Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 18, Problem 8QP
To determine
Explain how the bailouts are referred to “double-edged sword”.
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- The demanders of funds participate in the financial market to earn profit. *True or False??arrow_forwardWhy has the government pumped billions into bank bailouts to prevent them from collapsing?arrow_forwardWould the interest rate increase be more likely to hurt or help the financial institution’s profitability?arrow_forward
- Considering all the bailout money the public has been made responsible for, is the existence of banks and non-bank financial institutions worth it, or would it have been cheaper to the public to simply keep all our money under our mattresses?arrow_forwardThere is a growing concern among tax payers that ‘too big to fail’ (TBTF) creates moral hazard problems and leads to excessive risk-taking and reckless investment decisions by large financial institutions. This unfortunately exposes the tax payer and the economic system to excessive cost. What are the issues surrounding “too big to fail”? Is it possible for the legislative authority to simply “outlaw” TBTF institutions? Why or why not?arrow_forward“Fat finger” trades are sometimes blamed as the cause of “flash crashes” in financial markets. What do we mean by “flash crashes” and “fat finger trades”? What are other potential causes of flash crashes?arrow_forward
- How a decline in housing prices can trigger the subprime financial crisis in advanced economics? Explain in detail.arrow_forwardList any six categories of factors that could cause a financial crisis.arrow_forwardInvestment projects can be viewed as analogous to bank loans. True or false?arrow_forward
- During the 2007-2009 period, the US government made its most dramatic interventions in financial markets since the 1930s. It has been argued that the current crisis could redraw the boundaries between government and markets. For some, “freer and more flexible markets will still do more for the world economy than the heavy hand of government” whereas for others “big banking crises are ultimately solved by early and decisive government action and financial regulation.” Evaluate these positions.arrow_forwardIn 2008 there was an increase in uncertainty about the quality of structured financial products that were backed by mortgages (MBS - mortgaged backed securities). So that the market for these securities dried up (became less liquid). What policies the government could do to jump start (improve liquidity of) the marketarrow_forwardDo you think that the Fed should have bailed out large financial institutions during the credit crisis? Should the Fed or Congress decide the fate of large financial institutions that are near bankruptcy?arrow_forward
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