1. Describe how the Federal Reserve can use its authority to attempt to stimulate the economy. 2. One of the major problems that led to the financial crisis was the ‘’ housing bubble.’’ What is meant by this term.3. Name and explain two of the reasons the congressional committee identified for the recent financial crisis. rafing) for MBS products, assuring investors of their value.crisis in the United States?and Poor's continued to provide AAA ratings (the higheston about what has happened to banking in the United States andaround the world since the banking crisis. What role did the Fed play in ending the3. Search for information about what banking regulation changes the current presidentand Congress have proposed or passed. Do you think these changes will help or nurtthe prevention of the problems that caused the 2008 crisis?McGrawHillconnectThe Financial CrisisVIDEO CASELooking back a few years ago in 2011, millions had losthomes, businesses had failed, foreclosures were at an all-time record high, and unemployment remained very highat 9 percent. These outcomes were due, in large part, to theIn 2007, the housing bubble burst, with housing pricestumbling and the value of MBS products falling, in somecases, to worthless status. Many people found themselves"underwater," meaning that they owed more on theirhouses than they were worth. These folks and many whohad subprime mortgages defaulted on their obligations. Asthe MBS declined in value, investment banks and otherfinancial firms began to fail, as their debt was higher thanthe value of their assets.financial crisis of 2006-2010.In the year 2000, the tech stock bubble burst, whichsent markets plummeting around the globe. Around thesame time, ethics violations surfaced for major companiesincluding Enron, WorldCom, Global Crossing, and Tyco.With the economy in a slump, the government wanted tostimulate consumer spending and business investment. Todo this, the Federal Reserve lowered the prime interest ratefrom 6.5 percent to 1 percent. This ease of credit mademortgages, credit cards, and other consumer loans easyto get. In fact, the average household debt to disposableincome in 2007 was 127 percent.The US. Congress, through the 2010 financial crisis help stimulate the economy, help businesses borrow andThis financial crisis had global consequences. Thefailure of very large (or "too big to fail") investment bankscould not be allowed to stand; thus, the federal governmentintervened with a $700 billion bailout for banks called theTroubled Asset Relief Program (TARP), designed to bailout troubled banks and prevent further failures. In 2009,the president signed an $800 billion stimulus designed toinvestigating committee, determined that the crisis wasavoidable. Some of the factors identified as leading to theorisis included the proliferation of subprime mortgages that, represents the largest economic failure since the Greatinvest, and as a result, create jobs.The global crisis of confidence described in the videoin the period between 2004 and 2006, comprised about20 percent of all mortgages. This was a twofold increase insubprime loans.The SEC lowered the leverage requirements for invest-Depression of the 1930s. The long-term effects of the finan-cial crisis are yet to be completely determined.THINKING IT OVER1. Describe how the Federal Reserve can use its authorityto attempt to stimulate the economy.ment banks, leading banks to borrow significantly morethan they had in reserves. During this period of time,mortgage-backed securities (MBSS) were bundled and soldto investors. These MBS products included subprime mort-Bages, as well. During this same period of time, the major2. One of the major problems that led to the financialcrisis was the "housing bubble." What is meant by thisterm?3. Name and explain two of the reasons the congressionalcommittee identified for the recent financial crisis.NOTESStartunsurHow did itconomy in generalons of economicnal Monetaryend moneyprepared

1. The Federal Reserve System exercises its authority to stimulate the economy with employment and…

Answered: 1. Describe how the Federal Reserve can…

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Chapter1: Making Economics Decisions

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