Financial Crisis, Evolution of MacroEconomics, Controversies Flashcards
What was the role of Easy Money Polices in the financial crisis and great recession?
(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)
What was the role of Deregulation in the financial crisis and great recession?
(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.
What was the role of Leverage in the financial crisis and great recession?
(any technique to multiply gains or losses)
o Excessive leverage risky investments that were hard to detect
What was the role of De-Leveraging in the financial crisis and great recession?
o Attempt to de-leverage to get out of debt simultaneously declining the assets
What was the role of Securitization in the financial crisis and great recession?
(taking an illiquid asset and making it a security)
o Almost shut down during the crisis
What was the role of Financial Engineering in the financial crisis and great recession?
o Creates solutions not always the best
What was the role of Derivatives in the financial crisis and great recession?
(contracts)
o Risky could benefit might not depends
What was the role of Shadow Bank Systems in the financial crisis and great recession?
o Some define this as the cause of the crisis, long term investments
What was the role of Run on shadow bank in the financial crisis and great recession?
Look up
What was the role of Fiscal Policy in the financial crisis and great recession?
(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
What was the role of Monetary Policy in the financial crisis and great recession?
(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
Indentify: 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
Indentify: 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
Indentify: New-Classical Synthesis
o Development of what Keynes meant
o Integration of Keynes and classical economists
o SR Keynes
o LR Classical
Indentify: Monetarism
o Monetarists vs. Fiscalists
o Phillips curve debate grows
o Steady money growth rule
Indentify: New Classical Macro
o Economy self adjust to get to full employment level
o Sticky wages
Indentify: New Keynesian Macro
o Fed sets interest rates
o Given output thus unemployment (okun’s law)
o New Keynesian Phillips curve determines inflation
Indentify: Supply-Side economics
o Focused on incentives (tax cuts, ect.)
o Shifts the SR agg supply curve rather than agg demand
Indentify: Real business cycle theory
o Real tech shocks to agg supply and economist adjust to these shocks
o Used by new classical and new Keynes economists
What was Tulip Mania? The South Seas bubble?
- In 1637 in the Netherlands Tulip prices rose over 10x annual incomes then collapsed
- In 1720 The South Seas bubble stock speculation very poplar then the realization the shares did not reflect the actual value of the company.
What is a speculative bubble?
- Rapid increase in an assets price not justified by economic fundamentals
- Exaggerates expectations of future growth
