Worksheet 7 - Answer Key

Worksheet 7 - Answer Key - Introduction to Macroeconomics...

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Introduction to Macroeconomics Econ 104a,c,d,e,f, - Spring 2010 Ansswer Key Worksheet 7 – Deregulation, Current Monetary Policy, Aggregate Demand and Aggregate Supply 1. What were ways the Great Depression and bank failures changed the way we treated banks in the 1930’s? (What was the reason for bank regulation?) Bank failures of the Great Depression, and the disastrous impact they had on the economy, led to the formation of the FDIC (Federal Insurance for consumers) as well as changed the way banks, which are private firms, were treated by the government. Bank regulation specifically the Glass-Steagall act, was a way to make sure banks made decisions that were in the best interest of the economy. 2. What were some of the ways banks were deregulated starting in the 1980’s? As part of a theoretical belief that regulation of private markets, including financial markets, had gone too far and made these markets, specifically banks, less efficient than they should be, a move was made to begin deregulation of banks, from 1980 to 1999, which basically removed Glass-Steagall. There was also a change in the way banks and financial services were treated by the government in practice, allowing them to more unofficial undertake more risk and have less oversight from the government regulators at the FED and the SEC. 3. What was the argument for bank deregulation? The argument was basically that markets and private firms are the most efficient way to produce most everything, including banking and financial services. Banks should be allowed to make decisions, and take more risks if they deem it profitable and this efficient. Some of the deregulation was official, other forms were more hands-off in terms of oversight they could actually do if they wanted, but they didn’t want to. 4. What have been the results of bank deregulation? (Talk about the financial crisis of 2008 and the Great
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Worksheet 7 - Answer Key - Introduction to Macroeconomics...

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