fed challenge note card

fed challenge note card - skyrocketed and then crashed....

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Recently there has been a shock to our economy 1. the decrease in demand for housing 2. just like in the 2001 recession, we saw: a. a decline in the stock market from the dot.com bust b. we saw unemployment raise from 4.9% to 6.3% i. the government reacted with 2 major tax cuts in 2001 and 2003 ii. the Fed cooperated with the fiscal policy and pursued expansionary monetary policy to shift the LM curve to the right. The expansionary monetary and fiscal policies had their intended effects and economic growth picked up in the second half of 2003 and throughout 2004. The expansionary fiscal and monetary policy minimized the departure of the economy from potential. This is exactly what we need to do now with the collapse of the RE market. c. this will result in decreased Consumption and decreased GDP i. this is the latest Economist, our GDP grew but .6%. even Hungary beat us at .8% ii. japan’s GDP growth rate was 1.3% before it experienced a long economic downturn 1. like the US, Japan’s stock market and land prices had
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Unformatted text preview: skyrocketed and then crashed. Just like the US, Japans banks had issued many loans backed by stock and land and when the value of this collateral fell, borrowers defaulted on their loans. This reduced the banks ability to make new loans creating a credit crunch that made it harder for firms to finance investment projects. We are currently at the tipping point Japan was at. If we dont take action and lower the interest rate, the US could end up like Japan did in the 90s. d. this level of decline has not been seen in the past decade and it could be the beginning of the first large drop on a rollercoaster ride in our economy i. these fluctuations are normal in our economy and inevitable, but ii. with the right economic policy, in this case, the lowering of interest rates, we can hope to smooth out the fluctuation of GDP below potential and prevent a larger than necessary drop. But this will only work if we act quickly and decisively. iii. 1205 oak ave. davis....
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This note was uploaded on 04/11/2009 for the course ECON 101 taught by Professor Miyanishi during the Spring '08 term at UC Davis.

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