The Financial Crisis 2007-2009: Causes and Consequences Eric Sims University of Notre Dame esims1@nd.edu December 4, 2009 Overview Financial Crisis a potentially watershed event What happened? The end

More information

Macro Unit 3 Banks and creation of money and tools of central bank policy

Macro Unit 3 Banks and creation of money and tools of central bank policy Macro Unit 3 Banks and creation of money and tools of central bank policy I. How do banks create money? a. The Fractional Reserve System i. Definition a system where only a portion (or fraction) of checkable

More information

Today buyers are interested in sound market knowledge and understanding off their options.

Today buyers are interested in sound market knowledge and understanding off their options. Introduction From first-time buyers* to move-up buyers waiting the market out! Today s market is diverse. We all witnessed the housing market crisis first hand and some of us where directly affected. Today

More information

Chapter 12: Gross Domestic Product and Growth Section 1

Chapter 12: Gross Domestic Product and Growth Section 1 Chapter 12: Gross Domestic Product and Growth Section 1 Key Terms national income accounting: a system economists use to collect and organize macroeconomic statistics on production, income, investment,

More information

17 Investment. The q theory illustrated by housing investment (Sørensen and Whitta-Jacobsen)

17 Investment. The q theory illustrated by housing investment (Sørensen and Whitta-Jacobsen) 17 Investment The q theory illustrated by housing investment (Sørensen and Whitta-Jacobsen) Asset pricing, consumption and savings, and Tobin s q during the subprime nancial crisis. The housing market,

More information

1. The financial crisis of 2007/2008 and its impact on the UK and other economies

1. The financial crisis of 2007/2008 and its impact on the UK and other economies 1. The financial crisis of 2007/2008 and its impact on the UK and other economies Do you still feel vague about the causes and the effects of the financial crisis of 2007/8? Are you preparing for a job

More information

Mishkin Chapter 9. Financial Crises and the Subprime Meltdown (pp ) Modified/Extended Mishkin Notes

Mishkin Chapter 9. Financial Crises and the Subprime Meltdown (pp ) Modified/Extended Mishkin Notes Mishkin Chapter 9 Financial Crises and the Subprime Meltdown (pp. 193-218) Modified/Extended Mishkin Notes Professor Leigh Tesfatsion Department of Economics Iowa State University Ames, IA 50011-1070 Last

More information

JA Worldwide. Understanding the Financial Crisis: Origin and Impact

JA Worldwide. Understanding the Financial Crisis: Origin and Impact JA Worldwide Understanding the Financial Crisis: Origin and Impact Introduction In 1997, the global economic community suffered a severe downturn spurred by the widespread collapse of the currencies in

More information

The influence of monetary and fiscal policy on aggregate demand. (Chapter 35 in Mankiw and Taylor)

The influence of monetary and fiscal policy on aggregate demand. (Chapter 35 in Mankiw and Taylor) The influence of monetary and fiscal policy on aggregate demand (Chapter 35 in Mankiw and Taylor) Effects of fiscal and monetary policy Already analysed long run effects Seen how fiscal policy affects

More information

In recent years the residential mortgage market in the United

In recent years the residential mortgage market in the United CAN CANADA PROVIDE ANSWERS TO AMERICA S REAL ESTATE MALAISE? Over Time, One Market Held Up, One Didn t By Jonathan Glowacki, Ken Bjurstrom, and Eric Wunder In recent years the residential mortgage market

More information

CHAPTER 8. Why Do Financial Crises Occur and Why Are They So Damaging to the Economy? Copyright 2012 Pearson Prentice Hall. All rights reserved.

CHAPTER 8. Why Do Financial Crises Occur and Why Are They So Damaging to the Economy? Copyright 2012 Pearson Prentice Hall. All rights reserved. CHAPTER 8 Why Do Financial Crises Occur and Why Are They So Damaging to the Economy? Copyright 2012 Pearson Prentice Hall. All rights reserved. Chapter Preview Financial crises are major disruptions in

More information

Explain how borrowing and lending decisions are made and how these decisions interact in the loanable funds market.

Explain how borrowing and lending decisions are made and how these decisions interact in the loanable funds market. Finance, Saving, and Investment Chapter CHAPTER CHECKLIST Describe the financial markets and the key financial institutions. Finance is the lending and borrowing that moves funds from savers to spenders.

