Question

A – Using the IS-LM curves explain in detail and show a) how and why the drop in housing prices caused a major financial crisis in 2008, then how the 2008 financial crisis transformed into a major economic crisis and crashed the economy. b) What would have happened if FED employed a set of monetary policies opposite of those we saw during the recession. Discuss their impact on the economy, output, interest rates, and consumption and investment expenditures. c) What would have happened if the government employed a set of fiscal policies opposite of what the government did during the recession. Discuss their impact on the economy, output, interest rates, and consumption and investment expenditures. Begin with an IS-LM diagram showing the situation of the economy prior to the crisis in 2008, then add new curves for each questions (a, b, and c). Be specific in explaining the monetary and fiscal policies asked in the questions which are opposite of those introduced by the FED and government between 2008-2010 (TARP, American Recovery and Reinvestment Ac)t.

Answer 1