Financial Crisis, Evolution of MacroEconomics, Controversies Flashcards
Role in the Financial Crisis and great recession, and definition: Easy Money Policies
acquiring money easily by a monetary policy that increases the money supply by lowering interest rates, results allow banks and lenders to loan money increasing economic growth
Role in the Financial Crisis and great recession, and definition: Deregulation (laissez-faire)
(process of removing or reducing state regulations)
o Laws had been changed due to the fact that is could not keep pace with financial innovation contributing to the crisis.
Role in the Financial Crisis and great recession, and definition: Leverage
(any technique to multiply gains or losses)
o Excessive leverage risky investments that were hard to detect
Role in the Financial Crisis and great recession, and definition: De-Leveraging
o Attempt to de-leverage to get out of debt simultaneously declining the assets
Role in the Financial Crisis and great recession, and definition: Securitization
(taking an illiquid asset and making it a security)
o Almost shut down during the crisis
Role in the Financial Crisis and great recession, and definition: Financial Engineering
o Creates solutions not always the best
Role in the Financial Crisis and great recession, and definition: Derivatives
(contracts)
o Risky could benefit might not depends
Role in the Financial Crisis and great recession, and definition: Shadow Banking systems
o Some define this as the cause of the crisis, long term investments
Role in the Financial Crisis and great recession, and definition: Fiscal Policy
(gov tax and spending to influence economy)
o Used to lessen shock to the economy
o Tried to increase agg D
o Reduced unemployment and raised GDP
Role in the Financial Crisis and great recession, and definition: Monetary Policy
(money supply grows to fast rate of inflation will increase, money supply grows to slow economic growth may slow)
o Used to lessen shock to the economy
o Provided liquidity and finance (capital), expanded money supply
o Most powerful
Role in the Financial Crisis and great recession, and definition: Runs on shadow banks
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Identify: Classical Macro
o Depicts agg supply as a vertical line at full employment
o Does not accurately describe economic behavior
o Supply creates its own demand (says law)
o Full employment operating at full potential
Identify: Keynesian Macro
o Agg demand were to increase the would be an increase in GDP without seeing any inflation
o Horizontal agg supply line
o Short run problems
o Low level GDP and lots of unused resources
Identify: Neo-Classical Macro
o Development of what Keynes meant
o Integration of Keynes and classical economists
o SR Keynes
o LR Classical
Identify: Monetarism
o Monetarists vs. Fiscalists
o Phillips curve debate grows
o Steady money growth rule