More information

FINANCIAL CRISES AND ITS IMPACT ON THE FINANCIAL SYSTEM. Lecturer Oleg Deev oleg@mail.muni.cz

FINANCIAL CRISES AND ITS IMPACT ON THE FINANCIAL SYSTEM. Lecturer Oleg Deev oleg@mail.muni.cz FINANCIAL CRISES AND ITS IMPACT ON THE FINANCIAL SYSTEM Lecturer Oleg Deev oleg@mail.muni.cz Essential readings 1. Geisst, C.R. (2009). Globalization and the US Financial System. US Department of State

More information

The Obama Administration s Efforts To Stabilize The Housing Market and Help American Homeowners

The Obama Administration s Efforts To Stabilize The Housing Market and Help American Homeowners The Obama Administration s Efforts To Stabilize The Housing Market and Help American Homeowners July 2014 U.S. Department of Housing and Urban Development Office of Policy Development and Research U.S

More information

ECONOMICS (20 TH EDITION), McConnell, Brue, and Flynn. Chapter 33 Study Guide

ECONOMICS (20 TH EDITION), McConnell, Brue, and Flynn. Chapter 33 Study Guide ECONOMICS (20 TH EDITION), McConnell, Brue, and Flynn Chapter 33 Study Guide Chapter 32 explained the institutional structure of banking in the United States today, the functions that banks and the other

More information

ECO202: PRINCIPLES OF MACROECONOMICS SECOND MIDTERM EXAM SPRING 2009 Prof. Bill Even FORM 3. Directions

ECO202: PRINCIPLES OF MACROECONOMICS SECOND MIDTERM EXAM SPRING 2009 Prof. Bill Even FORM 3. Directions ECO202: PRINCIPLES OF MACROECONOMICS SECOND MIDTERM EXAM SPRING 2009 Prof. Bill Even FORM 3 Directions 1. Fill in your scantron with your unique id and form number. Doing this properly is worth the equivalent

More information

Saving, Investment, and the Financial System

Saving, Investment, and the Financial System Introduction to Macroeconomics Session 5: Saving, Investment, and the Financial System [Chapter 26] Sebastian Koch Lauder Business School Summer 2016 1 Course Description UPDATED! M & T Chapters covered

More information

Genesis of the Crisis

Genesis of the Crisis THE ROLE OF ACCOUNTING IN THE FINANCIAL CRISIS: LESSONS FOR THE FUTURE S.P. Kothari Rebecca Lester MIT Sloan School of Management London School of Economics June 27, 2011 Genesis of the Crisis Unusually

More information

4. The minimum amount of owners' equity in a bank mandated by regulators is called a requirement. A) reserve B) margin C) liquidity D) capital

4. The minimum amount of owners' equity in a bank mandated by regulators is called a requirement. A) reserve B) margin C) liquidity D) capital Chapter 4 - Sample Questions 1. Quantitative easing is most closely akin to: A) discount lending. B) open-market operations. C) fractional-reserve banking. D) capital requirements. 2. Money market mutual

More information

Mortgage Market Update

Mortgage Market Update Mortgage Market Update 2010 International Builders Show Las Vegas, NV January 19, 2010 Frank E. Nothaft Chief Economist Mortgage Rates Low, But Defaults Rising; Loan Modifications Will Help Reduce Overall

More information

GOVT. IN THE ECONOMY PRACTICE QUIZ

GOVT. IN THE ECONOMY PRACTICE QUIZ TRUE/FALSE GOVT. IN THE ECONOMY PRACTICE QUIZ 1. To be a successful medium of exchange, money must exist in an unlimited supply. 2. Fiat money has no inherent worth. 3. Gross Domestic Product is an index

More information

Midterm Exam 2. Version B

Midterm Exam 2. Version B Midterm Exam 2 Econ 2020-010 Spring 2010 Date: March 12 Instructor: Soojae Moon Version B Instruction: On the scantron, fill out your name (both the bubbles and the write-in portion) and place your recitation

More information

Econ 202 Final Exam. Douglas, Spring 2010 May 6, 2010 PLEDGE: I have neither given nor received unauthorized help on this exam.

Econ 202 Final Exam. Douglas, Spring 2010 May 6, 2010 PLEDGE: I have neither given nor received unauthorized help on this exam. , Spring 2010 May 6, 2010 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Final Exam Multiple Choice. 2 points each. 1. According to the long-run

More information

The Cost of the Financial Crisis: The Impact of the September 2008 Economic Collapse Phillip Swagel 1

The Cost of the Financial Crisis: The Impact of the September 2008 Economic Collapse Phillip Swagel 1 Introduction The : The Impact of the September 2008 Economic Collapse Phillip Swagel 1 The United States pulled back from a financial market meltdown and economic collapse in late 2008 and early 2009 but

More information